The chief executive of Canada’s second-largest bank is urging all three levels of government to work together to solve the challenge of the Toronto area’s skyrocketing house prices – “and to do so reasonably quickly” – one day after federal Finance Minister Bill Morneau called a special meeting with provincial and city leaders to discuss the problem.
Royal Bank of Canada CEO Dave McKay suggested “a whole range of tactics” could be deployed to slow demand and curb speculation in remarks after the bank’s annual meeting on Thursday. But he is not advocating for specific policy changes yet.
Mr. Morneau sent letters to Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory asking for a meeting “at the earliest possible opportunity.” His plea came after it was revealed on Wednesday that prices for detached homes in the GTA surged 33 per cent in March compared with the same month last year. But it is the prospect of longer-term damage to the city’s economic health that has Mr. McKay calling for swift action.
“The real risk … is the long-term drag that has on the rest of the economy as so much of a person’s net worth and cash flow goes into servicing their home,” said Mr. McKay, who also told reporters he is encouraged by Mr. Morneau’s call for a meeting.
In a speech at the RBC’s annual meeting on Thursday in Toronto, Mr. McKay said: “We would welcome any effort by the three-levels of government to co-ordinate their interventions, and to do so reasonably quickly.”
Mr. Morneau did not directly address the GTA’s spiralling housing prices in his recent federal budget, but he committed billions to both social and new affordable housing in Toronto and across the county. In his letters to Mr. Sousa and Mr. Tory, he lays out measures Ottawa has already taken in attempt to cool the red-hot market, among them modified mortgage-insurance rules and tax changes.
“I believe we must take a closer look at these evolving market conditions and take stock of its implications for our largest urban area,” the federal minister writes.
Senior officials from all three levels of government have been participating in a working group on the Toronto and Vancouver housing markets, while governments scramble to collect more data and figure out what to do. In recent weeks, bank economists and other observers have increased warnings suggesting that GTA real estate is a bubble waiting to burst.
Mr. McKay stopped short of describing the surging Toronto market as a bubble, but told his bank’s shareholders an “unhealthy combination of factors” – the imbalance between low supply and strong demand, persistently low interest rates and a rise in “speculative activity” – are the main forces driving prices up so rapidly.
He also suggested one possible way to add supply to the housing market: “We need more land released to be developed, which is a provincial decision.”
Mr. Sousa has said Ontario’s coming budget will contain new measures. He recently suggested a foreign-buyers tax to push overseas speculators out of the market was among several options. And he stressed that no decision had been made. The province was to unveil measures to start collecting the necessary data to measure foreign home purchases this spring.
In a letter to Mr. Morneau, Mr. Sousa accepted the invitation, noting his government “has been increasingly concerned that families and first time home buyers are being priced out of the housing market.”
Mr. Sousa also told reporters on Thursday: “I appreciate his outreach in this very important fact and we need to have it done quickly.”
Mr. Tory recently said his officials are studying the idea of a Vancouver-style vacancy tax on speculators who leave units empty while they wait to cash in on frenzied market-price increases. But no decision has been made on that idea, for which the city would need provincial approval. He said on Wednesday that the market was creating a “desperate situation” for many Torontonians.
“We all take this very seriously, we’ve all been talking about it, and I think we’re going to get together,” Mr. Tory said on Thursday, adding that he hopes to discuss the need for better data, measures to increase supply, and a potential vacant-homes tax. “I don’t want people to lose hope with respect to home ownership.”
In his letters, Mr. Morneau cites recent warnings in a report from the Canada Mortgage and Housing Corporation that “finds strong evidence of problematic conditions in the GTA.” And he appears most concerned about the possible effects on heavily indebted homeowners when interest rates eventually rise: “A combination of low interest rates and rising home prices has encouraged some Canadians to take on high levels of debt to get into the housing market, making them more susceptible to changing economic conditions.”
One federal official, speaking on background, played down expectations of an imminent federal move, noting that federal tools are a “blunt” instrument given that they would apply to the entire country. The official said Mr. Morneau wrote the letter because he felt the need for a meeting about the GTA’s housing market at the political level. More details about the meeting will be released as they are confirmed.
“I’m hoping over the coming months we work through these issues,” RBC’s Mr. McKay said. “I don’t think we want to go through another couple of years of 30-plus-per-cent increases in housing prices when the economy is growing at 2 per cent.”
With a report from Bill Curry in OttawaReport Typo/Error
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