THE Canadian housing market is "overheating" and policymakers need to take steps to cool it down, according to an economist at Royal Bank of Canada, the country's largest bank and biggest mortgage lender.
"Demand is exceedingly strong, inventories are generally low, and property values have soared to levels far outside historical norms," Robert Hogue, an economist at RBC, wrote in a research note published on Wednesday. "Making matters worse: buyers and sellers expect prices to continue to escalate."
Mr Hogue is the latest to add his voice to a chorus arguing that the frenetic housing market, which has pushed home prices to record levels, is getting out of hand.
While policymakers have maintained that the combination of low interest rates and demand for larger properties fuelled by the pandemic are driving the market, they've also indicated they're watching closely for signs that speculation is starting to takeover.
Mr Hogue argues for action now to head off the possibility of a painful correction down the road and to stop surging real estate valuations from making the widening gulf between rich and poor any worse.
With the Bank of Canada likely to keep interest rates low to support the broader economy, Mr Hogue says responsibility to rein in the housing market could fall to local officials at the municipal and provincial level who have the most power to increase housing supply through permitting and zoning processes.
He also said the federal government under Prime Minister Justin Trudeau should reexamine the supports it gives to home-ownership, from national mortgage-lending rules to tax incentives for investors in residential real estate. In addition, he suggested ending the long-standing tax exempt status of capital gains on a person's principal residence.
"This support was largely designed during times when interest rates were much higher, and in some cases to counter the effect of high rates," Mr Hogue said.
"With the Bank of Canada committed to keeping interest rates low for an extended period of time, we believe policy support for home ownership needs to be recalibrated." BLOOMBERG