OECD: Housing Correction A Huge Risk; Further Tightening Needed

A report by the OECD on Monday suggested that Canada’s housing regulations be further tightened and regionally targeted to help with the booming real estate markets in some major cities.

According to the Organisation for Economic Co-operation and Development, a haphazard housing market correction, especially in Toronto and Vancouver, is the major domestic negative risk to Canada’s economic outlook.

The report revealed that weak-points in relation to housing and high household debt are still on the up, although at a slow pace.

The efforts made by Canadian authorities to boost and secure the housing market was acknowledged by the OECD but added that regionally focused measures ought to be contemplated.

Since 2008, the Canadian government has taken actions, about five times to cool off heated housing markets, with the most recent in December of last year.

However, policymakers are concerned and plagued with the need to inhibit certain housing markets from becoming overheated without affecting commodity-sensitive regions by depressing already slow activity.

Last week, the Bank of Canada cautioned that the fast increase in home prices in Toronto and Vancouver is unlikely to continue.

Based on the OECD, suggested measures could go beyond the alterations to capital requirements in regions with high price-to-income ratios already prepared by Canada’s financial regulator in order to ensure that capital requirements are more responsive to market developments.

New Zealand was cited as an example as policymakers have implemented lower caps on loan-to-value ratios in the hot Auckland market.

In total, the OECD believes Canada’s economy could grow 1.7 percent this and 2.2 percent next year, with hardly a change from forecasts released earlier this month.

It previously forecast 2 percent growth in 2016 and 2.3 percent in 2017.