Canadian policymakers are taking the wrong approach in attempting to cool the country’s red-hot housing markets, according to one of Bay Street’s most prominent economists.

The way Gluskin Sheff Chief Economist David Rosenberg sees it, this country needs to focus more on increasing housing supply and less on trying to curtail demand.

“We continue to focus on the wrong area,” he said. “The focus [needs to be the] supply constraints that politicians at every level of government can ease up.”

Despite high demand in Toronto and Vancouver, building permits have dropped over the past year – thus exacerbating the supply crunch in those markets, said Rosenberg.

“Where is the emphasis on zoning regulations or making incentives to increase building approvals?,” he wondered.

twitter embed

Some observers have called on Canada to introduce new taxes to curb demand from foreign buyers. But foreign buyers are not price-sensitive and new taxes will do little to cool their appetite for Canadian properties, said Rosenberg. Indeed, he worries there is little the federal government can do to cool the market.

“The old adage is real estate is local,” he said. “What’s the federal government going to do that it hasn’t done? [And] The Bank of Canada isn’t going to raise interest rates in this environment.”

Real estate markets in Toronto and Vancouver have been a bright spot in a sluggish Canadian economy that continues to struggle with the crash in crude oil prices. However, Rosenberg warns that Canada’s runaway housing markets are becoming not just a financial risk, but a social one. “What you are doing is pricing an entire generation of young people out of the real estate market.”