Photo: Chris Fithall/Flickr
Forces behind strong growth in Canadian home prices of late aren’t unique to the Great White North, a top banker from the Land Down Under suggests.
“We have both had strong housing markets over recent years and there are concerns about the level of household indebtedness,” said Philip Lowe, governor of the Reserve Bank of Australia.
“There are some similarities in the factors at work,” added Lowe in his speech prepared for the Australia-Canada Economic Leadership Forum in Sydney last week.
Here are four of the similarities between the two countries’ real estate booms, according to the Aussie central bank’s governor.
Low interest rates
“With interest rates so low and our economies being resilient, it is not so surprising that people have found it an attractive time to borrow to buy housing,”
This month the Reserve Bank held interest rates at 1.5 per cent. The Bank of Canada is expected to stay on the sidelines during its next interest rate announcement, which is scheduled for March 1.
Currently, the Bank of Canada’s target for the overnight rate, which influences mortgages (here’s how), is at a historically low 0.5 per cent.
“Our populations have been growing quickly for advanced industrialized countries,” Lowe observed.
Australia’s year-end population gains have averaged 1.7 per cent throughout the past 10 years, while Canada’s have tracked at an annual rate of 1.1 per cent.
Recently, these rates have been converging, he explained.
“Another similarity is that there has been strong demand from overseas residents for investments in residential property,” Lowe continued.
Both countries have seen policymakers try to address the influence of foreign buyers on home prices through different measures.
In August 2016, the BC provincial government began charging non-residents a 15-per-cent tax on residential real estate purchases in Metro Vancouver, for example.
“Some state and provincial governments have recently levied additional taxes on foreign investors in residential property,” said Lowe.
“Another characteristic that we have in common is that at a time of strong demand from both residents and non-residents, there are challenges on the supply side,” Lowe noted.
“In some parts of Australia, there has also been underinvestment in transport infrastructure, which has limited the supply of well-located land,” said Lowe. “The result is higher prices.”
Ben Myers, a market observer with Fortress Real Developments, recently championed transit investment as a way of improving affordability in the Greater Toronto Area, Canada’s largest market.
“I’ve always pointed to additional transit spending,” Myers said on BuzzTV, BuzzBuzzNews’ Facebook Live show. Few TTC riders are likely to object.