The Government of Canada (GoC) is facing mounting pressure to do more about home prices. BC-based housing activist Raymond Wong launched an e-petition last week. The petition calls for the Bank of Canada (BoC) to consider home prices when setting rate policy. In less than a week, the petition has enough signatures to be certified and read in parliament.
Petitioning Quantitative Ease, And Its Impact On Market Distortion
The petition targets the BoC’s use of quantitative ease (QE), and how it makes market distortion. “Quantitative easing is a type of monetary policy in which a nation’s central bank tries to increase the liquidity in its financial system, typically by purchasing long-dated government bonds from that nation’s largest banks,” reads Wong’s take on QE. Adding, “Quantitative easing creates wealth inequality, asset inflation, and keeps interest rates artificially low.”
That was a pretty good and concise description of QE. In order to suppress interest rates, the BoC buys bonds to push prices higher and lower yields. Since GoC bonds are used as a standard of costs, other bond issuers get to pay lower yields as well. Who wants to pay more interest than they have to, right?
The artificially low rates are great for bond issuers, who get dirt cheap cash. However, when you make a market inefficient, other areas become inefficient as well. It creates a massive distortion, usually in all asset classes. However, that distortion becomes especially problematic with necessities, like housing.
Petition Asks For Limits To Central Bank Powers, and Credit
Removing a policy tool like QE may be out of reach, so the petitioner has asked for other measures to go alongside. Here’s the four points:
- Limit or cap the amount of residential mortgages issued from chartered banks;
- Tighten credit for investors by chartered banks (minimum 40% down payment);
- Increase and strengthen the OSFI B-20 stress test; and
- Ask the Bank of Canada to consider ‘housing’ as part of their decision to either hike or drop interest rates.
Two of those policies are proven to be huge winners with the public in other countries. New Zealand tightened investor credit and created a directive for central banks to consider home prices in their policy.
The other two, limiting residential mortgages and a stronger stress test may seem weird. However, South Korea has already implemented a similar, but more extreme version. They straight-up banned mortgages in certain areas of the country. The idea being the more credit a buyer obtains, the more a high-income investor can extract in resale. By limiting the qualified buying pool, prices will have to fall to where liquidity can be supported.
The Petition Already Has Enough Signatures To Be Presented In Parliament
The petition was only launched on April 16, 2021 and has already met the threshold to be read in parliament. An e-petition requires 500 signatures before they are presented in parliament. At over 600, it’s cleared that hurdle. More signatures demonstrate a greater sense of constituent urgency though. After it’s read, the government is required to issue a response.
Does this mean the Federal government will actually change policy? Not exactly. However, Wong previously played an instrumental role in BC’s non-resident home buying tax. Prior to his last petition, some politicians had said it would be impossible. By the first of next year, it will be a national housing policy in Canada.
Just getting the petition read in parliament isn’t a sure path to adoption. However, it will force the sitting government to respond to the request. In this response, they’ll let the public know exactly how they feel about a policy known to drive inequality.
You can read the full petition here.
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