Housing in Canada and the Imaginary City: Addressing Vulnerabilities, Data Gaps and Affordability

Speaking Notes for Evan Siddall, President and Chief Executive Officer, Canada Mortgage and Housing Corporation Greater

Vancouver Board of Trade
The Westin Bayshore
Vancouver, British Columbia
1601 Bayshore Drive

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It is my pleasure to be here today to offer our views on elevated house prices, their implications and what we are doing about it. I wish to acknowledge the ancestral, traditional and unceded Aboriginal territories of the Coast Salish Peoples, and in particular, the Squamish, Musqueam, and Tsleil-Waututh First Nations on whose territory we stand.

Vancouver: The Imaginary City

Vancouver is unique among Canadian cities. The artist and author Douglas Coupland had an interesting observation about this city; he said that: “Vancouver is the square root of negative one. Technically it shouldn't exist, but it does.” And he adds, marvellously: “I can't imagine living anywhere else.”

Mathematicians call the square root of negative one an “imaginary number.” Vancouver is a beautiful, special place. It is our Lotusland, and we’ve invested a somewhat utopian existence in it. Insightfully, Coupland signals that cities are as much social and cultural entities as they are economic ones.

These important social and cultural factors have caused your city to become celebrated for its enlightened approach to urban development — “Vancouverism” — with its emphasis on quality of life, on residential living in the downtown core, on density that works, on public spaces and view protection. The city regularly finds itself at or near the top of the list of the world’s most livable cities.

This livability factor attracts people: over the past decade, more than 30,000 people migrated to the Greater Vancouver area each year.¹ This population growth in turn adds to demand for housing and pushes prices higher. And so Vancouver now also finds itself near the top of the list of the world’s most unaffordable places to live.²

So “imaginary” can be a two-sided concept: it can be either utopian or dystopian. This somewhat imaginary place may be both.

Finding Someone to Blame

Rising housing prices have begun to create unhealthy tensions that are seemingly pitting Vancouverites against one another: established homeowners against younger families trying to get a foothold in the market and existing residents against newer arrivals.

So, who is to blame for Vancouver’s affordability problems? To some, the scapegoat is obvious: blame foreigners. It's the recurring theme, the clear cause according to the twitterverse and many commentators. In fact, according to a 2015 Angus Reid poll, nearly two-thirds of Vancouverites believe that foreign investing is the “main cause of high housing prices” here.³ And of course all of us at CMHC are ignoring the elephant in the room.

In fact, we aren’t. While it would be convenient to hang all of the blame for high prices on others — offshore buyers — it’s just not that simple. Sure, it makes for a tempting narrative: them, not us. And while foreign investment clearly is a factor, it is not the only one.

Today, I would like to try to offer an assessment of this challenge, based on the evidence we have. In doing so, I will build upon the survey of “Housing in Canada,” delivered by my former colleague and prior Governor of the Bank of Canada, Mark Carney, when he faced you a little over five years ago.⁴ I’m also going to pick up on some of the observations Minister Jean-Yves Duclos made when he spoke here in September.⁵

At that time, growth in consumer debt was high on the Bank’s radar as an area of potential vulnerability. So too were rising house prices, which at the national level were over 3.5 times the average household’s disposable income.

As we know, the situation hasn’t got any better: in fact, it’s a lot worse. And as a consequence, household indebtedness and housing market imbalances represent increased sources of financial vulnerability in Canada.⁶ 

A number of factors, including foreign investment, but also domestic residential investing, population and economic growth, accommodative monetary policy, our tax regime, supply constraints and some other phenomena have all contributed to high house prices, most notably here in Vancouver.

What’s at Stake?

Recently, our national household indebtedness hit a high of 168 per cent of disposable income. The Bank of Canada continues to flag elevated household debt as the top vulnerability to financial stability in Canada.

