Between a Rock and a Hard Place


By Miles Clyne

Canadian governments, both provincial and federal have dragged their feet relentlessly on trying to slow
the rising prices of real estate. The conflict of interest governments have regarding taxation and policy is
seldom so obvious. The higher real estate prices go, the more tax revenues they get. The question
governments should have been asking themselves on this subject, and all others is; are our policies
stabilizing or destabilizing our citizens?

The setting of interest rates is driven by monetary policy, which is set by the central banks of a country.
AKA, the government. A very important question is: has our government’s monetary policy, which has
kept interest rates at historic low levels, ultimately put many citizens at risk with their personal debt?
Low interest rates have contributed to escalating real-estate values and consumers to temporarily afford
massive mortgages and other personal debt. Canadian’s are at a higher risk than ever before according
to the central bank body’s debt-service ratios, which measure debt owing as a percentage of total
income. The answer seems to be yes.

Not only have governments allowed interest rates to stay too low for too long, they’ve allowed other
factors that influence house prices to go unchecked. Now that prices are unaffordable for many. They
are starting to put some “Johnny come lately” measures in place.

New rules and laws to curb money laundering through real estate are finally happening. Newer rules
out of China & BC have also slowed some foreign real estate investment in Canada, but Canada is still a
choice location. Will they be enough to stabilize housing markets at very least and let supply catch up to

Here is a Catch 22. In 2018 full-time positions in Canada shrank and wage growth decelerated,
prompting analysts to predict the Bank of Canada will be in no rush to raise rates. Our BoC Governor
Poloz backed this up with recent comments that were construed to be “Dovish”, which supports that
Canada won’t be raising interest rates immediately.

If Canada will be forced to keep interest rates low, our currency could weaken compared to countries
where they are raising or have higher interest rates. If I was a foreigner wanting to buy property in
Canada with US dollars, I could currently enjoy about a 30% discount to a Canadian buyer given the
exchange rate. The Bank of Canada is in a tough spot. By trying to keep our economy on the rails, they
are increasing our competitive disadvantage (For example US dollars buys a $750,000 property for
$525,000). This is the exact opposite of what needs to happen.

Now a municipal government, West Kelowna wants to be excluded from the BC vacant property tax.
They are worried it will impact out of province owners in their area and may force them to sell. Duh, this
is the point of the tax? Maybe if Federal, Provincial and Local governments had been more vocal on
protecting the rights of citizen’s in the past, they wouldn’t have this concern.

However, those selling now might be grateful if the real estate bubble bursts, and then they can buy the
property back at lower price and easily pay the extra tax. Is your head spinning yet? All I can tell you is
keep your margin of safety higher by keeping your debt lower, these are very interesting times.