Commentary: Federal policy responses to speculator-driven growth might prove ineffectual

Conflicting ideas on what’s driving home price growth in Canada abound among observers and think-tanks, but one of the popular culprits—namely, speculators—might prove immune to any federal-level moves to curb their activity.

In a February 21 piece for Bloomberg, veteran markets analyst Theophilos Argitis noted that the lack of any substantial slowdown in price growth despite recent regulatory changes should rule out the influence of supply scarcity or demand-side factors.

“If speculators are the cause of Toronto’s stratospheric home-price gains, it makes it difficult for the federal government to intervene, since its primary tool is mortgage insurance rules that don’t apply as much to investors,” Argitis explained.

“One possibility may be to clamp down on the country’s unregulated private mortgage industry -- so-called shadow banking,” Argitis added.

Restricting foreign investment might also yield results, but so far, the federal government has not demonstrated a willingness to implement such a move.

“In fact, the only place where government steps to rein in prices seems to have worked has been in British Columbia, which introduced a 15 percent tax on foreign buyers in August,” Argitis stated.

“Vancouver home prices are down 3.7 percent over the past six months. Still, that’s a paltry retreat in a market that long ago ceased to be affordable for most Canadians,” the analyst concluded. “The British Columbia experience shows that while stability of the market may be an achievable goal, affordability is a more daunting challenge.”

Data release by the Canadian Real Estate Association (CREA) last week revealed that resale volume in the national housing market has declined by 1.3 per cent month-over-month in January, but average home resale prices in Toronto have seen a significant 22.6 per cent year-over-year upward spike in January—pumping up the national average by 15.0 per cent.

MBN

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