Canada

A Canadian Government Official Finally Used The Term “Bubble” To Describe Property

The Canadian property bubble was recognized by an unlikely entity — the Canadian government. MP Adam Vaughan dropped the b word this week. Vaughan isn’t just an elected official, but also the Secretary to the Minister in charge of most of the country’s housing policy. In a Twitter exchange, he explained how difficult it’s been to let some air out of the market. He also acknowledged current cooling measures failed to be effective.

The Canadian Property Bubble Is Finally Acknowledged

Few people in charge have openly called Canadian real estate a bubble, but it happened today. In an exchange, Vaughan said, “Getting the air out of the bubble without an explosion has been tried several ways.. the stress test, increase supply, speculation tax, etc… each time the market only slows to take off again… and the other challenge is that a drop in market prices might also unleash pent up demand.” 

First, let’s not overreact whether you think he’s right or wrong about using the term. Let’s unpack the perspective he’s generously offering to the public. First, he is acknowledging the issue with home prices. It doesn’t matter if you think prices will rise or fall.

Home prices in cities like Toronto and Vancouver are largely out of reach for those under 40. This inevitably leads to major demographic and employment issues. If left unresolved, those turn into liquidity issues. Property is only worth what you can sell it for, and if there are few people to buy it — who do you sell it to? It’s actually great to see a government recognize this is a bubble.

Cooling Measures Have Been Ineffective, Because… Well, It’s a Bubble

More important is the list of measures implemented, that have failed to cool markets. Stress tests, supply, speculation taxes, etc. — they didn’t drop prices. In his words, the market “only slows to take off again.” This is often thought of as market resilience, however it’s just as much a sign of market toxicity.

Few, if any, markets have been corrected using transactional taxes or by increasing supply. Prices may have fallen briefly, but if there’s nowhere else for money to go, there’s nowhere else. If property values are rising 30 points in a year, one or two point taxes are going to have little impact.

Increasing supply sounds like it works, until you think about it for a second. If people actually thought building more new homes would lower prices, why buy them? No one buys something they think will fall in value. It doesn’t even make sense on the surface.

Then there’s the fact that increasing building in itself is subject to supply and demand. The more housing that’s built, the more demand for materials and labor. As that demand rises, so does input costs. Whaaat? Supply and demand applies to other parts of housing other than the final product? Who would have thought?

Anyway, it’s official. A Canadian politician that’s actually in charge used the term bubble. Now what? 

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23 Comments

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  • Reply
    Ethan Wu 5 days ago

    It’s a 12 step program. The first step is admitting you were powerless over housing, and that your problems became unmanageable.

    Next is believing that a Power greater than ourselves could restore us to sanity — the free market.

    • Reply
      Derek 5 days ago

      I agree the government allowed interest rates to remain too low for many reasons so people with the means can borrow money at very low rates that others can’t and buy assets with it. This is socialism for the rich not the average (don’t even get me started on the poor)

    • Reply
      Rob 5 days ago

      Step 8
      GOC and BOC must make a list of all persons they have harmed, and become willing to make amends to them all.

  • Reply
    OM 5 days ago

    Seriously. What’s the scam here? Is he hoping that disseminating that into the public cools buying enthusiasm, and he doesn’t have to do anything?

  • Reply
    Itchy Bear 5 days ago

    Anyone else watch Yes Prime Minister?
    I think we’re at stage 3:

    Sir Richard Wharton : Standard Foreign Office response in a time of crisis.

    Sir Richard Wharton : In stage one we say nothing is going to happen.

    Sir Humphrey Appleby : Stage two, we say something may be about to happen, but we should do nothing about it.

    Sir Richard Wharton : In stage three, we say that maybe we should do something about it, but there’s nothing we *can* do.

    Sir Humphrey Appleby : Stage four, we say maybe there was something we could have done, but it’s too late now.

  • Reply
    SH 5 days ago

    I’m thinking the government is hoping for a global crash at this point so they can throw up their hands and say “not my fault!”.

    • Reply
      Sam 5 days ago

      Governments are slowly buying into MMT with an intellectual elitist mentality that markets can (and must) be controlled by governments.

      At least something in this direction….

  • Reply
    John B 5 days ago

    it’s happening world wide. It’s not a bubble; it’s a shift in natural market demand and historical money supply increases.

    • Reply
      Oldguy 5 days ago

      So you are in stage 3, eh? By the way, all of the data says that Canada is much worse than any other developed country, but your “I love the hairdo” pin is in the mail.

    • Reply
      M.Bury 5 days ago

      Exactly.
      This. Time. Is. Different.

      • Reply
        Sam 5 days ago

        Is this a global reactionary phenomenon? Or is there some sort of concerted intelligent global push toward some type of end-game.?

