House prices in Canada

2017-06-26

in Canada, Economics, Law, Politics

Many journalistic sources have been commenting on the possibility that house prices in Canada have risen at unsustainable rates. Recently, The Economist printed:

Household debt has climbed to almost 170% of post-tax income. House prices rose by 20% in the year to April. Looked at relative to rents, they have deviated from their long-run average by more than any other big country The Economist covers in its global house-price index. In Toronto, one of two cities, along with Vancouver, where the boom has been concentrated, rental yields are barely above the cost of borrowing, even though interest rates are at record lows. In its twice-yearly health-check on the financial system, published this month, the Bank of Canada concluded that “extrapolative expectations” are a feature of the market. In other words, people are buying because they hope, or fear, that prices will keep rising.

They also note that house price inflation in Toronto is above 30%.

To me, a lot of this coverage seems to miss the link between house price inflation and global wealth inequality. People who own valuable assets have, in many cases, seen their wealth rise rapidly, while those reliant on wages have seen it stagnate or fall.

I think governments ought to be thinking much more seriously about policy mechanisms to curb inequality, including wealth taxes and guaranteed minimum incomes. This is both because much of the accumulation of wealth by the wealthy has been undeserved and because inequality distorts politics and social relations, making it harder to confront other problems.

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{ 4 comments… read them below or add one }

. June 28, 2017 at 10:26 pm
. July 22, 2017 at 9:07 pm

Who owns the property?

One factor that you did not mention in your report on Canada’s attempt to curb its booming house prices is the influence of illicit money on the housing market (“Maple grief”, June 17th). Canada has become such an attractive destination for money launderers and tax dodgers that they have a unique term for their practices: “snow washing”. Transparency International Canada has found that in Vancouver, Canada’s most overheated market, nearly half of the luxury properties we surveyed were owned through opaque structures such as shell companies, trusts or nominees. Making property ownership more transparent would discourage the flow of laundered money from abroad into Canadian property, and would deter the use of local nominees and shell companies to circumvent the foreign-ownership tax and other efforts to curb speculation.

Though Canada has made lofty pledges at the G20 and other forums to improve ownership transparency, so far it has done little to keep step with the likes of Britain and the EU, which are making commendable progress towards publicly accessible registers of beneficial owners.

JAMES COHEN
Interim executive director
Transparency International Canada
Toronto

. August 7, 2017 at 6:49 pm

Toronto Housing Bubble Pops. “Genuine Fear” of Price Collapse

Sales volume crashes, prices plunge from April peak.

In the Greater Toronto Area, sales of homes of all types in July plunged 40.4% compared to July last year to 5,921 transactions. By type:

Detached houses -47.4%
Semi-detached houses -38.6%
Townhouses -36.5%:
Condos -30.5%.

At the same time, as sales volume was plunging and potential buyers were staying away in droves, the number of new listings rose 5.1%, according to the Toronto Real Estate Board. This left total active listings 65% above the level a year ago.

. September 24, 2017 at 9:39 pm

Income and geographic distribution of low-income renters in Toronto

The table confirms that renter incomes are about half those of owners and that most average income gains over the 1996-2006 period accrued to owners.

Figure 4 presents LIM rents as a percent of household income for 1996 and 2006, graphed against CT average household income, in constant 2006 dollars. Other renters (not shown) paid a relatively steady average of about 19% of their income of rent for 1996 and 2006, suggesting these households geographically sort themselves by average CT income. On the other hand, LIM renters are generally struggling with rent, paying an average of about 57% of their income in 1996 and about 55% in 2006. This modest decrease is due to average real incomes increasing more (9%) than average rent (5%) from 1996 to 2006.

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