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Canada’s housing frenzy gets worse by the day.

Dizzying gains – on top of already high prices – are widespread. And not just in Toronto and Vancouver. Prices have spiked from from Moncton to Barrie, and in towns on the outskirts of big cities, from Mission, B.C., to Tillsonburg, Ont. “Canada hasn’t had a market overheating of this scope since the late 1980s,” a Royal Bank economist said last week.

When the last housing wildfire hit, in 2016-17, governments poured water on it. They brought in new taxes on foreign buyers, speculation and empty homes, and new stress-test rules that made it tougher to qualify for a mortgage. That cooled the market, for a year or so.

Today’s main driver of demand is ultralow interest rates. The Bank of Canada is focused, and rightly so, on supporting the economy. It won’t be raising interest rates – and slowing the recovery – to quiet housing demand. The ball is in the Trudeau government’s court. That’s why this page last month called on Finance Minister Chrystia Freeland to signal her readiness to intervene.

Home buyers risk ‘big trouble’ in overzealous bidding

The dangers look worse than four years ago. The percentage of uninsured mortgages with debt far exceeding a person’s income is higher today than it was in 2017. But in response, there has been silence from all levels of government.

There are two sides to the current problematic equation: demand and supply. Right now, the supply of homes for sale is limited. Buyers bid ever higher because sellers think every day they put off selling, their homes will be worth more.

As for demand, it is strong despite temporarily low levels of immigration and economic growth. It suggests the possibility of prices further accelerating in the months ahead.

To moderate demand, and calm the market, there are numerous options – but there is no single answer.

The Liberal government is working on a national tax of 1 per cent for properties owned by non-resident foreigners, and said in last November’s economic update it would implement it this year. It might help, though it doesn’t get at what’s primarily been driving prices in recent months.

What else could Ottawa consider? Minimum down payments could be adjusted higher. The stress test could be further tightened. Programs to advance cheap money to first-time buyers could be pared back. And Ottawa could reduce the money first-time buyers can borrow from their own retirement savings. Those last two programs are popular, but while they are branded as “affordability” measures for young buyers, they contribute to housing-price inflation.

As for the provinces, they can make the system for multiple bids for properties more transparent, to discourage bidding frenzies.

“Policymakers should put everything on the table,” RBC said last week. That includes “sacred cows like the principal residence exemption from capital gains tax.” As this page has pointed out, an earlier Trudeau government considered such a tax in the late 1960s, but decided it was just too unpopular. That the idea is being talked about again speaks to the seriousness of the situation.

Beyond demand, there remains the lack of supply. This is a long-term problem that requires long-term solutions. Decisions made today won’t change the market next month, but they will have an impact over time. Unfortunately, Canadian housing policy has been marked by inaction.

There is a long-standing lack of affordable urban housing and social housing, along with a need for more rental construction. And an important factor in the surge in housing prices is Canadians looking for more living space. But in cities and suburbs, new construction is heavily restricted by decades-old zoning rules. The single-family home still dominates. Young families in Toronto and Vancouver wouldn’t need to move to distant exurbia – driving up prices there – if Canada’s biggest cities allowed more mid-rise buildings with sizable apartments to be built in old neighbourhoods.

This is a time to be bold. Ottawa could even look at ideas such as tying Canada Mortgage and Housing Corp. funding to cities that loosen restrictions on development with the aim of, as fast as possible, building new housing.

In the coming months, the economy is going to gain strength, and the number of new immigrants is going to shoot back up. That means that, not only are today’s housing-price problems unlikely to fix themselves, they may yet get worse. Ottawa has to act, now.

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