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Overheated housing markets may hamper Canada's growth -RBC
[TORONTO] Royal Bank of Canada Chief Executive Officer Dave McKay warned on Thursday that overheating housing markets could inhibit Canada's economic growth, and he urged the federal and provincial governments to work together to address the issue.
Toronto home sales and prices surged in March, an industry report showed on Wednesday, fueling fears of a real estate bubble in Canada's largest city and raising expectations that the province of Ontario would soon act to cool the market.
British Columbia enacted a 15 per cent tax on foreign buyers last year, and some economists have suggested that similar measures may be necessary in Ontario. "Any single solution is unlikely to be successful on its own," Mr McKay said at RBC's annual meeting. "A complex problem like this requires a multi-faceted solution, which addresses supply constraints and speculative forces and is mindful of the rate environment, which can be a moderating force." With even mainstream Canadian economists calling the Toronto market a bubble and Finance Minister Bill Morneau saying national policies are not the best tool to tackle a local problem, the pressure is now on Ontario. "We would welcome any effort by the three levels of government to coordinate their interventions, and to do so reasonably quickly," Mr McKay said.
Owning a home has become "a distant dream" for many Canadians, particularly in Toronto and Vancouver, he said, citing "persistent" supply-and-demand imbalances in those areas as well as low interest rates and speculative activity. "All of these factors are mixing to push prices up to unsustainable levels, stressing household balance sheets and locking many people out of the housing market," he said.
Mr McKay defended the bank's sales practices following media reports that staffers, pressured to meet targets, had opened accounts for consumers without their consent. "The media reports over the last few weeks characterize an environment that is not consistent with our experience, our culture, or our values," he said. "It is not the RBC that I know, that our clients know, or that I have grown up with for nearly three decades." Canada's financial watchdog is investigating sales practices at the country's banks and expects to conclude its probe by the end of the year.
Mr McKay said that of the 2.4 million accounts RBC opened last year, fewer than 0.05 per cent of customers raised concerns about the way theirs were opened.