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'Why risk it?'
Bank of Montreal's chief economist wonders why Doug Ford would risk killing Ontario's housing tax on foreign buyers.
There's a debate over whether those buyers fueled the bubble in the Toronto area housing market last year. But there was a bubble, there isn't one now, and it began to deflate when Premier Kathleen Wynne brought in the 15-per-cent levy.
BMO's Douglas Porter was commenting on the suggestion from Mr. Ford, Ontario's Conservative leader, that he'd eliminate that tax.
As The Globe and Mail's Justin Giovannetti reports, the new Tory chief said he was considering killing it, and that a better way of attacking the issue is to build more affordable, single-family houses on land that's underused.
"I just don't like the government getting involved," Mr. Ford said last week.
"I believe in the market dictating. The market, no matter whether it's the stock market or anything, it will always take care of itself - supply and demand.
Well, the market didn't take care of itself. Though it may have without provincial and federal intervention, and we wouldn't have liked the result.
Mr. Ford would, thus, risk upsetting what two levels of government and the federal commercial bank regulator appear to have engineered: A soft landing for southern Ontario's frothy housing market.
"How that can possibly be a top priority, especially given very compelling evidence that said tax played a huge role in deflating the Toronto housing bubble in the past year, is a mystery," BMO's Mr. Porter said in a weekly commentary.
He said later in an interview that Mr. Ford's comment sounded more like "initial musing," adding that Ontario would "risk the market flaring up again" were the tax, part of a broader Liberal government housing program, to die.
That wouldn't necessarily mean a return to the "insanity" of a year ago, Mr. Porter added, because the Office of the Superintendent of Financial Services, which regulates the commercial banks, has since established new national mortgage qualification rules, and interest rates are on the rise, both expected to cool Canadian markets further.
There's also a bubble mentality that wouldn't necessarily be there now.
"But I wonder, what's the advantage?" Mr. Porter said. "Why risk it?"
And, of course, Toronto's housing market is still expensive, with affordability a big issue.
Toronto has seen a rapid slowdown since price growth peaked by more than 30 per cent last April, noted Royal Bank of Canada economist Josh Nye.
Indeed growth in benchmark prices eased 3.2 per cent in February a year earlier, while the cost of a single-family home outright declined.
Of course, the new mortgage rules were in place last month, having come into effect in January, so would have played a big role.
In its latest forecast last week, Toronto-Dominion Bank projected Ontario home sales will fall by 21.5 per cent this, though rebound in 2019 by 5.2 per cent.
Prices, TD predicted, will fall 5.3 per cent this year, and perk back up next year, though by just 2.6 per cent.
Let's switch topics here and look at Ms. Wynne as she heads into an election against Mr. Ford. Because the Liberals aren't without their issues.
Mr. Ford promises to cut taxes and pledges smaller government, BMO's Mr. Porter said, while "the ruling Liberals have taken the unusual step of aiming to run deficits of as much as 1 per cent of GDP, even with a record debt load (and near-record as a share of GDP), and at this advanced stage of the business cycle."
Earlier this month, by the way, the Fitch Ratings agency warned a return to deficits could put pressure on Ontario's credit rating.
"A planned return to imbalanced operations, necessitating borrowing beyond its already sizable capital plan, may position the province for an even higher debt burden when an eventual economic slowdown takes place, in Fitch's view," the agency said.
"Notable uncertainties in the province's otherwise solid economic outlook include the recent trade friction between Canada and the U.S. and provincial progress to address escalating housing values in advance of a more severe correction," it added.
"The budget is expected to be tabled on March 28, and Fitch will evaluation the details of the plan once it is available."
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