Despite recent regulatory changes, homes in Toronto and Vancouver will become even less affordable in the long term if supply and demand issues aren’t addressed, according to CIBC Deputy Chief Economist Benjamin Tal.
“The level of activity is likely to stabilize and perhaps soften in the coming quarters as markets adjust to recent and upcoming regulatory changes,” Tal wrote in a report published Tuesday.
“But when the fog clears, it will become evident that the long-term trajectory of the market will show even tighter conditions,” he wrote.
Tal says while the psychological effects of B.C.’s 15 per cent tax on foreign buyers and Ontario’s Fair Housing Plan have helped cool markets in the short term, supply issues facing Toronto and Vancouver will likely worsen, noting “demand is routinely understated.”
He argues “the issue is not land, the issue is the speed at which that land comes to market,” and that problem will only intensify as the gap between population growth and the ability for the regions to supply more land grows.
“Short of a significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure,” wrote Tal.
He also says new mortgage stress-test rules introduced by the Office of the Superintendent of Financial Institutions’ (OSFI) in October won’t help ease the demand issue in Toronto and Vancouver’s housing markets over the long term.
“On the surface that change reduces the purchasing power of typical buyers by close to 20 per cent, and we estimate that no less than 10-15 per cent of mortgage originations will be impacted by that move,” Tal wrote. “However, the actual reduction in demand is likely to be much less significant.”