        I hate conspiracy theories, but for goodness sake. This housing thing is happening everywhere.

    • Reply
      Smaug 5 days ago

      Every credit bubble is accompanied by an expanded money supply. Credit bubbles can’t form without accommodative monetary policy. That it’s global makes the problem worse, not better.

    • Reply
      Average Man 5 days ago

      The run up in housing prices in the ’00s also happened in all of North America and Europe. But some places (USA, Greece, Spain, Ireland) got hit much harder when things went south. Canada’s housing prices were already detached from fundamentals like local wages. Our household debt is really high. So when there is a global shock, that may start somewhere outside of housing, we are going to get hit very hard.

  • Reply
    M.Bury 5 days ago

    Vaughan “also acknowledged current cooling measures failed to be effective.”

    What do you expect when you sprinkle a thimble of water on a fire that you just poured a litre of gasoline on? Duh.

  • Reply
    Sam 5 days ago

    How long before the JT bullies silence this Lib-outlier.

  • Reply
    Kris 5 days ago

    They don’t give a rats ass about the people. They are knees deep invested in real estate themselves so why would they want to sink their own wealth.

  • Reply
    Ashley 5 days ago

    Adam should ask himself if average income is $85k and average house is $1M, then how are people getting approved for the mortgage. Is CMHC and Banks even doing property appraisals or income verification? Not everyone will be having a rich parent.
    A simple and quick solution would be to attach CRA income verification as part of mortgage approval, a lot of demand would just fail to secure a mortgage.
    Real estate has been known as a best way for money laundering, snow wash, tax evasion,.., implementing and enforcing simple checks and balances would stop this corrupt money from inflating the prices. But depends on which side is the govt.. Corruption can’t stop corruption, it promotes corruption.

    • Reply
      Expat 5 days ago

      They’ve been well aware that there’s a ton of dirty money in Canadian real estate for a long time now. But it keeps the economy afloat and frees them from any serious oversight… until it all crashes down on them.

    • Reply
      World Class 5 days ago

      Don’t worry the real estate bulls will still tell you that the average mortgage is still only $400k, so it’s mostly just people trading up.

  • Reply
    D 5 days ago

    Now what? Easy, SHTF this decade.

  • Reply
    Very good 4 days ago

    Mortgage brokers adding an extra zero to your income on your mortgage application has always been a Canadian pastime. Every single mortgage broker I have spoken to in GVRD and GTA have been doing it since 2005.

    It is 100 percent a bubble.

    Everything in Toronto detached, on zolo, shows bought in 2007- 2011 for $540,000 re listed for $1,800,000 now. Some even more, bought in 2012 $630,00 re-listed for $2,250,000. Not a bubble hey? OKAY, sound economy hey. This is effing bullcrap and when it goes back to 630,000 im going to laugh. Nothing changed in the economy in canada since 2013, NOTHING. Immigrants are not that rich it is all due to FOMO and fake mortgage applications claiming ppl are earning $400,000 when they are earning 80,000 and banks looking the other way and approving them for 1.5 million. Non of the homeowners can pay their mortgages with their incomes and it is all from refinancing.. USA 2007 comming to Ontario, Canada and deservededly so.

  • Reply
    Raj Rajah 4 days ago

    Only way to stop bubble stop fraud mortgage mortgage agent are setup fake document and get approval only they charge 1- 2% commission even though you don’t have job or your collecting CERB or CRB no problem they will get the mortgage even banker doing that specially Markham, Brampton and Mississauga just to find south Asian mortgage agent or banker most of all major bank mortgage specialist you can find them very easy just show them money they can do anything kind of mortgage you want to buy city no problem they will do it for you. Canada bank system as o cropped already bank manager mortgage specialist so cropped why everyone talk about government why no one talk about this why bank they don’t look at this? I know most of realtor sending there client to them and they done the job stress test not going to helping bubble only way bank should kick out all bad staff from and take legal action against them I know few people examble husband and wife working in a Tim Hortons they have 3 house how they qualify for the mortgage?

    • Reply
      Oldguy 3 days ago

      Of all the comments and brilliant analyses on this subject over the past few months, this is by far the most honest and damning.
      It is now totally clear that there is no one party who is responsible for the massive housing bubble in Canada. The blame must be shared by those who make policy, like the GofC and the BofC, and those who make money, including money launderers, mortgage brokers, realtors, insurers, banks, and many other peripheral players.
      The time has come for millennials to stop blaming boomers, and boomers to stop blaming the banks. Indeed, it is time to blame all of those who have managed and profited from this gigantic scam over the past 2 decades. We all know that the fix is in and the people who have rigged the market must be held accountable.
      Wake up, Canada, you have been screwed by your politicians and powerful businesses leaders and it is time to demand accountability and justice.

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