Royal Bank's top executive says he's “increasingly concerned” about the Toronto and Vancouver housing markets and would welcome government interventions.
RBC chief executive Dave McKay says the rapid increase in housing prices in the two cities is the product of an “unhealthy combination of factors.''
He listed an imbalance in supply and demand for residential properties, low interest rates and speculative activity.
"While we remain confident in the strength of our mortgage book, we believe that if this issue goes unchecked, it could drag on consumer spending, locking up too much capital unproductively, and potentially becoming an inhibitor to Canada’s future economic growth,” McKay said at a shareholders' meeting.
Royal Bank of Canada CEO David McKay speaks at the bank's annual meeting in Toronto on Thursday, April 6, 2017. (Photo: The Canadian Press/Frank Gunn)
McKay says a single solution to these problems is unlikely to be successful. Instead, McKay says, there need to be multiple solutions to address such a complex problem and he would welcome interventions from federal, provincial and local governments.
That comes days after the head of Canadian banking at Scotiabank made a similar call for government to take further action to cool the market.
James O'Sullivan said Toronto’s market is one that policy-makers should be most concerned about these days, given prices that have risen by nearly 30 per cent over the last year. (The latest data, released a day after O’Sullivan’s comments, showed prices rising 33 per cent in the previous 12 months.)
"It's going to come to an end at some point and it's a question of how it ends."
— James O'Sullivan, Scotiabank
“Double-digit price increases are not sustainable and they're not healthy,'' O'Sullivan said after Scotiabank's annual general meeting.
“This market has been going straight up for a very long time. So it's going to come to an end at some point and it's a question of how it ends. And we want to see it correct smoothly, we want to see a soft landing and what that would argue for is actions sooner rather than later.''
Experts have suggested various ways of cooling the city's real estate market, such as a levy on speculators and a tax on foreign buyers. B.C. implemented a tax on foreign nationals who purchased property in Metro Vancouver in August, and prices have slipped since.
O'Sullivan said Scotiabank hasn't developed a position yet on what measures should be implemented, but if there's government action, the bank will support it.
“Our core belief is that we need to move through this spring market. The spring market is everything in housing,'' he said.
“If at the end of that spring market Toronto still has higher volumes, strong double-digit price increases, then we think it will clearly be time for further action and we will be supportive of that action.''
Condo towers in Toronto's South Core. BMO's senior economist recently declared the city to be in a housing bubble. (Photo: Getty Images)
The Bank of Montreal’s chief economist, Douglas Porter, recently declared Toronto to be suffering from a housing bubble. Another economist at the bank, Robert Kavcic, estimated that the city’s housing market has 24 months before it hits the unaffordability levels seen in 1989, when a housing bubble burst in Toronto.
Politicians at various levels have been scrambling trying to figure out what to do to curb housing costs in Toronto that have accelerated to the point where many say they feel priced out of the market.
Ontario Finance Minister Charles Sousa has promised some sort of housing affordability measures in the province's upcoming budget.
The average price of homes sold in the Greater Toronto Area in March soared 33.2 per cent compared with the same month a year ago, with the average selling price of all types of homes hitting $916,567. The average price of a detached home in the city of Toronto is now above the $1.5 million mark — higher than Vancouver.
— The Canadian Press with a file from The Huffington Post Canada