A jump of more than 30 per cent in house prices in Toronto suggests that demand is being driven more by real estate speculators and investors than homebuyers, Canada's top banker said Wednesday.
The comments by Bank of Canada governor Stephen Poloz came as Ontario Premier Kathlyn Wynne said her Liberal government was "very close'' to introducing a package of measures to help cool the hot housing market.
The average price of detached houses in the Greater Toronto Area was $1.21 million in March, up 33.4 per cent from last year. For the city of Toronto, the average price of detached properties hit $1.56 million, an increase of 32.8 per cent from March 2016.
Stephen Poloz, Governor of the Bank of Canada, arrives for a news conference after the release of the bank's Monetary Policy Report, Ottawa, Wednesday, April 12, 2017. (Photo: The Canadian Press/Fred Chartrand)
Poloz said strong employment growth and immigration have fuelled demand for housing in the GTA in the past, but he said those factors do not justify the recent spike in home prices.
"While there's no fundamental story that we could tell to justify that kind of inflation rate in housing prices, it's that gap between what fundamentals could manage to explain and what is actually happening, which suggests that there's a growing role for speculation in that,'' Poloz said in Ottawa.
"In other words, demand is being driven more by speculative demand or investor demand as opposed to just folks that are buying a house.''
This chart published by National Bank of Canada earlier this week shows Canadian house prices running away from U.S. prices after the U.S.'s housing bubble burst a decade ago.
Wynne was set to discuss the housing situation with Toronto-area mayors later on Wednesday.
The province's finance minister, Charles Sousa, has floated a number of possible measures, including implementing a tax on foreign buyers, speculators or vacant homes.
He said Wednesday that while market forces will do what is necessary to keep up with demand, he is looking at ways to speed up more supply becoming available.
"People are frustrated,'' Sousa said. "Families are pissed that they can't win bidding wars. And, in times past, young families will get into the market with those entry market homes. They're hard to come by. So we're going to figure out a way to help do that too.''
The current rate of price increase is likely unsustainable, Poloz cautioned.
"I think it's time we remind folks that prices of houses can go down as well as up,''
— Stephen Poloz, governor, Bank of Canada
Speculation is something Ontario is trying to address, Sousa said.
"When I'm thinking of speculators, I'm always thinking of those that are acting as scalpers, where they're holding assignments on papers and after the construction is complete, they sell for high profits without paying their fair share of income tax, because they take advantage of an exemption on capital gains,'' he said.
Ontario Premier Kathleen Wynne says her government is "very close" to tabling a package of measures to cool Greater Toronto's rapid house-price increases. (Photo: Reuters/Mathieu Belanger)
Sousa had asked federal Finance Minister Bill Morneau for changes to the taxation of capital gains on the sale of homes that are not classified as a primary residence, as a way to address speculative investors flipping homes.
The premier said that while there is no one measure that will change market dynamics, she wants the government's initiatives to "calm'' the process.
"My hope would be that we can make the process of finding a place to live a bit more rational, a bit more predictable, a bit less frantic for people,'' Wynne said Wednesday.