Here's a surprise. In its semi-annual Financial Stability Report, released today, the Bank of Canada identifies what it considers to be the most significant risk facing the financial system today: high household debt levels caused by soaring house prices.
So this is unlikely to help. Just hours after the Bank released its report, the provincial government in British Columbia announced a program to provide interest-free loans to first time buyers who can't come up with a downpayment. BC is going further than any other province in trying to micro-manage its housing market: it's just a few months since the government slapped a special tax on foreign buyers, who are blamed for pushing up prices at the top end of the market in Vancouver. But really, no Canadian government seems able to resist the temptation to mess with housing. Ontario only recently announced it would increase its existing land transfer tax rebate for first time buyers, also with the stated aim of increasing affordability.
It's entirely predictable that BC's latest brainwave, like the Ontario tax rebate, will push up overall prices at the lower end of the market, while helping relatively few people to acquire their first home. And all the while, Governor Poloz and his colleagues at the Bank of Canada must be biting their nails to the quick, as politicians pump the market, and the associated risks, ever higher.
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