We need to worry about implications for the health of our economy. As Mian and Sufi observe in their book, House of Debt: “Economic disasters are almost always preceded by a large increase in household debt.” They go on to call the relationship between these two factors “as close to an empirical law as exists in macroeconomics.”⁷ Of the 46 systemic banking crises for which house price data are available, more than two thirds were preceded by boom-bust patterns in house prices.⁸

Household Indebtedness

Not only is the overall magnitude of household debt of concern, even more troubling is its distribution. ⁹My former colleague Larry Schembri reminded us recently that it matters who holds the debt, how able they are to service it, how likely they are to lose their jobs, and whether they have an adequate financial cushion to see them through adverse economic conditions, should they arise.¹⁰

And when researchers at the Bank of Canada looked more closely into these questions, they found that the level of debt held by the most indebted households had risen the most.¹¹ The most highly-indebted households, those with a debt-to-gross-income ratio higher than 350 per cent, had doubled from around 4 per cent of indebted households immediately prior to the financial crisis, to around 8 per cent in 2012–14. This group of roughly 720,000 households held close to $400 billion in debt — about one-fifth of Canada’s overall household indebtedness. And almost 90 per cent of their debt was accounted for by mortgages.

Highly-indebted borrowers are more likely to be younger, first-time homebuyers. With potentially less employment experience due to their age, they would also be at higher risk of losing their jobs in the event of a downturn.

In short, they are a vulnerable group of Canadians who would suffer financial hardship should the economy take a turn for the worse, or should interest rates rise significantly. And given what we know about wealth effects and financial acceleration,¹² should a weakening of the economy come to pass, their financial troubles could have spillover effects for the economy at large.

Housing Market Imbalances

Housing market imbalances are also a source of economic vulnerability. CMHC’s Housing Market Assessment (HMA) framework is our attempt to provide an integrated view on evolving housing market conditions and related vulnerabilities. It considers four factors to assess the evidence of problematic housing market conditions: overheating, acceleration in the growth of house prices, overvaluation and overbuilding. In particular, it looks for indications of imbalance in the market. For example, rising inventories of unsold new homes would suggest that supply is outpacing demand — an indicator of potential overbuilding.

Our latest Housing Market Assessment found strong evidence of problematic conditions for the first time across the country. We had already upgraded our assessment of problematic conditions in Metro Vancouver from moderate to strong. Continued price growth in Metro Vancouver and Toronto is of particular concern.

Canadians have a notable history of finding a way to make their mortgage payments as long as they have jobs. However, this discipline of reducing spending to save a home can still harm our economy. Housing market bubbles fuelled by easy credit tend to burst first when people slow their consumption, which undermines economic growth: what economists would call “negative demand externalities.”¹³

Impacts on Economic Productivity

Looking beyond threats to financial stability, another consequence of the run up in mortgage debt has been to divert funds from other more productive investments. This was one of the observations that Governor Carney made in his 2011 address: that cheap credit had simply been used to bid up the price of a non-tradable good — Canadian houses — rather than to invest in expanding the productive capacity of Canadian businesses.

Housing is starting to nibble away at our economy. Here in Vancouver, productive port lands and farmland are being lost to housing.

My former Bank of Canada colleague David Wolf drew my attention to the fact that real estate commissions and transfer costs in Canada now dwarf spending on research and development.¹⁴ This is an alarming observation.

Moreover, residential investment now comprises close to eight per cent of our economy, surpassing even the boom period of the 1980s. We are at risk of mining our economic future.

High housing costs impact productivity in other ways as well. For some time now, economists have been exploring how conditions in the housing market relate to broader trends in mobility, productivity and inequality.¹⁵ For example, productivity can potentially be compromised by high housing costs in providing an economic incentive for workers to resist moving from less-productive urban economies to more productive ones.¹⁶ This very human reaction results in a significant net loss to the economy as a whole.

Housing Access and Affordability

Moving from macro- to micro-economics, the escalating cost of housing is also placing an increasingly heavy burden on the household budgets of Canadians. And with housing affordability being the most common underlying factor driving numbers of Canadian households in core housing need, rising housing costs are making it that much more difficult to help those in need of our assistance.

