Markets observer’s suggestions on managing Canada’s overheated housing

Governments have unique access to tools that can effectively address the country’s home affordability issues

Markets observer’s suggestions on managing Canada’s overheated housing

Amid the fever-pitch pace of home price growth in Canadian cities, the government is the entity best placed to implement effective responses to the affordability crisis, according to a long-time markets observer.

In a recent contribution for Maclean’s, Joe Castaldo stated that “governments at all levels have tools to address runaway prices and ease conditions for first-time buyers.”

Chief among these possible interventions is restricting access to credit.

“With interest rates so low, financing to buy real estate has been cheap and easy to obtain. The federal government could make it more difficult for housing-mad Canadians by erecting additional hurdles—shortening mortgage amortization periods, raising the five-percent minimum down payment required for buyers who need CMHC insurance, or upping the qualifying rate for a standard five-year fixed mortgage,” Castaldo explained.

“Slowing credit would cut some potential buyers out of the market, and help prevent Canadians from getting overleveraged. By dampening demand, prices could cool, too.”

Levying a tax on vacant residential properties might be helpful as well.

“Slapping a tariff on properties that sit empty is another way to force more supply onto the market and ease price gains,” Castaldo wrote, adding that more markets should follow British Columbia’s lead in this aspect.

“In January, Vancouver implemented Canada’s first such tax. Owners of secondary homes are required to rent them out for at least half the year or face a one-percent charge based on the value of the property. The city estimated last year that as many as 20,000 properties were empty or under-used.”

More importantly, a tax on speculators can prove to be a strong deterrent to one of the most notorious factors contributing to price growth.

“In Toronto, roughly 17 per cent of homes were resold within two years as of March 2016, up from nine per cent a year earlier,” Castalo said, noting that this is “a sign that speculators and flippers are at work and potentially driving up prices.”

“The land transfer tax, for example, could be retooled so that the seller of a property incurs fees. The shorter the duration of ownership, the higher the levy. This measure would apply to a wider range of buyers, not just foreign investors.”

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