The Government is Not Saying If There is A Bubble in the GTA Real Estate

Ukrainian Credit Union.

Last week's report on home prices in the Greater Toronto Area (GTA) announced that in March home prices were up by 33% from March 2016 to an average price of $917 thousand. The report raised a storm of comments and suggestions. Many market experts are talking about a “price bubble” in the GTA. According to the CIBC poll, 54% of respondents think that housing prices will rise indefinitely from current levels. David Madani, senior Canadian economist at Capital Economics, believes that this kind of optimism is just one sign of a bubble.

But all three levels of government are not as quick in their judgement. Toronto mayor John Tory said that there is no consensus yet on “the nature of the forces that are pushing the prices up the way they are” nor on what to do about it. Ontario Finance Minister Charles Sousa also said there is still no consensus from stakeholders on how best to proceed.

Policy options under consideration by the city and province of Ontario include a tax on foreign buyers and a tariff on vacant homes. Minister Sousa thinks the federal government should raise the capital gains tax on non-primary-residence transactions. But a tax on foreign buyers did not exactly work in Vancouver where the growth of home prices continues in double digits, while a capital gains tax would affect legitimate investment activities of Canadians. Mayor Tory recently suggested a healthier and more effective option: putting up public land into the housing pool.

All levels of government are clearly looking for options which would contain the growth of the real estate market to try and prevent a future sharp drop that could trigger a financial crisis. At the same time, the forces at play are not quite clear. Hence, the governments’ current indecisiveness.

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