Speculators’ influence will not be affected by federal policy changes - analyst

by Ephraim Vecina24 Feb 2017
Conflicting ideas on what’s driving the fevered increases in Canadian real estate price abound among observers and think-tanks, but a veteran markets analyst argued that speculators—a popular boogeyman for the inflamed growth—might be immune to any federal-level moves to curb their activity.

In a February 21 piece for Bloomberg, 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 significant results, but so far, the federal government has proven reluctant in implementing such a measure.

“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.

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