Soaring house prices in Toronto and Vancouver have prompted Canadian bankers to call on government to take further steps to tame the housing market.
A recent study highlighted the extent of the real estate boom in Canada’s two largest housing markets. Focusing on homes valued at $1m (R14.5m) or more, over 4 100 sales were recorded in Toronto during the first half of 2016, up 35% from year-earlier levels. In the smaller housing market of Vancouver, over 3 100 properties sold for at least $1m in the first half of this year, up 26% from the same period last year.
With a record number of properties selling for at least $1m in both cities, the threshold of what constitutes a luxury home is being debated. It has been suggested that it makes sense to reclassify luxury to mean roughly $3.6m (R51.6m) in the Vancouver region and $1.8m (R25.8) in Greater Toronto – with even higher thresholds in wealthy neighbourhoods within the city limits.
The recent surge in house prices is just the latest, but most dramatic jump in a long-term trend that has turned Vancouver into one of the world’s least affordable cities. With a house price-to-income ratio of 10.8, Vancouver is the world’s third least affordable city – after Hong Kong and Sydney. The city is well ahead of London, which ranks eighth at 8.5.
“over 4 100 sales were recorded in Toronto during the first half of 2016, up 35% from year-earlier levels”
Driving the rise is an unprecedented flood of foreign capital, mainly from China, into the Canadian housing market. Canada has long targeted potential homeowners from Asia. Currently, a five-year, interest-free investment of $800 000, you can effectively buy Canadian citizenship.
While it does not matter that wealthy people are immigrating to Vancouver, what does matter is that many continue to generate the bulk of the wealth overseas. This wealth is then invested in Canadian real estate, causing house prices to decouple from the local labour market – putting people who earn local wages at a major disadvantage.
Measures implemented by the government earlier this year to cool the housing market have, thus far, had limited impact – prompting bankers, and the OECD, to call for additional measures, amidst growing fears that the housing market is overheating and poses a risk to the financial system.
Proposed measures include gradually raising the required deposit to 10%, up from 5% currently and imposing a temporary luxury tax on foreign buyers.