Nationally, we estimate that about 1.8 million Canadian households are currently in core housing need.¹⁷ That’s roughly 12.3 per cent of the total — or one out of every eight households. Metro Vancouver has one of the highest rates of core housing need among all of Canada’s metropolitan areas, at about 18 per cent. Metro Vancouver also has one of the highest rates of severe core housing need. The city’s temperate climate also makes homelessness less life-threatening, but no less tragic, compared to other places.

For low-income households that struggle daily to meet their basic housing needs, high housing costs reduce the resources available for other necessities like food, healthcare and education.¹⁸ They make it harder for families to stay healthy and to support their children’s education and development. This imposes a cost not only on those individuals, but on our communities and our economy.

So, housing clearly matters.

Understanding the Fundamentals: Housing Demand and Supply

Before we turn to what can be done, we need to understand what’s going on. There has been no shortage of analysis and commentary on the range of factors driving local housing market dynamics.¹⁹ Let’s consider these in supply and demand terms.

Housing Demand

Housing demand starts with the fact that basic shelter is a fundamental human need. So at the most basic level demand for housing is driven by the demographic imperatives of population growth and the rate at which new families and households are formed.

At the national level, and in our largest cities in particular, immigration far outweighs the impact of natural increase as the source of population growth. Net international immigration currently accounts for roughly two-thirds of Canada’s population growth, up from around 40 per cent in the early 1990s. And Statistics Canada data show that B.C. and Ontario receive about half of the immigrants arriving in Canada.²⁰

So while demographics drive overall housing requirements, the demand for housing will inevitably be higher in locations that provide access to economic opportunity (jobs, education) and local amenity. Quite importantly, B.C. leads Canada on these measures, too.

Low interest rates add further to demand, since they make borrowed money go farther. So too do low property tax rates, such as Vancouver’s.²¹ Those savings can be spent on higher mortgage payments, adding further to effective demand.

And housing demand is further supported by the personal exemption from capital gains tax on principal residences (equating to a $5 to $6 billion tax reduction every year), mortgage insurance, the Federal Home Buyers’ Plan and provincial measures, including those targeting first-time homebuyers. Ample support exists already for first-time homebuyers. As I’ve said, too much encouragement to buy homes exposes vulnerable people to excessive financial risk, pushes prices higher where acute supply inelasticity exits — like here in Vancouver — and jeopardizes our economic prospects.

As housing is the greatest store of personal wealth for many Canadians — accounting for nearly half of the net worth of Canadian households — demand for homeownership is also influenced by its value as a financial asset and as a vehicle for capital appreciation. For many Canadians, the equity built up in their homes is their principal source of financial security in retirement.

In 2011, Governor Carney cautioned about the risk that pockets of the Canadian housing market could be taking on the characteristics of financial assets. Expected gains cause house prices to be increasingly driven by their perceived value as financial assets rather than their “use value” as residential accommodation. Speculators enter the marketplace, and extrapolated expectations fuel higher prices. In fact, it seems that housing cycles may be prone to even more “boom and bust” swings in part for these reasons.²²

Indeed, when prices accelerate as they have here, a “fear of missing out” emerges and we move into the world of behavioural economics. Economist Robert Shiller of Yale has argued that homeowners tend to raise consumption as they "feel” they are wealthier from higher home prices.²³ Obviously, these feelings can translate into irrational exuberance, and this creates further risk if prices are driven too high as a result.

So how large of a factor is investment-driven demand? And what about foreign investment? As you are no doubt aware, factual information on the scope and influence on foreign investment in local housing markets in Canada is notoriously scarce and challenging to obtain. David Wolf offered the following “chart of the year” to Maclean's, highlighting our inability to track the necessary data.

Data is notoriously scarce and challenging to obtain

B.C. government data show that from June 10 to October 31 of this year, foreign nationals accounted for 7.0 per cent of property transactions in Metro Vancouver. For our part, CMHC has adapted its housing market surveys to capture information on foreign buyers of condominiums. While survey data are an imperfect substitute for transactions-based administrative data, they have helped to fill in some of the gaps in knowledge on the influence of foreign investors.

