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Ask real estate industry reps what policymakers should do to cool Toronto’s housing market, and you’ll likely hear something along the lines of this: increase supply.

The mortgage industry has said as much. So have the Toronto Real Estate Board (TREB), the Building Industry and Land Development Association and the Ontario Real Estate Association.

Yet not everyone agrees doing so is enough.

“There is real urgency in the situation, before prices soar dangerously higher and this becomes a big bubble. Only steps to control demand can offer near-term relief,” writes BMO Chief Economist Douglas Porter in a recent research note.

It takes years for supply-side measures, such as releasing more land for development or approving developments more quickly, to have a real impact on pricing. By then, the market may be even more overheated, Porter suggests.

Already, in February, the average price of a home, including condos, in the Greater Toronto Area had soared to $875,983. That’s up a blistering 27.7 per cent from February 2016, according to TREB.

Conventional bubble wisdom suggests “cooling demand” is the fastest-acting response to price gains like that, he adds. “Any moderate increase in housing supply will be swallowed whole in the great maw of raging demand.”

Porter refers to several past bubbles from 1637 to 2006 to demonstrate his point. “Do you think the best remedy to the US housing bubble in 2006 was to build yet more homes in Vegas, Phoenix and Florida?” he asks.

As for a specific solution on the demand side, he describes a measure targeting “non-resident purchases” — so, a foreign-buyer tax — as an “obvious prescription.”

Although some observers, including TREB, have argued against this type of action, calling for more data first, Porter casts doubt on the need for any more numbers.

After all, typically these data are collected via surveys, which are hardly perfect. Numbers will ebb and flow on a monthly basis anyways. And even if policymakers have accurate figures at hand, does it change the overall response?

“Is 2 [per cent] worth imposing a tax? 4 [per cent]? 6 [per cent]? And, if it’s as high as 10 [per cent], is that so high that a tax could threaten the stability of the market?” he asks.

Still, Porter is clear that policymakers shouldn’t ignore the supply issue altogether. “No doubt, policymakers should do what they can to alleviate supply constraints, and a shortage of listings is helping send prices skyward,” he states.

“But, history teaches us that in an overheated market, or what some (ahem) may even call a bubble, we have to look first at cooling demand.”

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