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Government should focus on supply-side solutions - economist

by Ephraim Vecina on 17 Aug 2016
Home prices in Canada’s hottest residential real estate markets are rising at a seemingly ever-accelerating pace, leading to widespread concerns about the sustainability of this growth and what solutions would work for this multifaceted problem.
 
The latest data from the National Bank's House Price Index revealed that in Toronto alone, prices have grown by around 3.1 per cent every month, CBC reported.
 
“This sort of thing has to come to an end. And what we need is to seek a way that it comes to a gentle end, one that doesn't take down the economy in the process,” CIBC chief economist Avery Shenfeld wrote in an August 11 research note.
 
Shenfeld stressed the need for governments to focus on the creation and implementation of supply-side solutions, rather than cutting off demand.
 
Among the most viable (and possibly most effective) of these solutions is the introduction of new houses and condo units to augment the existing supply, the economist said.
 
“Then you are actually killing two birds with one stone. You are putting downward pressure on house price inflation but you are creating the economic activity associated with the construction and sale of those additional houses,” Shenfeld stated.
 
“Releasing more land for single family homebuilding, and speeding the approval process for new construction, would [also] be part of that process,” he added.
 
Amid unprecedented growth in the cost of housing that has priced out all but the wealthiest of would-be buyers in Canadian markets, calls for stronger government intervention have intensified over the past few months.
 
In late July, the British Columbia government introduced a punitive 15 per cent tax on foreign home buyers, ostensibly aimed at cooling down the overheated Vancouver market but has instead raised fears of the housing madness spreading to other metropolitan areas nationwide.
 



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