Our latest condominium vacancy survey, which was released just two days ago, shows that about a quarter of the condominium apartment units in Metro Vancouver and one-third in Toronto are occupied by renters. But CMHC data also show that the share of foreign ownership of condominium apartments in these markets is relatively low, at slightly over two per cent. The share is likely higher among single family homes. While a number of immigrants do own rental property, information from Statistics Canada reveals that the average rental income earned by immigrants is less than a third that of non-immigrants.

The evidence tells us that the origin of investor activity in Canadian residential real estate is predominantly domestic.

Yet some people have taken the recent slowdown in Vancouver as clear evidence of a foreign investment culprit, in response to the 15 per cent tax on foreign real estate investment. However, the slowdown in activity had started before the Province announced the foreign investment tax. Heavy activity before the effective date, coupled with a marked slowdown after, is consistent with a temporary pull forward of demand.

Evidence from Sydney and Hong Kong has shown the effect of similar taxes to be short-lived. Meeting with Hong Kong authorities two weeks ago in London, I learned that foreign transactions actually increased — and manifold — following the introduction of their stamp duty. In fact the only impact may be psychological: a reduction in extrapolated expectations, or “froth,” because people believed the tax would work.²⁴

Housing Supply

Earlier this year, I wrote a blog post about house prices in Canada.²⁵ In that article I made reference to the “Paradox of Value” or the “Water Diamond Paradox”: why is it that what we most need, water, is almost free and things we don’t need, like diamonds, are so expensive? Clearly it’s not about the relative intrinsic value of those two commodities — that distinction is really all about supply, the scarcity of one and the relative abundance of the other.

In fact, supply matters a lot. Our data indicate that housing market supply in the resale market in Metro Vancouver is near 10-year lows, with around four months’ supply of homes, as sales continue to outpace listings. The lack of supply of existing homes has caused demand to spill-over into neighbouring communities as well as the new home market, pushing down the stock of newly completed and unsold units to near 10-year lows.

Urban development supply trends are also important. Urban growth in Canada is not so much moving outward as it is upward, transforming the skylines of our cities. Increasingly, new house construction is shifting from single-detached homes to multiples, and more often than not, to condominiums.

This may be a case of Canada catching up to the rest of the world: higher density living is far more common in major cities around the world and is more economically affordable and environmentally sustainable. It can support transit infrastructure more effectively and promote access to social and community services. Increased densification by cities must be part of the tool kit.

How urban planning affects supply is worth our attention. We know that the elasticity of housing supply can vary from one country to another,²⁶ and so too can it vary from one city to another.

Geography is one of the most important determinants of housing supply inelasticity: in direct terms, by reducing the amount of land available for development, and indirectly, by increasing land values and creating higher incentives for regulations to manage growth pressures.²⁷ Researchers have found that markets with inelastic supply — whether because of geography or regulatory constraint — will be more volatile and more prone to speculation.²⁸

Applying this thinking to Vancouver, the abundance of waterfront and mountain views point at a physical supply constraint. Our attachment to low-density single family housing in many neighbourhoods represents regressive urban planning and makes the problem worse. This is basic economics: the more we hold back supply, the faster prices will rise in response to increased demand. And Vancouver’s supply response is among the weakest in Canada.

Research by the Fraser Institute suggests that the burden of regulation is comparatively high in Vancouver.²⁹ ‎While municipal delays are compounded by developer land banking — an example of domestic real estate speculation — cities could time-limit approvals to control this behaviour. It is clear that more supply will moderate price increases. Municipalities must up their supply game.

Municipal leaders talk of a housing crisis and their primary solution is to demand $12.6 billion in urgent funding from the federal government. The weak and lagging supply response in Vancouver — rezoning restrictions, density limits, development fees, and the time it takes for approval of new supply — and not just for affordable housing — needs urgent attention. If there’s a crisis, we should all act like it.

