One of Canada’s largest banks isn’t joining its peers in a call for housing cooling measures. Scotiabank Chief Economist Jean-François Perrault thinks the country should take a wait-and-see approach. The bank is warning a hasty decision could unfairly penalize existing homeowners. They suggest Canada wait it out, because rising inventory may solve the issue in a few months on its own.
Canadian Real Estate May Cool On Its Own
The Big Six bank believes policymakers shouldn’t touch the market, because it will fix itself. The bank is joining the country’s central bank in the belief this is a temporary issue. By the end of the year, they see rising inventory levels and normalized demand cooling the market. A rise in inventory would remove the pressure on prices to rise further.
Perrault said, “we expect listings to rise as a result of the combined impact of the Spring market and higher prices.” Adding, “policymakers should wait to see how listings evolve relative to sales in the next few weeks before taking action.”
Scotiabank Is Against A Capital Gains Tax On Property
Scotiabank is against a capital gains tax on real estate, despite other banks calling for it. The tax, which is common in other countries, aims to close the tax advantage of real estate. Supporters of the tax argue it encourages other types of more productive investments.
Perrault said, “a more significant revision to capital gains on principal residences should not be considered.” He suggests, “a better approach would be to allow a certain portion of rents to be deducted from income.” He argues a capital gains tax, “represents a significant financial blow to Canadians.”
A tax incentive for renters may also allow higher rents to be more easily absorbed. This would reinforce higher home values, but that’s a topic for another day. Today we’re talking about Scotiabank’s suggestions.
Do Not Create Homebuyer Incentives, Warns The Bank
Experts might disagree on a capital gains tax, but they all agree — don’t give more buyer incentives. Virtually no one has suggested Canada adopt demand incentives, and the bank agrees. In addition to inflating home prices, Perrault says they don’t actually improve affordability.
He notes, “as appealing as these programs might be to policymakers, making it easier to purchase a home exacerbates the supply-demand imbalance.”
Further adding, “measures to increase affordability, such as an expansion of the First Time Homebuyer Credit or the Home Buyers’ Plan are unlikely to have a material impact on affordability at the aggregate level.”
Canada has largely resorted to more incentives, and increased credit capacity for “affordability.” Now everyone appears to be in agreement — these measures actually make things worse. The fact everyone, from the banks to the IMF, are stating this, tells us this time actually is different. There’s no room for “it might work.”
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