Canada

IMF Recommends Canada Implement Anti-Speculation Taxes, Cites Real Estate As Risk

Canadian real estate prices are once again the focus of an international agency. An IMF annual staff audit cites home prices as one of the biggest threats to the country’s economy. The agency suggests avoiding tax deductions and subsidies, which will compound the country’s rising inequality. They also recommend mitigating leverage build up, and taxing speculators — similar to how Canada targeted foreign buyers. 

Canadian House Price Correction A Top Risk For Economy

One of the top risks for the country is home prices, warns the international agency. The IMF is concerned a turn in the pandemic, or interest rate normalization, can destabilize housing markets. The agency warned of interest normalization during the foreign buyer “mini-bubble” in 2017. Soaring debt and home prices have since become a national issue, as the BoC uses housing to drive an economic recovery.

One suggested solution is to ensure adequate loss buffers. In addition, provide “emergency liquidity as needed.” Lastly, to “loosen policy if credit falls significantly.” They probably should have elaborated on “significantly,” since Canada is credit trigger happy.

Canada Is Experiencing Rising Inequality — Subsidies and Tax Deductions Will Make It Worse

Canada has been experiencing rising inequality, and it’s going to get worse. The agency bluntly states, “the crisis will also exacerbate wealth differences between asset-rich and asset-poor households.” After all, if you’re inflating the price of assets, those without them suffer from an even larger gap. Those with fewer assets will not gain nearly as much as those with many assets. 

Canada’s solution in the past has been subsidies and tax deductions — and it hasn’t really worked before. That’s because it’s the exact thing experts warn against doing. The agency basically subs Canada’s strategy, by stating “well-intended measures — like direct subsidies and tax deductions — can have perverse effects on housing affordability by favoriting those that can already afford to buy a house at the longer term-disadvantage of those that cannot, thus worsening existing inequalities.” 

Canada Should Tighten Lending, Remove Financial Supports

The IMF also recommends Canadian banks start becoming more prudent with lending. “Banks should be encouraged to lend under prudent conditions and be forward-looking concerning their pricing,” suggests the agency. They further, “mortgage contract parameters should be set such that borrowers can cover higher interest payments in the future.”

Canada’s federally regulated banks already test borrowers for the ability to handle higher rates. One assumes this means they would like to see more broad testing, or not to loosen the current measures. Ultimately, measures should be taken to “mitigate a system-wide buildup of leverage.” 

IMF Recommends Canada Tax Real Estate Speculators 

One somewhat unexpected recommendation from the agency is implementing demand cooling measures. The country addressed the foreign buying “mini bubble,” in 2017. However, that segment of speculator is no longer the broad issue seen across the country. Now domestic speculators, who were given the home-field advantage, have taken over unchallenged.

The staff suggests, “provincial and municipal real estate taxes on non-residents could be eliminated or harmonized into broad-based tax measures targeted at speculative activity more generally.” 

The market inevitably may get new cooling measures, but they won’t get them in the near term. BMO recently said they don’t see the ability to implement them before the Spring market. At this point, fast rising home prices are unlikely to be challenged. Some  economists believe this will result in a textbook bubble — making it more dangerous to cool.

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32 Comments

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  • RW 4 months ago

    Canada won’t implement cooling measures, because it views people the same way as it constructs a CPI basket — you can substitute.

    Who cares if you can’t have the local millennials in the city? You’ll find new ones that are willing to work for less and pay more.

    • George 4 months ago

      This… is an odd take, but starting to feel strangely accurate every time you hear Canada rushing to issue new debt and attract more wealthy immigrants, without every addressing the rising inequality.

      Except to give subsidies to developers, and more debt to young people (Hello BC’s second mortgage). Now we’re finding out this is the OPPOSITE of what they should have been doing to make things more affordable.

      • Jimmy 4 months ago

        Affordable to them means more debt at low rates; not low prices. “The Great Reset” “You will own nothing and be happy.” The young will be basically renting from the banks.

  • Michael Wright 4 months ago

    As everyone suspects, Canada won’t implement any measures on its own.

    Like money laundering, foreign buying, vacancies, and beneficial ownership… the global economy will force it to be responsible. We’re like the little brother that can’t get a job, and needs to constantly scheme to make an economy.

  • Kate 4 months ago

    I wonna cry because there is no future. If IMF started commenting what is going on, it is very smelly.

    • Ed Higgins 4 months ago

      The IMF previously commented on Toronto and Vancouver’s foreign buyer/money laundering bubbles in 2016, and Canada was forced to take action after it became an international embarrassment. Maybe it’s a good thing.