For its part, the federal government is investing in new supply with our provincial and territorial partners, including $2.7 billion of new investment targeting rental supply. Budget 2016 also provided for an investment of $2.3 billion over two years, starting this year, to improve access to more affordable housing for Canadians. Here in British Columbia, that includes $210 million in federal funding provided under the Investment in Affordable Housing over the next two years. The Province will be investing a further $855 million over the next two to three years. The federal government’s Social Infrastructure Fund will include yet further substantial investments in the supply of affordable housing.

Rental Housing Supply

We also need faster supply of new higher-density rental housing. Core housing need is four times as common among renters compared to homeowners, mostly for affordability reasons. One in three Vancouverites are renters, and average rents here are among the highest in Canada. Two-bedroom apartment rents are roughly 45 per cent higher than the national urban average.

And while we have seen the return of some new purpose-built rental housing supply, Metro Vancouver’s rental vacancy rate continues to tighten, dipping below 1 per cent for the second consecutive year — at 0.7 per cent, second only to Victoria among Canada’s metropolitan areas.³⁰ This at a time when the average vacancy rate for Canada’s metropolitan centres as a whole actually rose to 3.4 per cent, its highest level since 1998.

CMHC Model

So to return to the question that I posed at the beginning of my remarks: who, or rather, “what” is responsible for pushing housing prices higher in Vancouver and Toronto? People rushing to point to foreign investment as the single cause for price growth on the basis of anecdotal information would best heed the reminder of the American statistician Edwards Deming: "Without data, you're just another person with an opinion." A robust statistical modelling exercise undertaken this year by our housing market analysis team at CMHC allows me to shed some missing light on what’s really going on.

Our analysis confirms that the most important factors accounting for house price increases over the long term are economic: rising disposable incomes, increased inflows of people and lower mortgage rates. There are important differences across cities, and regional economic factors are also important.

Three additional important factors are contributing to the shorter term price dynamics we feel more acutely. The strongest of these is in fact the weak and lagging supply response that I’ve just mentioned. Cities must help with this. The other two are harder to address: the financial acceleration effects from both domestic and foreign investment, and, interestingly, the implications of rising income and wealth inequality.

This latter insight deserves an explanation.

We have yet to separate income and wealth effects. However, we believe two income-related factors are at play: an increase in high-paying jobs and a tendency of these jobs to concentrate in cities. This is an important and statistically robust factor in Toronto, less so in Vancouver. The impact in Vancouver may differ because wealth, rather than income, could play a much more pronounced part here. And this links back to my previous comment that housing wealth has become much more prominent in recent years.

As a matter of fact, this observation — and the blurred line between wealth and income — fits nicely with an empirical thesis recently advanced by ‎Matthew Rognlie of MIT that house price appreciation accounts for almost all private wealth creation among rich countries since World War II.³¹

The gap between rich and poor is growing and making cities less affordable for lower income people. This emergent factor should worry us. Thus far, our inclusive Canadian society has shielded us from the divisions that haunt the U.K. (as witnessed in the Brexit vote), the U.S. (as we saw in the presidential elections) and indeed much of the Western world.

Our saving grace may be the socio-economic mobility we have in Canada. Unlike the U.S., where you have more than a 50 per cent likelihood to occupy the same earnings stratum as your parents, Canadians are more than 80 per cent likely to migrate.³² I will return shortly to the paramount virtue of Canada’s social inclusiveness.

Addressing Vulnerabilities

So what can be done about the vulnerabilities that housing prices and indebtedness present?

Some are calling for an increase in interest rates to cool our overheated housing market. As Bank of Canada Governor Poloz noted in a speech to the Business Council of British Columbia earlier this month, “adjusting interest rates is a very blunt tool with widespread effects.”³³

Macro-prudential measures can allow for calibrated responses — influencing decision making in those parts of the market where potential vulnerabilities are greatest.³⁴ The Minister of Finance recently announced a series of measures that will act to increase borrower resiliency, reduce the amount of government-assisted funding flowing into mortgages, and ensure tax compliance by both foreign and domestic investors. These measures are important to preserving our economic prospects.³⁵ He has also initiated consultations on a possible reallocation of risk between lenders and mortgage insurers, and ultimately taxpayers.

