Toronto may need to consider Vancouver-style measures to address a “dangerous mix” of factors that are fuelling the region’s overheated housing market, the chief executive of Canada’s largest bank warned on Friday.
In an interview, Royal Bank of Canada CEO Dave McKay said he has grown increasingly concerned about the country’s largest housing market, where average detached-home prices have soared more than 26 per cent in the past year, while condo prices have jumped more than 14.5 per cent.
“When you get a 20-plus-per-cent increase in prices in a given year in a marketplace, that’s not normal,” he said.
“I am getting concerned – concerned that it’s beyond the normal ability for the average person who’s entering the market to absorb that type of price increase.”
Mr. McKay pointed to “a cocktail” of issues that have helped send Toronto house prices soaring, including a shortage of homes for sale and strong demand from both immigration and job growth that have sparked fierce bidding wars – and attracted real estate speculators to the Toronto market.
“With all of that activity and bidding going on, you’ve got speculators with heightened interest in profiting from that,” he said.
“And therefore it is a dangerous mix that’s leading to, potentially, [a] run-up in prices that is concerning.”
The B.C. government’s tax on non-resident buyers in the Vancouver area, announced last summer, has also likely shifted foreign investor demand from Vancouver to Toronto, Mr. McKay said. “We need to be thinking about this and we may need actions that are similar to Vancouver,” he said.
Mr. McKay joins a growing chorus of financial industry and government leaders who have voiced concerns with soaring house prices in Canada’s largest cities.
Last October, Canada Mortgage and Housing Corp. issued its first “red alert” for the Canadian housing market as a whole, with Toronto among the markets that has most concerned the federal housing agency.
The federal government has made a series of recent changes to mortgage insurance rules, including raising minimum down payments for more expensive properties and introducing a more rigorous income “stress test” for home buyers.
Ottawa is also consulting with the financial sector on a proposal to introduce risk-sharing into its government-backed mortgage insurance as a way to curb taxpayers’ exposure to the housing market.
Last year, much of the debate around skyrocketing house prices focused on Vancouver, where detached-home prices had shot up an annualized 35 per cent in some neighbourhoods by the summer.
That prompted the B.C. government to introduce a 15-per-cent tax last August on international investors buying property in Metro Vancouver.
House sales in the region have plunged since then and were down 40 per cent in January from a year earlier, while benchmark detached home prices have fallen more than 6 per cent since July.
That has left the Greater Toronto Area as Canada’s last superheated market, leading to concerns that foreign investors have shifted their focus toward the GTA.
City councillors in Markham, Ont., north of Toronto, recently voted down a measure calling on the province to implement a foreign buyers’ tax. Ontario Real Estate Association chief executive Tim Hudak, a former leader of the provincial Progressive Conservatives, called a foreign buyers tax the “cheap politics of division.”
Last month, the Toronto Real Estate Board released a survey of its member realtors estimating that fewer than 5 per cent of resale transactions in 2016 involved foreign buyers.
The Ontario government, meanwhile, has said it is planning to make changes to its land registry system to collect more data on the citizenship or residency status of buyers.Report Typo/Error
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