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Home prices in Canada have soared over the course of the pandemic. Across the country, a typical home is up 38 per cent to $780,400 from January, 2020, through November, 2021, according to the Canadian Real Estate Association’s home price index, which adjusts for price volatility.Tijana Martin/The Globe and Mail

The House of Commons finance committee has agreed to hold hearings into the causes of high inflation, a move that will keep soaring real estate prices and the rising cost of goods at the top of the political agenda heading into the next sitting of Parliament at the end of the month.

The committee agreed unanimously to call on Finance Minister Chrystia Freeland, Bank of Canada Governor Tiff Macklem and banking regulator Peter Routledge, among others, to testify. The goal is a wide-ranging study into the causes of real estate inflation, rising food prices and supply chain disruptions.

“We have an emergency in this country. And it is that our economy has become a gigantic inflated balloon,” said Conservative finance critic Pierre Poilievre, who put forward the motion for the hearings.

Inflation has emerged as a key political battleground in recent months, as the annual rate of consumer price growth hit two-decade highs, eroding the value of the dollar and eating into wages. The run-up in consumer prices has mingled with long-standing concerns about the cost of living and Canada’s overheated real estate market.

Home prices have soared over the course of the pandemic, with smaller cities and suburbs recording some of the steepest price increases. Across the country, a typical home is up 38 per cent to $780,400 from January, 2020, through November, 2021, according to the Canadian Real Estate Association’s home price index, which adjusts for price volatility.

We’re going to hear a lot more about the financialization of housing this year

Outside of the major cities, places such as the Chilliwack region in British Columbia and the Hamilton area in Ontario are up about 50 per cent over the same time period. Record low mortgage rates made it easier for homebuyers to take on more debt. At the same time, competition continues to grow for houses in the cities and their suburbs as buyers want to live in roomier homes amid the pandemic restrictions.

Both the Bank of Canada and the federal mortgage insurer, Canada Mortgage and Housing Corp., have warned that some regions including Hamilton are overheated. The Office of the Superintendent of Financial Institutions, Canada’s bank regulator, and federal Finance Department have made it slightly harder to qualify for a mortgage from a bank. However, the pace of buying continues to climb after a brief summer lull, and prices continue to accelerate. Demand for housing is not expected to slow down given the higher immigration targets and interest from real estate investors.

One of the biggest challenges in any discussion of housing inflation is that the consumer price index, the main gauge of overall inflation, puts very little weight on real estate prices. Statistics Canada treats owner-occupied homes as assets rather than goods that are consumed, and calculates shelter costs as if the owner was renting to themselves.

Crucially, this leaves out the ballooning size of down payments needed to buy property. It can also lead to counterintuitive dynamics. Interest rate cuts, for example, typically push down the shelter portion of the CPI as monthly mortgage payments decline, even as rate cuts throw jet fuel on real estate prices.

The run-up in housing prices has supercharged the broader debate about inflation, which hit an annual rate of 4.7 per cent in October and November. The strength and persistence of overall inflation caught policy makers by surprise last year. After spending much of 2021 telling people that high inflation would be transitory, Bank of Canada officials were forced to backtrack in the fall and prepare for interest rate hikes.

Mr. Macklem said in December that he’s “not comfortable” with the level of inflation, and that the bank expects to start raising rates in the middle quarters of 2022. Financial markets are pricing five interest rate increases this year, and there is some speculation that the bank could move as early as the Jan. 26 meeting.

In the Wednesday committee meeting, Mr. Poilievre hinted at a line of questioning that Conservative committee members could pursue in the hearings. The rise in home prices as real wages stagnate poses a “metaphysical question,” he said.

“Where is the money coming from? We can all debate the cause of rising house prices; what we can’t debate is that there are real dollars buying these houses. … This money is coming from somewhere,” he said. Mr. Poilievre has been a vocal critic of the Bank of Canada, arguing the central bank’s purchases of government bonds over the first year-and-a-half of the pandemic is the chief cause of inflation.

Meanwhile, the Liberal members of the committee emphasized the need to call on witnesses who could speak to inflation around the world. The government has sought to deflect opposition criticism by pointing out that high inflation is a global phenomenon. The rate of inflation in Organization for Economic Co-operation and Development countries averaged 5.8 per cent in November.

NDP finance critic Daniel Blaikie highlighted the importance of looking at supply chain resilience, and the committee agreed to examine the idea of “repatriating supply chains for strategic goods.”

The committee agreed to hold at least 10 hearings into the issue, beginning next Monday.

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