More supply needed to cool housing market

March 30, 2021




Dueling economists are calling for government intervention in Canada’s red-hot housing market with very different ideas of what governments should be doing.
“The housing market is just off the charts … Ottawa has been caught completely off-guard in the magnitude of the housing response to very low financing costs,” wrote Scotiabank’s head of capital markets economics Derek Holt in a March 24 note for clients. He added that the federal government could introduce “macroprudential regulatory measures” in its upcoming budget to rein in the market.
His warning comes the same day Toronto Regional Real Estate Board reported that in February the city’s average home price broke through $1 million as low interest rates continued to fuel activity.
Supply came under pressure over the course of February and active listings slipped by 1 per cent. The eroding inventory drove the average selling price 14.9 per cent higher year-over-year to $1,045,488 by the end of the month.
This lack of supply is a key reason for runaway house prices, and an area where governments could help, argues Robert Hoque, an economist with RBC.
Hoque says policymakers at all three levels of government should step in because an overheated housing market threatens to “destabilize the economy down the road if or when a correction occurs, with possible heavy costs for governments.”
Hoque said policymakers should increase efforts to address the housing supply issues that existed before the pandemic and continued into 2021.
According to Canada Mortgage and Housing Corp., the national trend in housing starts was 242,777 units in February 2021—down 13.5 per cent from 244,963 units in January 2021.
Hoque noted lawmakers could grow Canada’s stock of housing significantly by lightening the regulatory burden for new housing approvals to quicken supply response, adjusting municipal zoning to allow more “missing middle” homes in large urban centres, and removing disincentives to build market rental apartments.