After the Bank of Canada raised its key benchmark rate by a whopping one per cent this week, everybody’s favourite analyst was telling people what the impact is likely to be. As for the housing market, the impact of a bank rate that is now 2.5 per cent — following the largest increase in 24 years — will naturally be felt.
It’s correct to say that the new interest rates will reduce demand and make home ownership more difficult for some buyers, simply by the bearing it will have on the people involved in each transaction.
However…
The real problem with home prices is the lack of supply. Fewer homes on the market lead to higher prices and that leads to inflation.
And the real problem with the inventory is that government has to "get out of the way" of developers who can increase the housing supply.
Get out of the way?
One developer in Vancouver spent two and a half years just trying to get a building permit despite doing everything right…and this was not for a huge complex, for which the delays could be even longer. Governments at all levels continue to get in the way of building homes by having overlapping regulations that can be misinterpreted, even within the same government.
For example, a provincial government may approve a regulation that is interpreted differently by a municipal government. The municipal government may have more than one department involved and sometimes they disagree on whether it should be approved. It has happened.
The result is delay-delay-delay.
Governments are also prone to over-regulating, lumping unnecessary regulations in with those that are good, and necessary. The costs of sorting out the confusion takes time and costs more, an expense that is ultimately passed on to the consumer. That, in turn, increases building costs…and home prices.
So really, the government does need to get out of the way of solving the housing sector’s plans for addressing higher home prices.