OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
Deconstructing Canada’s Housing Markets
Finance, Affordability and Urban Sprawl
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).
Keywords: financial regulation, urban sprawl, financial system risk, housing, house prices, household debt, affordability, subprime, urban planning, mortgage markets, densification, development charge, housing finance, land use, compact growth, property tax, macroprudential regulation, rental markets, mortgage securitisation, social housing
H71: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Taxation, Subsidies, and Revenue;
H21: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Efficiency; Optimal Taxation;
R38: Urban, Rural, Regional, Real Estate, and Transportation Economics / Real Estate Markets, Spatial Production Analysis, and Firm Location / Production Analysis and Firm Location: Government Policy;
R52: Urban, Rural, Regional, Real Estate, and Transportation Economics / Regional Government Analysis / Regional Government Analysis: Land Use and Other Regulations;
R21: Urban, Rural, Regional, Real Estate, and Transportation Economics / Household Analysis / Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand;
G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation;
R48: Urban, Rural, Regional, Real Estate, and Transportation Economics / Transportation Economics / Transportation Economics: Government Pricing and Policy;
G23: Financial Economics / Financial Institutions and Services / Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors;
R31: Urban, Rural, Regional, Real Estate, and Transportation Economics / Real Estate Markets, Spatial Production Analysis, and Firm Location / Housing Supply and Markets;
E61: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Policy Objectives; Policy Designs and Consistency; Policy Coordination;
E02: Macroeconomics and Monetary Economics / General / Institutions and the Macroeconomy;
G22: Financial Economics / Financial Institutions and Services / Insurance; Insurance Companies; Actuarial Studies;
R58: Urban, Rural, Regional, Real Estate, and Transportation Economics / Regional Government Analysis / Regional Development Planning and Policy;
R14: Urban, Rural, Regional, Real Estate, and Transportation Economics / General Regional Economics / Land Use Patterns;
H42: Public Economics / Publicly Provided Goods / Publicly Provided Private Goods;
E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy;
G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages