TORONTO – The top executive of Canada’s largest bank says he’s becoming “increasingly concerned” about the impact that high house prices in Toronto and Vancouver could have on the country’s economic growth, and is calling on all three levels of government to work together in devising an intervention.
Speaking at the RBC’s (TSX:RY) annual shareholder meeting in Toronto, Dave McKay said the rapid increase in home prices in the two cities is the product of a combination of factors including low interest rates, speculative activity and an imbalance in the supply and demand for residential properties.
“More and more disposable income is going towards servicing those houses,” he said after the meeting.
“More capital is getting invested in those homes. And the real risk for us as an economy 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.”
McKay’s comments came a day after the Toronto Real Estate Board reported the average price of properties in the Greater Toronto Area hit $916,567 last month, an increase of 33.2 per cent from what it was a year ago.
Meanwhile, the composite benchmark price for all residential homes in Metro Vancouver was $919,300 last month, up 12.7 per cent from a year ago, according to the city’s real estate board.
Addressing the housing affordability crisis that has made home ownership a “distant dream” for many families will take a co-ordinated effort from municipal, provincial and federal governments, McKay said.
“What I worry about is we act in an unco-ordinated way and we build up federal rules on banks at one end and then we duplicate that on another,” he said.
“If it’s not done in a co-ordinated fashion, we could do real damage.”
McKay also emphasized a need for the Ontario government to permit more land to be developed in order to increase the supply of available homes.
Politicians have faced growing pressure to address Toronto’s soaring home prices, as concerns have risen that the market could be in bubble territory and that speculative activity – in which homes are purchased to turn a profit rather than to live in – could be partly responsible.
Ontario Finance Minister Charles Sousa has floated a number of possible measures, including implementing a tax on foreign investors, speculators or vacant homes.
Both the vacant homes tax and the foreign investment tax have been implemented in Vancouver, where sales volume has cooled considerably in recent months compared to year-ago levels.
Federal Finance Minister Bill Morneau has penned letters to Sousa and Toronto Mayor John Tory, asking to convene a meeting on the topic of eroding housing affordability in the Toronto area as soon as possible.
Sousa responded Thursday, saying in a letter to Morneau that he would be happy to host such a meeting at his office in Queen’s Park.
He later told reporters that the province is looking at ways to temper price growth without leading to unintended consequences, for example by overcorrecting the market.
Tory said the meeting will explore ways in which the government can help increase the supply of homes available for purchase or for rent, as well as to discuss whether measures such as a tax on vacant properties would be responsible and effective.
“I don’t want people to lose hope with respect to home ownership,” he said.
With files from Jessica Smith Cross