Canada Isn’t in a Housing Bubble, Says Former CMHC CEO

Evan Siddall, the former CEO of the Canada Mortgage and Housing Corporation (CMHC), argues Canada isn’t in a housing bubble despite record-breaking prices, extremely limited supply, and constant demand.

Siddall was the CEO of the CMHC from January 2014 to April 2021, during which time the epidemic sparked a spectacular and headline-making frenzy of activity in Canada’s real estate market.

But, as Siddall explained in an interview on CTV’s Question Period that aired Tuesday, the variables that characterise the country’s red-hot housing market aren’t a formula for a housing bubble (or bubble burst) in Canada. He told host Evan Solomon, “I don’t think we’re in a bubble, I truly don’t think we’re in a bubble.”

Demand is being driven by the country’s extremely limited supply, immigration, and a pandemic-inspired shift in purchasing patterns, according to Siddall.

“If demand is going up and supply is not, prices will go up, that’s not a bubble. So, it’s a question of what the future brings and whether there will be supply and demand coming back into balance, and that’s a crystal ball question,” he said.

Whether in Toronto or smaller cities in the eastern provinces, the country’s limited supply shows no signs of easing. And prices are continuing to rise: according to a recent RE/MAX Canada research, sales prices in Canada will rise by 9.2 percent across the country.

The opposition has accused the Liberal government of contributing to a national housing bubble with its stimulus response, which is driving up inflation. Siddall’s interview comes in the aftermath of the opposition’s criticism of the Liberal administration.

Siddall, on the other hand, blames Canada’s poor housing condition on demand and supply factors, red tape, and low interest rates, rather than Ottawa’s stimulus reaction.

“It’s about much more the demand and supply response,” said Siddall. “So that again, is market factors including slow approvals — there’s a lack of coordination among municipal, provincial, and federal governments and it’s hard for people to build houses. That’s one problem. The other problem is low rates make housing more attractive. Mortgage insurance makes it further attractive.”

Ottawa has proposed investing $4 billion in a Housing Accelerator Fund to help generate much-needed supply. The Liberals claim that by 2024-25, 100,000 new homes would be built in the country’s major cities, with a first-time home buyer incentive and a tax-free first home savings account included.

However, existing measures to temper the market, such as ones from Ottawa, are “at a margin,” according to Siddall. And his comments aren’t exactly motivating.

“Let’s face it, that’s all government can really do on the supply side. It’s too much for a government to handle. We’re talking trillions of dollars in housing activity. It’s a supply problem, but it’s not a supply problem the government can deal with on its own. It needs private sector support,” said Siddall.

According to Siddall, one answer to the housing inequality gap is to investigate the prospect of enacting a capital gains tax on primary houses — something he correctly recognises, however, might lead to “political suicide” if proposed by policymakers.

“One of the things that’s really driving people apart in terms of inequality in our country is the amount of money people are making off houses who own them versus the amount of money people aren’t making on their homes that rent them. It’s a real problem,” said Siddall. “Why don’t we tax gains on houses but we tax gains on other investments? It’s a serious, non-progressive situation in our tax code.”

Siddall proposes exempting a certain amount of income from taxation and taxing anything above that.

“There are lots of options. But politicians just aren’t allowed to have this conversation because the opposition — and it’s any colour — will skewer them for it. And so we don’t have the debate that we need to have,” he said.

Prime Minister Justin Trudeau, for example, said during his election campaign that such a tax would not be implemented, assuring reporters, “We will not do it.” That’s not something we’re interested in doing.”

Another method, according to Siddall, is to look at how mortgage insurances are built.

“I would increase the minimum down payment from five to 10% for sure. I might even bracket it. It’s currently 5 to 20% down payment. Go from 10 to 25 – cover more of the waterfront, require more equity,” said Siddall. “I actually think that would be a smart move.”

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