There has been much discourse recently about government intervention needed to cool the overheated Canadian housing market. However, a joint statement by Christopher Alexander, Chief Strategy Officer and Executive Vice President at RE/MAX of Ontario-Atlantic Canada, and Elton Ash, Regional Executive Vice President at RE/MAX of Western Canada, is calling for governments to be cautious with cooling measures such as policies and taxes that have served as short-term fixes in the past, but have not provided a long-term solution to Canada’s housing affordability crisis. Why do these measures always seem to be the go-to answer?
Furthermore, the pandemic lockdowns have already had a huge impact on the supply of listings available for sale, so we urge our government to carefully consider any new measures that could potentially reduce supply even further.
Why is the Canadian Housing Market So Hot?
Canadian real estate is still reeling from the pent-up housing demand of 2017, when cooling measures such as the foreign buyer tax and the mortgage stress test took effect. These policies caused many homebuyers to move to the sidelines. People waited and in the meantime, saved their money with the hope of buying a home in a few years.
COVID-19 had a similar impact on the market in 2020, with many homebuyers delaying their purchase while saving historically high sums of money. Pent-up demand for housing officially went through the roof.
This demand, coupled with limited supply, is putting a serious strain on the Canadian housing market, which is resulting in rising prices, bidding wars and people being priced out of their cities and towns.
Putting Out the Fire
How can we cool this overheated market, if not through policy or taxation? Here are a few ideas:
- Proposal to add a mandatory condition to every offer, making the purchase is conditional on financing. This would reduce buyer’s remorse, and would help to ensure that people can afford what they are buying.
- Proposal to institute an industry “watchdog” to review transactions where homes are sold well over asking price. This would ensure fair listing prices (not well below market value to create bidding wars). Agents who are found to be contravening these rules would face fines.
- Add more housing supply. This is the real and only solution to Canada’s housing crisis. We need to incentivize more development of affordable, family-sized housing such as three-bedroom condos, and allow for more detached housing beyond our existing urban boundaries. Realistically, we can’t continue to fight urban sprawl while simultaneously expecting housing prices to cool. It’s not feasible. What we’re seeing in the market right now is simple economics – low supply and high demand. We need more homes to meet Canadians’ current needs, while anticipating the housing needs of the 1.2 million people who are expected to immigrate to Canada through 2023, per the government’s 2021-2023 Immigration Levels Plan. Maybe now is the time to consider expanding the boundaries of our developable land.