Government should focus on supply-side solutions - economist

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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  • by Omer Quenneville 2016-08-17 11:05:05 AM

    To work on the "supply end" would require our government to think from a "reward" system instead of a "punitive" system. They just don't think that way. They should lower the tax to 10% and remove the land transfer tax so "move up" buyers can afford to sell and trade up or down. Right now in Ontario, buyers once into the market, can't afford to move causing the supply to be very low. Its not rocket science. It just requires public to think a bit harder about the people they elect.

  • by MFenn 2016-08-20 12:43:02 AM

    To add to the metaphor "Killing two birds with one stone", it's truly "shooting oneself in the foot" to impose punitive taxation in order to drive away investors and lessen confidence in the property market; this second metaphor can also be applied to the solutions of those who want a freeze on new land being available for property development, because those who loudly complain about the price of property cannot then simultaneously try to buck the law of supply and demand by restricting the amount of new property. Campaigning groups and individuals who rage against the market and against overseas buyers with enough confidence in Canada to invest here, are not being helpful.

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