Canada’s housing market is vital to the national economy. To secure its health, all levels of Government must monitor the market and proactively step in when the warning signs become clear. In major cities, strong housing usually means strong employment rates and other signs of prosperity.
Only a few months ago, banks were urging the Federal Government to intervene in Toronto and Vancouver’s housing markets to offset the price increases from earlier in the year.
To stabilize or stimulate the housing market, Governments can implement several action plans or items:
- Offer subsidies to homeowners.
- Work with the Bank of Canada to lower interest rates.
- Raise the amount that someone can deduct from a RRSP to put towards down payment.
- Make renting more attractive through legislation like rent control.
- Create more areas of affordable housing for people of different economic tiers.
These are proven ideas but success is never guaranteed.
Recent Government intervention
To curb defaults and protect borrowers, the Government implemented a stress test, which made it more prohibitive for most people to get a mortgage. Essentially, a borrower had to be able to afford a mortgage at a much higher rate, proving they could withstand an interest rate hike if it were to ever happen.
This was a measure to stabilize the market by creating a barrier to entry.
Pros and Cons
The pros for Government intervention is evident. In some cases, markets can correct themselves over time, but many times, help is needed. They require legislation that puts homeowners first or has the goal of getting citizens into their first home. The Government has the means, resources and motivation to want a strong housing market.
The consequences of Government intervention are that it could benefit lenders more than borrowers or have the interest of builders in mind. Any strategy that doesn’t put homeowners first could negatively impact the market and citizens in the long run.
Above all, the national housing market specifically in Toronto and Vancouver needs to be strong and the Government needs to do what it can to ensure its growth.