Toronto and Vancouver’s lofty real estate prices could drag down the Canadian economy if action isn’t taken to wrestle them under control, warned the chief executive of the Royal Bank of Canada on Thursday.
According to the Financial Post, Dave McKay, who is also RBC’s president, said that both cities have seen their housing markets hit a “point of strain” and that concrete action from multiple levels of government are needed to deal with the problem.
His comments come a day after data from the Toronto Real Estate Board showed housing prices in the city rose 33.2% in March, leading prices for the average home to jump from $688,011 to $916,567 in just 12 months.
McKay also suggested that if the current runup continues, Canada’s economy risks seeing otherwise productive capital being thrown at building and buying homes.
“While we remain confident in the strength of our mortgage book, we believe that if this issue goes unchecked, it could drag on consumer spending, locking up too much capital unproductively, and potentially becoming an inhibitor to Canada’s future economic growth,” he told shareholders, according to the Financial Post.
This is an interesting comment. We know that the Canadian economy is benefitting from the housing booms in Ontario and B.C. But McKay raises the possibility that entrepreneurs could be chasing real estate wealth, rather than investing in tech startups, starting their own businesses, and generally contributing to industries that makes Canada competitive on the global stage.
McKay’s comments follow a call for action from James O’Sullivan earlier in the week (link requires a subscription). The head of Scotiabank’s Canadian banking division said that new policy is needed “sooner, rather than later,” although he cautioned against any action before the spring buying home season is over.
Of course, while Vancouver and Toronto dominate the discourse around Canadian housing, this is a quick reminder that many markets in the country actually are still very affordable. Outside of parts of Ontario and B.C., prices in Canadian cities have either been flat or declining in the past two years.
Something to consider while you read those depressing headlines about Toronto housing.