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Bridge Beat

Apr 1, 2021

Government Intervention Looms as Housing Market Continues to Overheat

CMHC, even without the benefit of the very colourful if not contrarian CEO, Evan Sidall, is now raising the alarm bells that many municipalities in Canada are facing overheated housing markets in Canada such as Toronto, Ottawa and Halifax in addition to a host of other smaller cities including Moncton, Hamilton, Barrie, Ontario and others.*  It is a bit ironic to read this latest report released last week when you compare it to the prognostications of Mr. Sidall less than a year ago.  At that time, he warned that home prices were going to plunge by 15-20% in the next year and that we needed to protect purchasers by being even tougher on the mortgage stress test and other mortgage approvals. 

As everyone knows, the reverse has happened and there has been a flight to single family homes outside of GTA and around the country, resulting in price increases for instance in Barrie and Kitchener of nearly $100,000 in 3 months.  Milton prices have increased apparently more than $200,000 from November numbers. 

Although Toronto condominiums were somewhat negatively impacted by the flight from downtown with price reductions, that market has now stabilized and is increasing.  Low-rise housing in (416) has also been on fire but not perhaps as much as (905), (519) and (613).

Industry experts such as BMO’s Robert Kavcic and RBC’s Robert Hogue, are both suggesting government intervention to cool the marketplace and limit speculation.  Mr. Hogue in particular, suggested that everything should be on the table including “sacred cows” such as taxing capital gains in the sale of principal residences.  Mr. Hogue did recommend easing a range of regulatory burdens that discouraged construction of residential properties.  This is something that the housing industry has strongly advocated.  Work on the supply side and not on the demand side.  He did caution Ottawa to resist temptation to introduce measures to come to the aid of homebuyers which would only fuel the market.

Sadly, the marketplace has the same feel as the market in GTA between August 2016 and April 2017, when weekly price increases at new housing sites were the norm and speculation was rearing its ugly head on low-rise housing.  We all know what happened then.  Although I am one who advocates strongly against government intervention and allowing the marketplace to sort itself out, history may well repeat itself with potentially more stringent foreign buyer tax rules, reduction of capital gain exemptions and a higher stress test.  What will also be driving the market is the influx of returning residents who have dual Hong Kong and Canadian citizenship, looking to return to a democratic society.  That can only put more pressure on the marketplace.

Right now builders, realtors and real estate lawyer are riding the huge wave of activity.  Let us hope that the marketplace takes care of itself before the government does.  Again, a lot of this is COVID-19 pandemic related and it probably behooves the government to ride out the storm as the vaccine works its way through the system and people realize that a 2 hour commute is still not the best way to live if one wants to have attractions and the jobs in Toronto.  Time will tell.

* https://www.theglobeandmail.com/business/article-home-prices-vulnerable-to-correction-in-multiple-canadian-cities-as/

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