IMF warns Canada to protect housing market — for greater good of Canadian economy

Click to play video 'Report: Affordable housing in short supply in Metro Vancouver' Report: Affordable housing in short supply in Metro Vancouver
Tue, May 30: A new report confirms what most people already know: affordable housing is in short supply in Metro Vancouver. As Tanya Beja reports, there’s a bigger problem – May 30, 2017

OTTAWA – The International Monetary Fund is warning about the risks to the Canadian economy due to a possible correction in the housing market and urged governments to do more to protect against them.

In the preliminary findings of its annual review of the Canadian economy, the IMF said Wednesday that a further tightening of macroprudential and tax-based measures to mitigate speculative and investment activity should be considered.

It also called for greater co-ordination between federal and provincial regulators as well as government efforts to collect more comprehensive data on real estate transactions.

READ MORE: Housing prices prompt Canadian homeowners to renovate instead of buying a new home

The housing market and high levels of household debt are often pointed to as areas of concern for the Canadian economy.

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Ottawa has moved several times in recent years to tighten mortgage lending rules including expanded stress tests on mortgages.

A foreign buyer tax of 15 per cent was also implemented in the Vancouver region last summer, while Ontario recently announced plans for a similar levy for the Greater Toronto Area.

Moody’s Investors Service recently downgraded Canada’s six big banks amid concerns about consumer debt and housing prices that could leave them vulnerable.

READ MORE: Moody’s downgrades Canadian banks: Beginning of the end for the housing market?

Cheng Hoon Lim, the IMF’s mission chief for Canada, said there are a few policies that could help deter speculation in the housing market and alleviate concerns about rising debt burdens.

“Among these measures, a cap on household debt to income or more stringent qualification criteria for household debt above a certain threshold will go directly to addressing household indebtedness,” she said.

The IMF also encouraged B.C. and Ontario to replace their foreign buyer taxes.

“This could include a combination of prudential and tax-based measures that discourage speculative activity without discriminating between residents and non-residents,” it said.

Earlier Wednesday, the new CEO of the Canadian Bankers Association said that policy-makers should take time to ensure there are no unintended consequences stemming from efforts to rein in Toronto’s runaway housing prices before introducing further measures.

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Neil Parmenter said he’s encouraged that the federal, provincial and municipal levels of government are working together on housing policy. But he urged regulators and politicians to assess what effects recent rule changes are having before bringing in new policies.

“Sometimes it’s healthy to have a bit of a pause and see what the impacts are and then adjust as necessary,” Parmenter said in his first interview with a Canadian news organization since taking the helm of the association earlier this month.