Banks calls on government to cool market

Banks calls on government to cool market

Banks calls on government to cool market Desperate times call for desperate measures, according to two big banks.

Both CIBC and TD are arguing the only way to address Toronto’s home affordability issue for the government to implement new housing policies.

“The trajectory of the Greater Toronto Area’s (GTA) housing market is not written in stone. It’s largely a function of policy,” CIBC said in its latest research note. “Policymakers are needed because the GTA is not a normally functioning market. Legislation-driven land constraints suggest that we are in a classic case of market failure, in which the invisible hand will not find the optimal path.”

Toronto’s average home price jumped 27.8% year-over-year in February to $875,983.

And the recent mortgage rule changes will do little to improve affordability in Toronto, according to CIBC, which can only be addressed by region-specific tweaks.

That hot take was shared by TD Bank.

“Home prices across the GTA and surrounding areas appear to be detaching from fundamentals and are simply unsustainable,” TD said in its own report. “This pace cannot last forever, but in the absence of government policy intervention or a sharp movement in interest rates, momentum is likely to keep the Toronto housing party going for at least a few more quarters.”

CIBC, however, took it one step further by suggesting various policy measures that could do the deed of cooling Toronto’s red hot market.

Those include the implementation a foreign buyer tax – the potential policy de jour favoured by many housing pundits – as well as a dedication to improving rental conditions.

In terms of rental stock, CIBC argues purpose-built rentals may be best way forward; though that would require some support from the government.

“For purpose-built developments to really take off and provide the rental solution that the GTA so desperately needs, we will have to see an even larger supply,” CIBC said. “For that, developers will need some incentives from municipalities. From conversations with developers it’s clear to us that expediting the approval process for purpose-built projects can make a significant difference in the final decision.”


Related stories:
Impact of new rules not yet reflected in housing data - TD
Not just TD?

 
7 Comments
  • Chad 2017-03-17 9:41:04 AM
    Its funny that lenders who should be trained economists are so blind. They keep trying to tinker with the demand side of this problem, yet completely ignore the supply side. Find a why to increase supply and make it more affordable. Reduce the building costs, give an incentive to builders if a price is below a certain threshold. Induce the market to become creative. There is a ton class b land that is not developed due to government regulations. Don't add more rules, GET OUT OF THE WAY.. This bubble has been caused by too much regulation on the supply side.
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  • 2017-03-17 10:02:44 AM
    Any addition intervention have to be GTA specific. Other communities outside the GTA have been flat for several years. Supply is the issue in GTA. Address building regulations, not mortgage regulations.
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  • Tim 2017-03-17 10:18:59 AM
    Of course TD and CIBC could just stop lending in those markets ...
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