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National Bank CEO Louis Vachon speaks to shareholders at the company's annual meeting on April 21, 2017, in Montreal.

Ryan Remiorz/The Canadian Press

National Bank of Canada CEO Louis Vachon said further action may be needed to cool hot housing markets in the next six months, but he urged policy makers and bankers to get a better grasp of the root causes that are driving home prices higher before rushing to change rules.

In an interview after the bank’s annual meeting of shareholders, which was held virtually on Friday, Mr. Vachon said there are “many moving parts” underpinning frenzied bidding and surging housing prices in markets ranging from Vancouver and Toronto to smaller towns across B.C., Ontario, Quebec and the Maritimes.

Policy makers are “fully aware” of the dangers a housing bubble could pose to the economy and social well-being, he said, and they may need to do more to keep one from building. That could include tailored measures such as ending blind bidding on homes for sale, he said. But first, he encouraged officials to conduct large-scale surveys to understand which factors driving prices higher are temporary symptoms of the pandemic, and which are likely to last.

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“I don’t think there’s a single, magic-wand policy that will deal with this situation,” Mr. Vachon said. “So it may have to be a number of different policy adjustments.”

Issues that Mr. Vachon wants to see studied more closely include the impact of parental support. If the “bank of mom and dad” proves to be a major contributor, he said policies designed to curb excessive borrowing may be less effective, as buyers have more capacity to boost down payments. Instead, he said the focus could “pivot from a macroeconomic risk to more social policy,” rooted in housing affordability and access.

“Both of them are important, but they’re not the same problem,” Mr. Vachon said. “So what risk am I dealing with here?”

He also called for studies to gauge whether a generation of baby boomers will resume downsizing from larger homes as pandemic restrictions ease, adding much needed supply to the market, and whether a shift to remote work will permanently make houses in suburban and rural communities outside major cities more attractive.

Recent changes announced by regulators and the federal government are “helpful,” Mr. Vachon said. Canada’s banking regulator plans to make the stress test for uninsured mortgages stricter starting June 1, raising the threshold to qualify for some home loans, though critics have questioned how effective that will be. And the federal government plans to impose a 1-per-cent vacant home tax on foreign owners, while committing an additional $2.5-billion to build affordable housing.

But Mr. Vachon said there should also be public consultations on whether to keep blind bidding, a common practice in real estate that typically prevents buyers competing for a home from knowing what competing bids are offered. Critics say that can lead buyers to make irrationally high bids out of fear of losing a property, while defenders of the practice say it protects privacy and prevents bidders from being unfairly pitted against each other.

“I think it needs to be discussed,” Mr. Vachon said. “My humble view is in my experience, more price transparency in any market is usually a positive, not a negative.”

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The last time regulators stepped in to cool hot housing markets in 2017 and 2018, when prices were soaring in Toronto and Vancouver, housing activity remained much more measured in Montreal, where National Bank has its headquarters. But this time, the same sort of highly competitive situations driven by multiple bids on a single home have “started to pop up in Montreal,” he said. As a result, “people are moving out” and activity is picking up in more “peripheral markets, all the way to Trois-Rivières for instance.”

In Mr. Vachon’s view, Canada is “still pretty far from an excessive bubble, and even further from the bursting of it,” but he added: “Given how important it is, we don’t want to get there.”


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