When it comes to addressing Canada’s rapidly overheating housing market, getting more homes built, especially affordable rentals, is the first recommendation RBC Senior Economist Robert Hogue has for policymakers.
The economist’s recommendation, published this week in a Q&A on the RBC Economics site, comes as there is a growing sense of urgency around acknowledging and addressing the country’s boiling hot market.
Hogue says in the Q&A that Canadians are accustomed to hearing about affordability issues and overheating in Toronto and Vancouver.
“Now, it’s a national concern. In fact, prices are rising fastest in smaller markets like Mission BC, Tillsonburg ON, Sainte-Adèle QC and Moncton NB,” he says.
Policymakers at all levels of government should be paying attention and acting quickly as the current pace of home price gains threatens to destabilize the economy in the future. A home price correction is possible and, according to Hogue, the current situation resembles the overheated market of the 1980s.
First on the economist’s list of policy recommendations? Get more homes built.
Housing supply issues existed before the pandemic swept across the country, so policymakers should look here first to make the changes necessary to increase supply.
Speeding up the new housing approvals process, adjusting municipal zoning to allow for more medium-density housing in urban areas, and increasing the country’s stock of affordable housing are all impactful initiatives that would boost supply, says Hogue.
Removing disincentives to building new rental apartments, or even “tipping the scale in their favour,” would also be desirable.
“The need for more affordable rental options for ordinary Canadians is greater than ever. Most of the supply-side measures we’ve outlined here fall into local authorities’ lap, although higher levels of government have a role to play. However, they aren’t quick fixes,” Hogue says.
The RBC economist has been flagging rental supply issues in large Canadian urban markets for years. In 2019, he called out Toronto for having “the worst rental supply deficit” in the country. He has long advocated for policies that actively incentivize developers to build rentals as a way to boost supply and address this deficit.
Beyond significantly boosting housing supply, Hogue calls on policymakers to consider a broad array of demand-side options, while acknowledging there are “no silver bullets” to resolve the current situation.
He suggests considering options to discourage speculative activity in the housing market and rethinking how government policies reinforce the notion that property values will rise in perpetuity.
Finally, another round of tightening of mortgage-lending rules may be necessary as the federal government’s previous efforts “strengthened the resilience of Canadian households and the financial sector.”
