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Real estate: The federal government must stop stimulating soaring prices

Montreal, June 23, 2021 – Rapidly rising prices for residential real estate in Canada, whether in Montreal, Toronto, or Vancouver, has very tangible consequences for the middle class. In Vancouver, the average price of a detached house is now $1.7 million, and the average price across all home types is over a million dollars in Toronto. Meanwhile, potential buyers in Montreal are also faced with an overheated sector characterized by bidding wars. What explains this?

“The first thing to understand is that the supply of new properties is not rising as quickly as the demand. The situation has worsened over the past year as Canadians’ savings grew significantly,” points out Miguel Ouellette, Director of Operations and Economist at the MEI. “One solution would be to build more housing, which means more flexible zoning rules and an end to regulations aiming to impose the construction of social housing in residential towers. Indeed, these measures just drive up the prices of the other units, making them less affordable for the middle class,” adds the economist.

“The federal government also put measures in place in 2019 to make access to housing easier for first-time buyers. Even though the intention was good, this just pushes prices higher and makes buying more and more difficult,” explains Olivier Rancourt, Economist at the MEI.

“Extremely low interest rates also mean that people are ready to buy more expensive houses than before. We need to remember that interest rates have been at historic lows for more than ten years now. In short, with municipal governments slowing the construction of new housing and a federal government stimulating prices, there’s nothing surprising about the current situation. But it could well prove untenable, or at least very difficult for the middle class,” concludes the economist.

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The Montreal Economic Institute is an independent public policy think tank. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

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Interview requests: Marie-Eve McNicoll, Communications Advisor, Cell. 581-777-5060, Email: memcnicoll@iedm.org

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