11/06/2014 08:27 EST | Updated 11/06/2014 08:59 EST

Canadian Housing Market Exposes Taxpayers To Too Much Risk: Bank Of Canada Official

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TORONTO, CANADA - JUNE 28: New office and condominium buildings line the Harbourfront as viewed at sunset from the Centre Island Ferry on June 28, 2014 in Toronto, Ontario, Canada. Canada's most populous city is undergoing a major economic boom with high-rise construction and renovation projects underway throughout the downtown and outlying neighborhoods. (Photo by George Rose/Getty Images)

Canada's real estate market may rest on solid regulatory ground, but taxpayers are nevertheless exposed to too much risk, a Bank of Canada official warns.

Deputy Governor Lawrence Schembri said the private sector should share more in insuring mortgages, especially as Canadians continue to pile up debt, in a paper for the U.K.'s National Institute Economic Review.

"The housing finance framework needs to be adjusted and strengthened by rebalancing the risk exposures among the participants in this market," he wrote.

The federal government insures an estimated $550 billion in mortgages through the Canada Mortgage and Housing Corporation (CMHC), which guarantees loans in which buyers have made a down payment of 20 per cent or less, Reuters reported.

It continues to insure mortgages as strong housing activity persists following the financial crisis.

The average sale price in Toronto's real estate market had jumped to $587,505 last month, up 8.9 per cent from the previous year, said The Financial Post.

And while the feds have reined in the housing market in the past (the maximum amortization period for CMHC-insured mortgages was reduced from 30 years to 25 years in 2012), Schembri still feels there's more work to do.

Among other things, he wants to see a "private-label securitization market" set up in Canada, and for government to review how it restricts and prices mortgage insurance, The Globe and Mail reported.

Schembri's comments seem to urge quicker action than Canadian Finance Minister Joe Oliver advocated just two months ago.

At that time, reports emerged that the CMHC was looking at making banks and other lenders pay a deductible on mortgages before claims are paid out, The Financial Post said in September.

But Oliver told Bloomberg the proposed measure doesn't need to be enacted immediately.

Schembri's comments also came as National Bank research showed worrying trends in markets besides Toronto and Vancouver, which usually hog much of the media spotlight around housing, The Globe and Mail reported.

Economist Marc Pinsonneault is concerned about the number of "unabsorbed units," or homes that are being finished but not purchased, in markets such as Montreal, Regina, Saskatoon and Winnipeg.

At the end of last year, for example, Toronto had 260 unabsorbed homes, while Montreal had 712.

"It was the eighth consecutive year that ended with Montreal having the greater number of unabsorbed new units, for a population a third less than that of metropolitan Toronto," Pinsonneault said.

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