The chief executive of Toronto-Dominion Bank says there are “pockets of overheating” in Canada’s housing markets but cautions against rushing to make policy changes in response to ballooning home prices.
Bharat Masrani says a surge in demand for homes with more space, especially in smaller markets within striking distance of major cities, has combined with ultralow interest rates to compound a persistent supply shortage, driving prices much higher in some parts of the country.
Yet he advises against one of the more drastic proposed solutions: changing a capital gains exemption to introduce taxes on the sale of principal residences.
“I think that’s a difficult one politically,” Mr. Masrani said in an interview after the bank’s annual shareholders meeting Thursday. Most major economies provide some form of tax-exempt status for principal residences, and to change that would be “a major departure.”
Instead, he suggested, policy makers have other tools “that have worked well previously” to cool out-of-control housing markets, citing a stress test on mortgages that was made tougher in 2018. Those underwriting standards are still in force, which is a major reason Mr. Masrani is “not as worried” about the bank’s mortgage portfolio or its clients’ ability to repay their home loans. In the three months ended Jan. 31, TD’s residential mortgage balances increased almost 7-per-cent year over year, but the bank suffered almost no losses on those loans.
“I don’t want to say: Hey, there is no problem. There are pockets there that we need to watch,” Mr. Masrani said. “But do we need to rush in right now to say, ‘Oh my God, we’ve got a major problem’? That would not be my sense.”
Mr. Masrani has been calling for longer-term measures to increase the supply of housing for years. On that front, “instead of improving we are getting worse,” he said.
At the same time, he is urging governments to encourage consumers to spend some of the glut of savings they’ve built up in bank accounts during the pandemic at local businesses. Canada’s banks are sitting on $100-billion more in deposits than they had before the crisis, and Mr. Masrani said we need incentives to ensure that when a wave of renewed spending is unleashed, it doesn’t go solely to housing or tourist destinations abroad.
As one example, he cited a government program in Singapore that gave everyone 18 and older S$100 ($93) vouchers for discounts at local tourism businesses such as hotels, an industry vital to the country’s economy. The same approach could be applied to local shops and restaurants in Canada.
He also suggested governments could fund a sales tax holiday for a few months to encourage people to spend money locally, especially at small businesses. That is an idea that has also been put forward by Royal Bank of Canada CEO Dave McKay as a way to protect businesses that have been hit hardest by lockdown measures.
“I’m sure policy makers are thinking on the same lines as I am,” Mr. Masrani said. “Because with all this pent up-demand, when the pandemic is behind us, if all those monies get spent overseas, that’s not going to be helpful for the local economy.”
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