And in July of this year, OSFI called on federally regulated financial institutions to exercise further prudence in their mortgage operations, highlighting regions where price growth had been strongest. Lenders will need to hold more capital for mortgages in cities where house price growth exceeds income growth. OSFI has also published draft mortgage insurance capital guidelines for comment that propose to include borrower credit scores as a factor. If adopted as proposed, these guidelines could lead to pricing based on borrowers’ credit scores in addition to loan-to-value, which is already accounted for.

Social Inclusion and a National Housing Strategy

I mentioned earlier the substantial fiscal investments the federal and provincial governments are making in housing.

Just last week, we released a “What We Heard” report on our consultations for a National Housing Strategy for Canada.³⁶ One key theme of our work has been to understand the links between housing, our social fabric and economic growth.

Canada’s is an open economy, where trading with and welcoming investment and people from across the globe is part of who we are and has contributed much to our growth and prosperity. Importantly, we led the world in 1950 by being the first major country to float our currency.³⁷

Vancouver is a big part of that story. One need look no further than the Port of Vancouver to see how deep those connections are to the varied cultures of the Pacific Rim. Facilitating trade with more than 170 world economies, the Port — North America’s third largest — supports close to one in every five dollars of trade in goods that flow through our country. And YVR has grown to become Canada’s second busiest airport, handling more than 20 million passengers last year.

Vancouver is the gateway through which generations of newcomers have passed, enriching Canada’s economy and its multicultural fabric in the process. It has become a key port of entry for a country that since Confederation has welcomed 17 million immigrants.³⁸

And yet, there is still an elephant in the room.

Conventional economic indicators aside, it may well be “social capital” — Vancouver’s cohesiveness as a dynamic, diverse and inclusive community — that will help it achieve its destiny as a truly world class city. Recall Douglas Coupland’s loving description of this “imaginary” place.

Just last month, I joined Minister Duclos and 130 fellow citizens as part of the Canadian delegation to the Habitat III conference on sustainable urban development. This conference continued work that was born here, in Vancouver, at the first Habitat conference 40 years ago. I was struck by what I think was a newer theme in Quito: one of housing being not just a vehicle for economic prosperity, but as a support for social inclusion. If we think of housing more as a function — shelter — and less as a form, then we think in terms of people instead of bricks and mortar.

I believe Canada can, and indeed should, be a beacon for the world on the merits of social inclusivity. Housing is a vehicle for building stronger, more resilient — dare I say more Canadian — cities.

In fact, The Economist magazine featured Canada in exactly these terms on the front cover of its October 29 issue.³⁹ And this is a driving force behind our work at CMHC on a National Housing Strategy, which we are developing in partnership with provinces, territories, municipalities, First Nations, stakeholders and experts.

Conclusion

It is vitally important that housing be a source of strength for our communities and for our  economy. We cannot allow it to become a wedge that divides us, separating neighbours and communities, and creating tensions between newcomers and those that have been here longer.

For as much as this city's endowment of natural beauty and its economic vitality and potential have been a magnet that has drawn people and investment from across the globe, it is Vancouver's social cohesion — its ability to integrate the new, both people and ideas, and to make them its own — that is truly at the heart of its success. It is an essential part of what makes this city both unique on the world stage and yet so quintessentially Canadian at the same time.

As our Prime Minister and others have said, Canada works precisely because of its diversity — not despite it. It is our diversity, from the original occupants of this land — the Indigenous peoples — to our French and British colonists, to the newest arrivals on our shores, that is our real strength. It is why we Canadians approach the future with confidence and not fear.

This is our example to the world.

Thank you.

Many of my colleagues at CMHC had a hand in preparing this speech and in the research to support it. Thanks in particular to Leigh Howell, John Bissonnette and our Housing Finance Policy and Market Analysis teams. Errors and omissions are my own.

¹ BC Ministry of Technology, Innovation and Citizens’ Services, “British Columbia Regional District Migration Components” February 2016.

