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Bridge Beat

Aug 6, 2019

RBC CEO says housing market is ‘well-balanced.’ That’s only half the story.

On  July 25th , RBC CEO Dave McKay said that housing in Canada is in “well-balanced territory,” as quoted by Bloomberg. It’s a really discordant thing to say on two fronts.

The first is that for a great many Canadians, the housing market does not feel balanced at all. Globe readers learned from Jennifer Keesmaat on Saturday that in most Canadian cities, quoting the Canadian Centre for Policy Alternatives.

But having watched the actual McKay interview, I don’t think he had rental in mind at all. Like the rental market doesn’t even exist. He is referring to the statistics of home ownership demand as compared with ownership supply and believes that these are lining up better now than they were before. I’ll take his word for it.  

Meanwhile, there is a whole world of people, who are not in the ownership market—and may never be, from the current look of things. But they still need to live somewhere. So, when asked about the housing market as a whole, I suggest McKay recognizes the challenges we as Canadians face in housing everyone – and that has to be the objective.

The second is way more specific. There is a clear battle line drawn between the development industry and the federal government over the stress test. In Toronto, that’s been played out between Dave Wilks of BILD (Stress Test = Bad) versus Evan Siddall of CMHC (Stress Test = Good).

In the interview, the RBC lines up 100% behind Siddall and CMHC on this issue.  Once McKay stops talking about the housing market in general, the discussion turns to the Stress Test. The stress test - at its full 200 basis points - is “not arbitrary” but rather  “strong…prudent” policy  and “a strong buffer to make sure we have healthy markets going forward.”

In fact, his defense of the stress test is even stronger than the Bloomberg headline makes it out to be. He never actually says that the “Mortgage Stress Test may be in need of a tweak.” He just says that policies are not static, so over time, the government should review it and tweak it, “but structurally, it’s prudent regulatory policy.” What the viewer comes away with is that the 200 point stress test is the right policy, deliberately and well chosen, but maybe sometime in the future, it should be changed to adapt to changing markets.

Impact on demand for new home buyers? No biggie; some people will just have to save a little longer.  

So, score one for the feds here. If I were running as a Liberal, I’d be pasting the words “strong regulatory policy” into my pamphlets. I were up at BILD, I would be paying the banks a visit. We haven't heard the last of this.



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