The OECD has issued a long to-do list to Canada’s new government and the provinces: Cool down house prices, act as a group on climate change and cover essential drugs in public health plans.
The Organization for Economic Co-operation and Development also forecast lean times in today’s report, though it did project Canada will rebound from the oil shock.
It projected economic growth in Canada at 1.2 per cent this year, which is in line with other predictions, 2 per cent in 2016 and 2.3 per cent in 2017. Unemployment was forecast at 6.9 per cent, 6.8 per cent and 6.4 per cent.
For the global economy, it called for growth of 2.9 per cent, 3.3 per cent and 3.6 per cent.
Of note in the report was a warning that Toronto’s housing market risks a sharp fall, though it also rang alarms over Vancouver’s inflated prices.
Echoing calls by other groups, the OECD urged Prime Minister Justin Trudeau’s young Liberal government to hose down those markets.
“Given the supportive monetary stance, high household debt and strong price increases in some markets (single dwellings in Toronto and Vancouver) that are already expensive relative to fundamentals, further macro-prudential tightening on mortgage lending in these markets, such as maximum loan-to-value or debt-servicing ratios, should be implemented to ensure financial stability,” it said.
The warning over Toronto was particularly harsh as the OECD cited, among other things, condo and apartment construction.
“At the national level, housing starts are running at the higher end of demographic requirements and housing investment is robust,” the group said.
“In Ontario, and especially Toronto, economic activity has been relatively buoyant and demand by foreigners has been boosted by the falling Canadian dollar. That said, newly completed but unoccupied housing units have soared in Toronto, increasing the risk of a sharp market correction.”
Other observers have dismissed such fears, though some are keeping a wary eye on residential construction.
CIBC World Markets responded to the OECD’s Toronto warning today by citing a previous study by the bank that suggests “the most widely used data on unabsorbed units overstates and misrepresents the level of standing condo inventory.”
Today, Canada Mortgage and Housing Corp.’s monthly reading of construction showed starts falling to an annual pace of 198,065 in October from 231,304 a month earlier, as multiples fell.
But the trend, a six-month moving average, showed a rise to 206,089, largely because of new condo and rental units.
And as BMO Nesbitt Burns senior economist Benjamin Reitzes pointed out earlier, the “demographic demand is around 190,000 units per year.”
In Toronto alone, the annual pace slipped to 38,722 units from 58,016, but, again, the trend was still running at September’s pace.
“Tight conditions in the resale market for single-detached homes have caused demand to spill over into the new home market,” said Dana Senagama, CMHC’s principal market analyst for the Toronto area.
“Pre-construction condo sales, which began increasing in mid-2013, are also converting to starts.”
There was more on the OECD’s mind than just overvalued housing markets, including climate change.
“The four largest provinces have adopted, or are in the process of adopting, price instruments – cap and trade or a carbon tax,” it said, noting Canada is not “on track” to meet its targets.
“To reduce abatement costs, the other provinces and territories should follow suit. However, emissions reductions would be less costly if provinces co-ordinated or the federal government took the lead on a national greenhouse gas abatement policy.”
The OECD had several other suggestions, including expanded coverage of essential drugs in health plans.