² 12^th Annual Demographia International Housing Affordability Survey, 2015. Rating Middle-Income Housing Affordability (2016  Edition: Data from 3^rd Quarter 2015), Wendell Cox (Demographia) and Hugh Pavletich (Performance Urban Planning).

³ Angus Reid, 2015. “Lotusland Blues: One-in-five Metro Vancouverites experience extreme housing & traffic pain; most of them think of leaving,” 18 June 2015.

⁴ Mark Carney, 2011. “Housing In Canada” (speech to the Vancouver Board of Trade, 15 June 2011).

⁵ Hon. Jean-Yves Duclos, Minister of Families, Children and Social Development, 2016. (Speech to the Greater Vancouver Board of Trade, 14 September 2016).

⁶ Bank of Canada, Financial System Review, June 2016.

⁷ Atif Mian and Amir Sufi, 2014. House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again, University of Chicago Press, 2014.

⁸ Christopher Crowe, Giovanni Dell'Ariccia, Deniz Igan and Paul Rabanal, 2011. “How to Deal with Real Estate Booms: Lessons from Country Experiences,” IMF Working Paper, April 2011.

⁹ Lawrence Schembri, 2016. “Connecting the Dots: Elevated Household Debt and the Risk to Financial Stability,” (speech to the Guelph Chamber of Commerce, 24 February 2016). See also Craig Alexander and Paul Jacobson, 2015. “Mortgaged to the Hilt: Risks From The Distribution of Household Mortgage Debt,” C.D. Howe Institute, Commentary #441, December 2015.

¹⁰ Recent Bank of Canada modelling indicates that highly-indebted households are even more at risk with interest rates near the zero lower bound; see Carolyn Wilkins, 2016. “(S)low for Long and Financial Stability” (Official Monetary and Financial Forum City Lecture, 14 September 2016).

¹¹ Gino Cateau, Tom Roberts and Jie Zhou, 2015. “Indebted Households and Potential Vulnerabilities for the Canadian Financial System: A Microdata Analysis,” Bank of Canada Financial System Review, December 2015.

¹² Ben S. Bernanke, Mark Gertler and Simon Gilchrist, 1999. “The Financial Accelerator in A Quantitative Business Cycle Framework,” in J.B. Taylor and M. Woodford, Eds., Handbook of Macroeconomics, Volume 1, 1999.

¹³ Atif Mian and Amir Sufi, 2014. House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again, University of Chicago Press, 2014.

¹⁴ Canadian data are from Statistics Canada. U.S. data on research and development are from National Science Foundation. U.S. data on commissions from Bureau of Economic Analysis. Note that U.S. data on commissions are limited to data on brokers' commissions on sale of structures, whereas Canadian data on ownership transfer costs also includes land transfer taxes, legal costs and file-review costs. To the extent that these expenditures grow in proportion to house prices, these differences in definitions between Canada and the U.S. would not affect growth rates.

¹⁵ Jason Furman, 2015. “Barriers to Shared Growth: The Case of Land Use Regulation and Economic Rents,” (remarks delivered to the Urban Institute, 20 November 2015).

¹⁶ Chang-Tai Hsieh and Enrico Moretti, 2015. “Why Do Cities Matter? Local Growth and Aggregate Growth,” NBER Working Paper No. 21154, May 2015.

Richard Florida, 2015. “The Urban Housing Crunch Costs the U.S. Economy About $1.6 Trillion a Year,” 2015.

The Economist, “The Economist explains: how cheaper housing can boost productivity,” 19 July 2015.

¹⁷ A household is in core housing need if 1) its housing does not meet one or more of the adequacy, suitability or affordability standards, and 2) it would have to spend 30 per cent or more of its before-tax income to access acceptable local housing. Severe core housing need refers to households in core housing need that spend 50 per cent or more of their income on housing costs.

¹⁸ Evan Siddall, 2015. “Why Housing Matters,” (speech to the Board of Trade of Metropolitan Montréal, 3 December 2015).

