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.
Like this post? Like us on Facebook for the next one in your feed.
Imagine when they officially respond that they don’t care. LOL
Smarter choices people. Let politicians know it’s a problem if it’s actually a problem for you.
This whole thing just reminded me of how much other countries are trying to contain much lower price growth, while our government tries to pump them higher.
I don’t think they are trying to pump them higher, I truly do believe that they just don’t know what they are doing.
There is a subtle difference between saying you don’t want a crash in the housing market and “frying it up.”
If anything is going on, it’s intelligent con artists who are fleecing buyers who intend to buy and hold a house for occupation rather than flipping.
High houses prices without supporting income is a recipe for disaster. More the proportion of income being spent towards servicing the debt, the lesser available for other parts of the economy.
QE is not the only problem. Other problems that contribute to unobtainum housing and increased cost of living include:
>foreign millionaires investing in real estate which increase property tax for those that already own a home
>Canadian corporations taking on more debt instead of paying it down and thus reducing the money supply like what Japanese corporations have been doing for the past 30 years
>500k immigrants every year
>destroying the value of Canadian colleges and universities by letting in hordes of foreign students and by also making it easy for people to get in
>giving tax credits to big corporations
>not eliminating capital gains tax
>destroying public education system from K-12
The list goes on.
Dude I don’t know who you are but you are hitting on every single point. 1000% agree.
Thanks Kris!
I’m living in NZ after more than a decade in Canada. Can’t believe how little the Canadian govt is doing to address a policy that is known to create massive inequality. Whose interests are they governing in?
China’s.
Agree. We got sold out.
If the CPI properly reflected the true increase in housing costs, we would not need to change the BoC’s mandate at all. They would, by default, have to consider house prices, because those house prices would already be fully represented in the Consumer Price Indices they use to target inflation.
Right now, the shelter component constitutes about 22% of the CPI. It is comprised of rents, mortgage rates, and “net replacement value” of housing. They need to drop mortgage rates entirely from the CPI, and switch to a “net acquisition cost” for housing. Meaning the full price increase of housing must be factored in (like it is for all other items) rather than having housing “wealth” netted out.
The inclusion of mortgage rates is perverse. The very act of dropping mortgage rates inflates housing, while making shelter look cheaper in the index. It creates a distortionary feedback loop that never should have been allowed into the CPI.
If they did that then they would telling the truth which they don’t.
There are barely 900 signatures on this petition. Nobody cares.
When low-information Millennials and Gen-Z reelect this government (and they surely will), I don’t want to read or hear any more whining about housing affordability. They did this to themselves.
The partial closure of Pearson Airport due to the pandemic with resulting 20% decline in rents in downtown Toronto clearly shows that the main factor in housing demand is immigration. Lower immigration levels will result in lower rents and housing costs.