Toronto Housing Market May Need Vancouver-Style Cooling, RBC SaysBy and
‘Concerning mix of drivers’ pushing up prices, CEO McKay says
Average Toronto home prices up more than 20% for five months
Toronto may require measures to cool its red-hot housing market similar to moves taken in Vancouver if interest rates don’t increase, said Royal Bank of Canada Chief Executive Officer David McKay.
The head of Canada’s largest lender said Toronto housing is “running hot” and is fueled by a "concerning mix of drivers" that include lack of supply, continued low rates, rising foreign money and speculative activity. Similar circumstances in Vancouver prompted British Columbia’s government last year to impose a 15 percent tax on foreign buyers.
“In the absence of being able to use higher rates to reduce that, I do think we’re going to at some point have to consider similar measures to slow down the housing price growth," McKay said Friday in a telephone interview.
The comments from the bank CEO come as frustration grows over the unaffordability of properties in Canada’s biggest city. The average home price in Toronto jumped 22 percent in January from the previous year, the fifth straight month of gains topping 20 percent. Listings have dropped off, down by half from last year, squeezing prices further.
The CEOs of Canada’s other big banks last year called on the government to increase housing regulation amid skyrocketing prices in Vancouver and Toronto. National Bank of Canada CEO Louis Vachon said that minimum downpayments should return to 10 percent from 5 percent, while Bank of Nova Scotia head Brian Porter suggested his company was pulling back on mortgage lending due to concern about high home prices in those two cities.
Vancouver, once Canada’s fastest-paced home market and now supplanted by Toronto, has seen slowing sales after several regulatory moves. In August, British Columbia added a 15 percent tax to home purchases by non-Canadians after they were found to have bought more than C$1 billion ($760 million) in property in a five-week period. The city of Vancouver in January began taxing empty homes and plans to further regulate short-term rentals.
Since the tax was imposed in Vancouver, monthly transactions in the metro region fell on average by 36 percent compared to a year earlier, according to data from the Real Estate Board of Greater Vancouver. Prices for prized single-family detached homes had been rising in double digits last year. In the past six months, they’ve fallen 6.6 percent to an average C$1.47 million, according to board figures released earlier this month.
These B.C. rules were in addition to federal moves last year that tightened access to mortgage insurance for banks, closed a tax loophole for foreigners, and made mortgage eligibility criteria stricter for even those with a higher down payment. Critics said the moves would only price out first-time homebuyers or force them to shoulder more debt, without addressing the underlying price growth and supply issues.
Meanwhile, Toronto’s housing market continues its hot pace unabated. The Toronto Real Estate Board said this month that buyers should expect continued strong price growth and diminished inventory for the year. The board is expected to release February figures next week.