The federal government should look into adjusting some of its housing policies
The federal government must begin reconsidering some of its well-meaning measures that only end up further inflaming home price growth, according to the Montreal Economic Institute.
While policies like the First Time Home Buyer Incentive – put into place well before the pandemic took hold of the global financial system – helped improve housing access for a significant proportion of Canadians, the feverish price growth that continues to this day has “very tangible consequences for the middle class.”
“Even though the intention was good, this just pushes prices higher and makes buying more and more difficult,” said Olivier Rancourt, economist at the MEI. “In Vancouver, the average price of a house is now $1.7 million, and it’s over a million dollars in Toronto. Meanwhile, potential buyers in Montreal are also faced with an overheated sector characterized by bidding wars.”
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The record-low-rate environment, which has been cited by multiple observers as one of the main factors that has encouraged more Canadians to own homes in recent years, had the unintended effect of making consumers more willing to buy higher-priced assets instead.
“We need to remember that interest rates have been at historic lows for more than 10 years now,” Rancourt said. “With municipal governments slowing the construction of new housing and a federal government stimulating prices, there’s nothing surprising about the current situation. But it could well prove untenable, or at least very difficult for the middle class.”
The latest data from the Canadian Real Estate Association showed that in May, average home sales price nationwide grew by 38.4% annually. Meanwhile, the number of newly listed homes fell by 6.4% from April to May, with new listings declining in approximately 70% of all local markets last month.
MEI argued that this trend continues to drive housing prices up, warranting further intervention from policymakers to prevent a runaway chain reaction.
“The first thing to understand is that the supply of new properties is not rising as quickly as the demand. The situation has worsened over the past year as Canadians’ savings grew significantly,” said Miguel Ouellette, director of operations and economist at the MEI.
“One solution would be to build more housing, which means more flexible zoning rules and an end to regulations aiming to impose the construction of social housing in residential towers,” Ouellette suggested, adding that “these measures just drive up the prices of the other units, making them less affordable for the middle class.”
