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Jameson Berkow

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Canada’s federal government is prepared to take further action against skyrocketing Vancouver and Toronto home prices, but Bay Street is split on whether Ottawa should.

More than three dozen of the country’s most well-known money managers were surveyed by BNN about whether further intervention is needed to cool Canada’s two hottest housing markets. Only about half – 19 out of 39 regular guests on Market Call and Market Call Tonight – said yes, with 16 saying no, and four warning the government would need to tread carefully.

Ottawa has already increased the minimum down payment required for homes costing more than $500,000; although the changes appear to have made little difference with prices in both the Vancouver and Toronto markets continuing to reach record highs. Two of Canada’s most prominent bankers – the CEOs of Bank of Nova Scotia and National Bank – have both publicly urged this week for another increase to the amount of money homebuyers must pay up front.

The Organisation for Economic Co-operation and Development also threw its support behind more government intervention this week, arguing “macro-prudential” measures “should be tightened further and targeted regionally.” In a statement sent to BNN on Wednesday, federal Finance Minister Bill Morneau’s office said the government is “prepared to take further action if required.”

Actions taken thus far, according to BMO chief economist Doug Porter, have largely ignored the most important factor driving Vancouver and Toronto home prices higher: foreign buyers.

According to the BNN survey, much of Bay Street agrees.

Almost half of the respondents that offered specific policy recommendations to the government mentioned the need to address foreign buyers to some degree: 12 of 32 urged Ottawa to apply new taxes to homebuyers that do not reside in Canada, while two mentioned the need to tax any property not occupied by the owner, and one specifically called for a “flipping tax.”

The latter was proposed last month by CIBC Capital Markets deputy chief economist Benjamin Tal and would involve taxing any property buyer that sold their property a short time after purchase. While such a move would not exclusively target foreign owners, Tal told BNN that was the purpose of his proposal.

James Dutkiewicz, chief investment strategist at Sentry Investments, told BNN the government should “channel their ‘inner Trump’ and find a way to make money from these foreign flows to offset potential costs to the system if prices drop suddenly.”

“What would [presumptive U.S. Republican nominee Donald] Trump do?” Dutkiewicz asked rhetorically in a subsequent BNN interview Thursday morning. “Trump would say, ‘Hey, you want to bring all this money in?’ [Foreign buyers are] not price conscious, so there’s an extra five or ten per cent tax or whatever you want to call it, they’re going to pay it because they’re just trying to get the money out of their country.”

Several respondents expressed a similar sentiment, specifically noting taxation of foreign ownership would “provide more revenue to the economy at large.” However, some of the 16 respondents that urged Ottawa not to intervene further warned more government action could make the situation worse.

John Kim, portfolio manager at Aston Hill Financial, said there could be “unintended consequences” of intervention into two local markets from a federal level; while Paul Tepsich, managing partner at High Rock Capital, said the risk is even greater.

“If [Ottawa intervenes in the Vancouver and Toronto housing markets], they will collapse the entire economy as the consumer is way too levered even with house prices climbing,” Tepsich said.

Canadian household debt has been continuing to hit new record highs for several years. Most recently, in the final three months of last year, the average Canadian had a debt-to-income ratio of 165 per cent, meaning they held $1.65 in debt for every dollar in disposable income they earned.

Home prices and record-high household debt were by far the most common answers among respondents to the survey question on the biggest risk to financial stability in Canada. Nearly half – 17 of 39 – made a specific reference to real estate, household debt or both. Other risks mentioned by respondents include oil prices (8 of 39), government regulation (8 of 39) and interest rates or central bank policy more broadly (7 of 39).

Although the most popular policy advice respondents had for the government was to target foreign buyers, Bay Street isn’t unanimous in calling for restrictions on capital coming into Canada from abroad. Only slightly more than half of respondents (21 of 39) expressed a desire for some degree of restrictions on foreign investment while the rest favoured no restrictions.

Part of the issue is a lack of data. One recent study found more than two thirds of Vancouver’s most expensive homes were going to foreign buyers while another said foreign buyers were closer to 25 per cent of the overall luxury home market. The latest research from the Canada Mortgage and Housing Corporation found foreign owners account for just 3.3 per cent and 3.5 per cent of the Toronto and Vancouver condo markets, respectively.

The most recent federal budget allocated an extra $500,000 to Statistics Canada specifically to gather more data on the prevalence of foreign owners in Canadian housing markets. There is no word on how long it will take for StatsCan to collect, analyze and release that data; but until it does the debate over what to do about Vancouver and Toronto’s runaway home prices – if anything at all – is sure to continue.