Various quarters have said that the lack of sufficient information regarding foreign money’s influence on Canada’s most overheated housing markets is stifling an appropriate response to the out-of-control affordability issue, but a recent analysis argued that the current discussion does not address the fundamental reason for the crisis.
“Missing from the [discourse] is any mention of the fundamental flaw in Canada’s regulatory system that allows the debate about Vancouver’s housing market to persist without resolution,” Kevin Carmichael wrote in a breakdown piece for Canadian Business
Carmichael noted that the absence of a regulatory body on the federal level—which has been pointed out by the International Monetary Fund earlier this month—essentially leaves provincial governments on their own to deal with the problem of affordability, which is now starting to spread outward from the leading markets of Vancouver and Toronto.
“It is a national issue: everyone knows who will be called on to clean up the mess if it bursts,” the long-time industry observer warned.
“The banks would feel it and likely would curb lending. CMHC would feel it because it has insured most of the mortgages Vancouverites have used to buy their inflated assets. The only ones who wouldn’t feel it would be the rich Chinese whose goal simply was to collect assets outside the reach of their government,” he added.
But while bodies such as CIBC are already hard at work in devising strategies (such as more taxes) against the more deleterious effects of overseas investment on the country’s real estate markets, Canada is still far behind the game when it comes to dealing with foreign money.
“What is unique about Vancouver’s real-estate bubble is the unwillingness of the authorities to do anything about it. Governments in Australia, New Zealand and the United Kingdom all are trying to slow the rush of international capital into local housing markets.”
The predicament only further highlights the need for a “macroprudential regulator”, Carmichael said.
“Ideally, it would have the power to defuse risks without first having to seek permission from a politician, just as the Bank of Canada sets the benchmark interest rate without input from finance minister,” he explained.
“But if that is too much power for governments to yield, then a neutral body could at least identify threats and offer neutral advice on what to do about them.”