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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40 year mortgage amortization
Literally the exact thing they’re warning not to do. haha.
Imagine what happens if they do nothing, but it doesn’t correct. It’ll be hilarious.
someone should tell them they did something wrong by reducing interest rates to 0.05%. U just need to reverse it back to its previous value to avoid this big bubble in making.
Anyway I have plan to invest in USA real estate then Canadian as i don’t want to commit economic suicide once something bad happens.
They should have left the market alone in 2015. Now they’re stimulating it, trying to reel it in, and stimulating it again.
In the end, it’s all a play to balance the budget. Transfer taxes, increased property tax rate adjustments, permitting value, etc.. Boomers pushed all of the liabilities after the window of their generation, now everyone needs to generate taxes to pay it back.
Vancouver is a mess for this reason. They don’t collect any property taxes from seniors, regardless of their income, and it accrues interest at a rate lower than inflation.
Essentially a Boomer subsidy for as long as they live, while having to collect actual operation funding from new development and current tax payers.
That Boomer property tax deferral scam in BC is an abomination. But it’s a testament to the apathy of Millennials that they aren’t marching in the streets over that.
Incredible!
The tax deferral is hardly a subsidy. It is a first charge against the title (even before mortgages), and is at a rate equivalent to the City’s cost of borrowing.
Most of the people who qualify are on fixed income and do not have the cash to pay the ever escalating cost of property taxes which for years have exceeded the inflation rate.
What you are suggesting is that after thirty plus years of paying property taxes that you are going to force seniors to grovel and prove impoverishment in order to stay in their neighborhood.
When the property is transferred the deferral is paid off, so generally, the deferrals and repayments are in balance as the program has been operating for several decades.
I would suggest that unless you are in the position of having reached this stage of life that you are in no position to carp about it otherwise it sounds like more me, me, me whining.
Boomers : “Free market for THEE but not for ME!”
If these old people cannot pay their property taxes, the free market dictates that they SELL their home and move to a cheaper city.
Isn’t that what Boomers tell Millennials? To move somewhere cheaper? Why does that advice not apply to Boomers who didn’t properly manage their finances and are house-poor? It’s not the job of Millennial wage earners to pay higher income taxes to bail these people out.
Maybe the old folks shirking property tax in $3 million homes should skip the avocado toast.
Reply to SH
The deferral is fundamentally a group reverse mortgage. As a minimum equity position is required, it is unlikely it will cost millennials anything except perhaps some of their inheritance.
Keep in mind that this is your parents and grandparents – not some imaginary class enemy.
Not surprisingly you didn’t even address the points I made.
If Millennials are supposed to leave big cities (indeed, this is what Boomers tell them to do), then Boomers can do the same if they can’t afford the costs.
They are not ENTITLED to be given legalized evasion of property taxes, to be compensated for by Millennial workers, just before they are old and financially illiterate.
Why are Millennials, most of whom will likely spend their retirement eating gruel in a rooming house thanks to the Boomer debt overhang, supposed to feel sorry to rich old people in $5 million houses propped up by the government? Boomers didn’t give a rat’s behind as Millennial education and housing costs skyrocketed thanks to government intervention that benefited Boomers.
Stop whining and pay your taxes.
I often wondered why all my neighbours sold every 3 years.
Well I found out none of them paid their city taxes, and after 3 years they flipped, because after 3 yrs of not paying taxes the city forecloses.
Living on the edge
That’s a FUCKING HILARIOUS scam. Like, I am a socialist so in favour of people paying their taxes, but honestly if leave a loophole that big you bring it on yourself.
Canadians may be ‘living on the edge’ but at the current rate of home price appreciation, they’ll soon all be living in million dollar homes. Envy of world … until mortgage rates increase of course.
Banks want to cool down the market – whom are they going to lend the money then? Capital investments have been on a decline for last 7 years, banks wouldn’t want to kill their golden goose.
I wouldn’t trust any of the bank economist opinions. They on the bank payroll and are therefore clearly biased.
After all….why not? Why shouldn’t I keep it?