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Deconstructing Canada's Housing Markets: Finance, Affordability and Urban Sprawl

Author

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  • Calista Cheung

    (OECD)

Abstract

House prices have increased significantly in Canada over the past decade, driving household debt and residential construction activity to historical highs. Although macro-prudential tightening has slowed the pace of household borrowing in the last few years, house prices have continued to trend higher, and affordability remains a major challenge in urban centres. First-time home buyers must therefore spend more of their incomes to purchase a house and are vulnerable to future interest rate hikes. Overbuilding in the condominium sectors of some cities appears to be a source of risk, especially if a major price correction in these segments spills over into other markets. The country benefits from a sound and effective housing finance system, which performed well throughout the global financial crisis thanks to strong regulatory oversight and explicit government backing of the mortgage market. Nonetheless, the dominance of the crown corporation CMHC in the mortgage insurance market concentrates a significant amount of risk in public finances. Improving competitive conditions in the mortgage insurance market could help diversify these risks and reduce taxpayer contingent liabilities, while introducing coverage limits on loan losses would better align private and social interests. There may be a shortage of rental housing in several cities, especially in the range that low-income households can afford. Urban planning policies have resulted in low-density residential development which contributes to relatively high transport-related carbon emissions. Addressing these externalities requires stronger pricing signals for land development, road use, congestion and parking, combined with better integration of public transit planning. To prevent the marginalisation of low-income households, planning policies should support social mix and increase incentives for private-sector development of affordable housing. This Working Paper relates to the 2014 OECD Economic Review of Canada (www.oecd.org/eco/surveys/Canada).

Suggested Citation

  • Calista Cheung, 2014. "Deconstructing Canada's Housing Markets: Finance, Affordability and Urban Sprawl," OECD Economics Department Working Papers 1145, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1145-en
    DOI: 10.1787/5jz0zbg20h34-en
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    Citations

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    Cited by:

    1. Christophe André, 2016. "Household debt in OECD countries: stylised facts and policy issues," Chapters from NBP Conference Publications, in: Hanna Augustyniak & Jacek Łaszek & Krzysztof Olszewski & Joanna Waszczuk (ed.), Papers presented during the Narodowy Bank Polski Workshop: Recent trends in the real estate market and its analysis - 2015 edition, chapter 2, pages v1, 33-85, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    affordability; compact growth; densification; development charge; financial regulation; financial system risk; house prices; household debt; housing; housing finance; land use; macroprudential regulation; mortgage markets; mortgage securitisation; property tax; rental markets; social housing; subprime; urban planning; urban sprawl;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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