(Bloomberg) -- Foreign buyers aren't the main culprit behind skyrocketing home prices in Canada, said the head of the nation's housing agency.
“Foreign investment is a thing, not the thing that's driving demand,” Evan Siddall, president of Canada Mortgage and Housing Corp., said in an interview with Bloomberg TV Canada in Vancouver on Wednesday. “We pay attention when people who look different from us buy houses next door. We don't pay as much attention when people like us buy the same houses for the same prices.”
Siddall's comments come amid a public outcry in Canada, where home prices are rising the fastest in the world after New Zealand when adjusted for inflation. In Vancouver, the nation's priciest market, the provincial government imposed a 15 percent tax on overseas buyers in August in an effort to curb gains.
Foreign ownership in condominium apartments is declining in Vancouver and Toronto, and overseas landlords still only represent 2.2 percent and 2.3 percent of ownership respectively, according to a survey also released Wednesday by the Ottawa-based agency.
“Everything we see suggests that there is a whole lot more domestic investment activity in the real estate sector than foreign investment activity,” Siddall said. “This buy-and-flip mentality that happens in higher priced markets like Vancouver and Toronto only make the affordability problem worse.”
Not Rational
The recent slowdown in the Vancouver market isn't the result of the tax on foreign investors, but more likely “the belief” among local buyers that the tax would take the froth out of the market, Siddall said.
“One of the real challenges of housing is that people don't necessarily behave rationally,” he said. “Making policy that affects behaviors is a tricky thing to do.”
Siddall was in Vancouver to give a speech on housing that delivered similar messaging: Canada's household debt and housing problems are home-made.
“The evidence tells us that the origin of investor activity in Canadian residential real estate is predominantly domestic,” Siddall said in the speech.
Supply Issues
In the interview, Siddall said a bigger factor influencing short-term price gains in markets like Toronto and Vancouver is lagging supply response.
“We're calling for more action on the supply side,” he said. “In places like British Columbia and Ontario it's actually more important to have a more aggressive supply response.”
Recent measures announced by the federal government, including a proposal for banks to share the burden of mortgage defaults, were necessary, Siddall said. “We can't regulate markets completely,” he said, but the steps at least ensure that the government doesn't “fan the fires.”
The new federal rules also imposed stricter eligibility requirements for those seeking mortgages. Some say the rules will hit first-time homebuyers inordinately hard, shutting them out of the market.
Surging home prices are distorting the economy by diverting money into houses rather than more productive uses like businesses, Siddall said. “Doing things to make it not quite so easy to invest in homes is good for our economy,” he said.
--With assistance from Greg Quinn and Theophilos Argitis To contact the reporter on this story: Natalie Obiko Pearson in Vancouver at npearson7@bloomberg.net. To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Theophilos Argitis, Chris Fournier
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