    • Average Man 4 months ago

      “I won’t cry because there is no future.”

      JESUS

  • Joe B 4 months ago

    Why is this is not being reported in mainstream news? Canadians deserve to know about this and the media should not be suppressing it.

  • Joe B 4 months ago

    Why is this not being reported in the mainstream media?

  • John lavin 4 months ago

    Why is that each time a crisis occurs in the housing market or any other for that matter some government somewhere always recommend a new tax of some sort. That is precisely what is not needed. People buy real estate in particular houses because it is the last asset they will not have any profits stolen from them in the form of taxes.
    Housing is so expensive because of government interference in many forms in the economy. Government prints currency thereby devaluing existing currency with the result that assets including housing are inflated to make up for the loss of purchasing power.
    Taxes need to be reduced in particular the capital gains tax and that money will find its way into other assets besides real estate, there is little chance of this happening however with the bloated and corrupt spending that has taken place in this latest hysteria.

    • Elle 4 months ago

      Spot on. People nowadays don’t understand that home ownership isn’t a right. Get rid of CMHC and make the banks shoulder the risk. Government needs to get out their own way.

  • Holton 4 months ago

    Well, they should have done that in 2016-2017. After the pandemic money printing spree and low interest rates its too late.

    They will simply do what Asia have done, keep house price increase at a controlled paste at the same time allow inflation to increase faster than housing for 10 years. At which time home prices relative to all other goods will be less.

    • TR 4 months ago

      Huge issues across the board. When people said, “Maybe we should cool things in the best economy while we can without an issue?” No one except for the BC provincial government listened.

      They all thought this was going to last forever, so they spent time posing for international magazines and doing interviews about how they’re the anti-Trump, and that’s why the economy is growing. Have the international press run around Vancouver, and see what’s happening. It’s not the situation people think it is.

  • Fight Back 4 months ago

    One way we can do this is implement a speculator tax on people who own more than one residential property in unaffordable cities in Vancouver and Toronto.

  • Old Greg 4 months ago

    Your home prices are not going up its your dollar going down… I am paying for 5% interest rates!

    • TR 4 months ago

      That’s not how inflation works. A devaluation of the dollar would be a broad issue observed across all purchasing power. The purchasing power is also relative to other countries.

      Asset inflation due to high growth of credit supply in an economy where there’s high unemployment that can’t use the credit growth is a whole other issue. High employment and fast wage growth leads to fast credit growth. These bozos think if you grow credit, the high employment just comes too.

      It’s like saying, “I got drunk in college, therefore when I get drunk I’m in college. ” The reverse isn’t true, it’s just been an assumption since the Great Recession that if you treat the banks well, everything else will follow.

  • Robert 4 months ago

    Is there link to original source (on IMF website or something) for this info? For some reason could not find it anywhere

    • TR 4 months ago

      I’m a reporter at national news outlet. Depending on your beat, press analysis is sent in advance of publication.

      I’m not sure if this one was publicly released (or sent to government for feedback), but I would expect IMF or Government of Canada media relations sent an embargoed copy to all Canadian economics reporters.

  • IthoughtWeWereSmarter 4 months ago

    Here’s a major part of this ongoing, ever-inflating bubble; the MEDIA.
    They jump onboard to all information that shows things rising exuberantly, however they downplay anything negative. And the longer this rush of madness continues, the masses are going to hurt that much more when it corrects.
    This release of information from the IMF should be loudly spread to all the crazed hoards suffering from FOMO. If they don’t get the hint that something is amiss, they’ll just continue on their merry way into a more painful future!
    Tell your friends! Write your newspapers! This is critical to an entranced country!!
    I just feel for my kids and their kids, grandkids, great grandkids…..

    • Little Birdie 4 months ago

      The ongoing, ever inflating bubble is also thanks to realtors. The media gets the news story, brings in an “expert” to speak (aka realtor), who of course has a vested interest in prices increasing.

      What I do wonder, however, is how much money has been sucked out of other areas of the economy going into the black hole of housing. The economy is seriously and dangerously unbalanced.

  • jim 4 months ago

    Could someone reply to a previous comment for the “original source”?

    Previous comment: “Is there link to original source (on IMF website or something) for this info? For some reason could not find it anywhere”

  • IthoughtWeWereSmarter 4 months ago

    Again, the mainstream media as a whole, will likely shelter the truth! Let’s find out! That’s not directed at you, TR.

  • Julia 4 months ago

    If you think there is a housing crisis write your MP: https://www.canadahousingcrisis.com/

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