¹⁹ Selected examples include: 
David Ley, 2015. “Global China and the making of Vancouver’s residential property market,” International Journal of Housing Policy, 2015.

Joshua Gordon, 2016. “Vancouver’s Housing Affordability Crisis: Causes, Consequences and Solutions,” Simon Fraser University, School of Public Policy, Centre for Public Policy Research, 2 May 2016.

Paul Kershaw and Anita Minh, 2016. “CODE RED: Rethinking Canadian Housing Policy, Generation Squeeze,” Spring 2016.

²⁰ Laurent Martel and Carol D’Aoust, 2016. “Report on the Demographic Situation in Canada: Permanent and temporary immigration to Canada from 2012 to 2014,” Statistics Canada (Demography Division), 5 July 2016.

²¹ Real Property Association of Canada, 2016. REALPAC Canadian Property Tax Rate Analysis, 2016.

²² Richard Herring and Susan Wachter, 2003. “Bubbles in Real Estate Markets,” in Asset Price Bubbles: The Implications for Monetary, Regulatory, and International Policies, eds.W. Hunter, G. Kaufman and M. Pomerleano, Cambridge, MA: MIT Press, 2003.

²³ Karl Case, John Quigley and Robert Shiller, 2013. "Wealth Effects Revisited 1975-2012," Critical Finance Review 2(1), pages 101-128, July 2013.

²⁴ For a recent review of the impact of transactions taxes, see Michael Best and Henrik Kleven, 2015. “Housing Market Responses to Transaction Taxes: Evidence from Notches and Stimulus in the U.K.,” Mimeograph, London School of Economics, 2015.

²⁵ Evan Siddall, 2016. “So What’s Behind Those Crazy House Prices Anyway?”, 28 July 2016.

²⁶ Aida Caldera and Åsa Johansson, 2016. “The price responsiveness of housing supply in OECD countries,” Journal of Housing Economics 22 (2013) 231–249, 2016.

²⁷ Albert Saiz, 2010. “The Geographical Determinants of Housing Supply,” Quarterly Journal of Economics, August 2010, pp. 1253-1296.

²⁸ Stephen Malpezzi and Susan M. Wachter, 2005. "The role of speculation in real estate cycles," Journal of Real Estate Literature 13, 143-164, 2005.

²⁹ Kenneth Green, Josef Filipowicz, Steve Lafleur and Ian Herzog, 2016. The Impact of Land-Use Regulation on Housing Supply in Canada (Fraser Insitute, July 2016).

³⁰ CMHC, 2016. Rental Market Report:  Vancouver and Abbotsford-Mission CMAs, Fall 2016.

³¹ Matthew Rognlie, 2015. "Deciphering by the Fall and Rise in Net Capital Share," ‎Working Paper, Brookings Institute, Spring 2015.

³² U.S. Council of Economic Advisors, 2016. 2016 Economic Report of the President, Figure 1-5 “Intergenerational Earnings Mobility,” page 32.

³³ Stephen Poloz, 2016 “25 Years of Inflation Targets: Certainty for Uncertain Times” (speech to Business Council of British Columbia, 1 November 2016).

³⁴ Evan Siddall, 2016. “Forests and Trees: Housing Finance and Macroprudential Policy in Canada,” (speech to Bank of England conference on macroprudential policy), 18 November 2016.

³⁵ Evan Siddall, 2016. “The intended consequences of new housing policies,” Globe and Mail, 17 October 2016.

³⁶ The Conference Board of Canada, 2016. What We Heard: Shaping Canada’s National Housing Strategy, November 2016.

³⁷ Gordon Thiessen, 2000. “Why a Floating Exchange Rate Regime Makes Sense for Canada,” (speech to the Chambre de commerce du Montréal métropolitain, 4 December 2000).

³⁸ Statistics Canada, 2016. “150 years of Immigration in Canada,” Canadian Megatrends (11-630-X), 29 June  2016.

³⁹ “Liberty moves north: Canada’s example to the world,” The Economist 29 October 2016.