Do new housing measures ‘distort the market’? Experts are split

Quebec recently rejected a tax on foreign buyers of real estate, and British Columbia and Ontario should do the same, says Mathieu Bédard, economist at research organization MEI.

Read: It’s here: 15% tax on GTA’s foreign buyers

In an op-ed, Bédard argues that tax changes and measures like rent control won’t help solve the issue of rising home prices. Instead, he writes, they are “the kind of policy that contributes to the problem.”

He adds home prices in cities like Toronto and Vancouver “have been high since long before current worries about foreign buyers.In both places, zoning and land-use policies have been driving up real estate prices for more than 50 years.”

In fact, he says, “When these policies become too restrictive, housing prices skyrocket and the burden falls disproportionately on the poorest, with fewer affordable housing units being built in favour of more luxurious ones,” and this is a trend in Toronto, Vancouver and Montreal.

On the topic of rent control, Bédard argues, “Those who keep the same apartment for a long period of time can benefit from rent control, but for those who move into new apartments just being made available, prices are actually increasing faster than they otherwise would due to the artificially limited supply.”

Read: Here’s how people fund home purchases

He concedes that Montreal “is by no means comparable to that of Toronto or Vancouver” when it comes to hot housing, but also says, “While it’s arguable that foreign buying has had an impact on prices in the Vancouver area, the evidence is far less conclusive in Toronto.”

His recommendation? Rather than “distort the market,” governments should stick to “allow[ing] the price mechanism to work, incentivizing developers to build more when prices go up.” Read the full op-ed.

Bédard’s not alone in his opposition to further government intervention.

At the end of the May, the new CEO of the Canadian Bankers Association, Neil Parmenter, said policy-makers should take time to ensure there are no unintended consequences stemming from efforts to rein in Toronto’s runaway housing prices before introducing further measures.

In his first interview with a Canadian news organization since taking the helm of the association, he noted all of the banks are closely watching the housing market. Further, the CEOs of Canada’s biggest banks have said recently that they are seeing early signs that the Toronto real estate market is slowing down.

Read: Don’t introduce new housing measures: Canadian Bankers Association

But not all stakeholders agree. Take experts like Canadian Mortgage and Housing Corporation chief executive Evan Siddall and groups like the IMF, which hold the opposite view. Siddall gave a recent speech on Canada’s housing strategy and its benefits, while the IMF has urged governments to do more to protect against the risks of a possible correction in Canada’s housing market.

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