Speaking Notes for Evan Siddall, President and Chief Executive Officer, Canada Mortgage and Housing Corporation Greater
Vancouver Board of Trade
The Westin Bayshore
Vancouver, British Columbia
1601 Bayshore Drive
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It is my pleasure to be here today to offer our views on elevated house prices, their implications and what we are doing about it. I wish to acknowledge the ancestral, traditional and unceded Aboriginal territories of the Coast Salish Peoples, and in particular, the Squamish, Musqueam, and Tsleil-Waututh First Nations on whose territory we stand.
Vancouver: The Imaginary City
Vancouver is unique among Canadian cities. The artist and author Douglas Coupland had an interesting observation about this city; he said that: “Vancouver is the square root of negative one. Technically it shouldn't exist, but it does.” And he adds, marvellously: “I can't imagine living anywhere else.”
Mathematicians call the square root of negative one an “imaginary number.” Vancouver is a beautiful, special place. It is our Lotusland, and we’ve invested a somewhat utopian existence in it. Insightfully, Coupland signals that cities are as much social and cultural entities as they are economic ones.
These important social and cultural factors have caused your city to become celebrated for its enlightened approach to urban development — “Vancouverism” — with its emphasis on quality of life, on residential living in the downtown core, on density that works, on public spaces and view protection. The city regularly finds itself at or near the top of the list of the world’s most livable cities.
This livability factor attracts people: over the past decade, more than 30,000 people migrated to the Greater Vancouver area each year.1 This population growth in turn adds to demand for housing and pushes prices higher. And so Vancouver now also finds itself near the top of the list of the world’s most unaffordable places to live.2
So “imaginary” can be a two-sided concept: it can be either utopian or dystopian. This somewhat imaginary place may be both.
Finding Someone to Blame
Rising housing prices have begun to create unhealthy tensions that are seemingly pitting Vancouverites against one another: established homeowners against younger families trying to get a foothold in the market and existing residents against newer arrivals.
So, who is to blame for Vancouver’s affordability problems? To some, the scapegoat is obvious: blame foreigners. It's the recurring theme, the clear cause according to the twitterverse and many commentators. In fact, according to a 2015 Angus Reid poll, nearly two-thirds of Vancouverites believe that foreign investing is the “main cause of high housing prices” here.3 And of course all of us at CMHC are ignoring the elephant in the room.
In fact, we aren’t. While it would be convenient to hang all of the blame for high prices on others — offshore buyers — it’s just not that simple. Sure, it makes for a tempting narrative: them, not us. And while foreign investment clearly is a factor, it is not the only one.
Today, I would like to try to offer an assessment of this challenge, based on the evidence we have. In doing so, I will build upon the survey of “Housing in Canada,” delivered by my former colleague and prior Governor of the Bank of Canada, Mark Carney, when he faced you a little over five years ago.4 I’m also going to pick up on some of the observations Minister Jean-Yves Duclos made when he spoke here in September.5
At that time, growth in consumer debt was high on the Bank’s radar as an area of potential vulnerability. So too were rising house prices, which at the national level were over 3.5 times the average household’s disposable income.
As we know, the situation hasn’t got any better: in fact, it’s a lot worse. And as a consequence, household indebtedness and housing market imbalances represent increased sources of financial vulnerability in Canada.6
A number of factors, including foreign investment, but also domestic residential investing, population and economic growth, accommodative monetary policy, our tax regime, supply constraints and some other phenomena have all contributed to high house prices, most notably here in Vancouver.
What’s at Stake?
Recently, our national household indebtedness hit a high of 168 per cent of disposable income. The Bank of Canada continues to flag elevated household debt as the top vulnerability to financial stability in Canada.
We need to worry about implications for the health of our economy. As Mian and Sufi observe in their book, House of Debt: “Economic disasters are almost always preceded by a large increase in household debt.” They go on to call the relationship between these two factors “as close to an empirical law as exists in macroeconomics.”7 Of the 46 systemic banking crises for which house price data are available, more than two thirds were preceded by boom-bust patterns in house prices.8
Not only is the overall magnitude of household debt of concern, even more troubling is its distribution. 9My former colleague Larry Schembri reminded us recently that it matters who holds the debt, how able they are to service it, how likely they are to lose their jobs, and whether they have an adequate financial cushion to see them through adverse economic conditions, should they arise.10
And when researchers at the Bank of Canada looked more closely into these questions, they found that the level of debt held by the most indebted households had risen the most.11 The most highly-indebted households, those with a debt-to-gross-income ratio higher than 350 per cent, had doubled from around 4 per cent of indebted households immediately prior to the financial crisis, to around 8 per cent in 2012–14. This group of roughly 720,000 households held close to $400 billion in debt — about one-fifth of Canada’s overall household indebtedness. And almost 90 per cent of their debt was accounted for by mortgages.
Highly-indebted borrowers are more likely to be younger, first-time homebuyers. With potentially less employment experience due to their age, they would also be at higher risk of losing their jobs in the event of a downturn.
In short, they are a vulnerable group of Canadians who would suffer financial hardship should the economy take a turn for the worse, or should interest rates rise significantly. And given what we know about wealth effects and financial acceleration,12 should a weakening of the economy come to pass, their financial troubles could have spillover effects for the economy at large.
Housing Market Imbalances
Housing market imbalances are also a source of economic vulnerability. CMHC’s Housing Market Assessment (HMA) framework is our attempt to provide an integrated view on evolving housing market conditions and related vulnerabilities. It considers four factors to assess the evidence of problematic housing market conditions: overheating, acceleration in the growth of house prices, overvaluation and overbuilding. In particular, it looks for indications of imbalance in the market. For example, rising inventories of unsold new homes would suggest that supply is outpacing demand — an indicator of potential overbuilding.
Our latest Housing Market Assessment found strong evidence of problematic conditions for the first time across the country. We had already upgraded our assessment of problematic conditions in Metro Vancouver from moderate to strong. Continued price growth in Metro Vancouver and Toronto is of particular concern.