A 225-page report that involved 18 academics and a full-press push from Canada Mortgage and Housing Corp. (CMHC) staff has come up lame in suggestions on how to tamper high house prices in major Canadian cities.
When asked what findings surprised him in what CMHC is billing as the “the most thorough examination of house price patterns ever completed in Canada,” report author and CMHC deputy chief economist Aled ab Iorwerth said it was the clear correlation between rising incomes and higher home prices.
Examining Escalating House Prices in Large Canadian Metropolitan Centres, released February 7, showed disposable income in Vancouver increased 36.2% from 2010 to 2016 while it increased 19.2% in Toronto, the highest in Canada. Average housing prices increased 48% and 40%, respectively, in the two cities, also the highest in Canada.
“Local wealth proved an important factor in the home price increases,” ab Iorweth said.
He added that the wealthier cities also tend to attract more immigrants, which places higher demand on the housing supply.
B.C. welcomed 203,365 permanent residents in the six-year period of the study, while Ontario took in 546,620. These are the highest immigration flows of any provinces and account for 60% of Canada’s total immigration during the period.
On the foreign-home buyer issue, ab Iorweth said it was not the number of foreign buyers, which he said make up less than 5% of sales in the cities studied, but the “perception that there were a lot of foreign buyers” that helped drive housing prices higher.
The study also pointed to a “low supply response” for increased house prices, especially in Vancouver.
“While it is true that the supply response in Toronto and Vancouver has been significantly weaker than in other Canadian metropolitan areas, we do not fully know why this is the case,” said Evan Siddell, president and CEO of CMHC.
“There continue to be data gaps, and we need to work more closely with jurisdictions at all levels to fully understand what is happening.”
CMHC’s report, however, suggests some measures to boost housing supply, either of which would likely be a hard sell.
One idea floated is “sunset clause” penalties based on length of time an investor held land before it was released for new homes.
In an email exchange with BIV following the report’s release, CMHC spokesman Charles Sauriol said, “ Effectively applied taxes could include taxes based on whether or not a developer completed a proposed project – in effect encouraging more rapid development of land. Holding land vacant generates negative consequences for cities and citizens by delaying the tax revenue associated with land improved with structures and additions to housing supply.”
Another new concept is potential incentives to municipalities who move quicker to facilitate the construction of higher-density housing.
“This is put forward as a useful area to explore to counter NIMBY [not in my backyard] sentiments with financial benefits, rather than a fully designed scheme at this point,” Sauriol explained. “Those benefits might be some form of grants from provincial or federal treasuries to municipalities to reward more intensive land usage and containment of sprawl.”
As ab Iorweth confirmed, CMHC may have to ”dig deeper” to find the real causes – and any potential cure – for escalating house prices in big-city Canada.