Federal housing solutions: lots of talk, not much action
Prime Minister Justin Trudeau struggling to find solution to 'significant crisis'
The message from Prime Minister Justin Trudeau to those worried they'll never own a home in Vancouver or Toronto was clear on Friday.
He feels your pain, but there is no easy answer and there is a great risk of making a serious mistake should his government attempt to influence housing prices.
Trudeau got a close-up look at the most expensive housing market in the country when he visited Vancouver and although housing affordability was at the top of his agenda, presenting a solution was not.
"Everyone knows what is happening. We can't afford homes in Vancouver ... We need to make sure that any action is not going to make the situation worse," said Trudeau on CBC Radio's The Early Edition.
"The law of unintended consequences is something as complex as housing markets, so that is where collaboration and coordination between both the federal government, the provincial government and municipal governments is going to be essential."
Trudeau has two arguments for his government's inaction on cooling the housing market. Pulling what he calls a "federal lever" could trigger falling prices in markets that are already depressed including Montreal, Calgary and Halifax.
The other concern is protecting homeowners who have taken a risk and bought houses in Vancouver and Toronto and are now carrying, in some cases, more than a million dollars in mortgage debt.
"Getting the balance right will be very important," Trudeau said.
Targeting absentee owners
But why not implement a policy that would target absentee owners of luxury properties in Vancouver and Toronto.
There is precedent for this kind of federal intervention. In March, Trudeau's government addressed concerns about Employment Insurance in 12 parts of the country that were hit hard by the economic downturn.
Regions with the highest percentage of people applying for EI qualified for reduced wait periods and people in those regions were allowed to collect EI for a longer time.
Housing experts in B.C. have suggested something similar for Metro Vancouver.
Over 40 economists have supported a policy called the B.C. Housing Affordability Fund. The fund would be financed by a new 1.5 per cent property surcharge on residential real estate.
The federal government would have the ability to work with certain jurisdictions about whether they would implement the tax.
The example the economists give in their policy paper is that owners of a $1 million home would be required to provide a $15,000 contribution each year, but if they paid more than $15,000 in income taxes in Canada, they would be exempt.
Such a scheme would target foreign investors who pay no income tax in Canada, and their money would be redistributed to all taxpayers in the area.
No shortage of ideas
There are more ideas that have been directed toward the federal government.
Sauder School of Business professor Tom Davidoff has become one of the leading voices in the region on ideas that can be implemented in Metro Vancouver.
When he sat alongside Trudeau on Friday as part of a roundtable on housing, he brought forward two ideas that won't solve the entire housing crisis but are at least a step towards some sort of solution.
The chief concern among most economists is that tax policy, and, in turn, Canadian political leaders, have bent over backwards to create a positive tax environment for foreign investors, while punishing locals who live in their homes.
But Davidoff points out, in the United States, policymakers have applied exemptions to interest and property taxes that are available to locals, but not to non-taxpayers.
Then there is density, which, in itself, is a regional issue.
Davidoff has argued the federal government could step in and determine that in the best interests of the country certain areas would not be allowed to put restrictions on zoning.
That would be bad news for NIMBYs and a relief for Vancouver Mayor Gregor Robertson, who Davidoff argues, now has his hands tied by voters who are not interested in their predominantly residential neighbourhoods becoming more densely populated.
"If you build enough of them [condos], it starts out as housing for the nearly affluent and becomes middle class housing. But that is banned from much of Vancouver," said Davidoff.
What stood out from Trudeau`s trip to Vancouver is this dark assessment from the prime minister about the current state of the housing market being "on a trajectory that doesn't have any good outcomes."
But it didn`t have to be that way.
Ironically, five years ago almost to the day, the then-governor of the Bank of Canada, Mark Carney, the federal government's top advisor on the economy, spoke in Vancouver and sent this message warning of the effects "Asian wealth" was having on the market.
"The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear — greed among speculators and investors — and fear among households that getting a foot on the property ladder is a now-or-never proposition," he said.
Advice Trudeau was not, at the time, in a position to take, but a problem he nonetheless inherited and must now try to fix.