How will Brexit affect Canadian housing markets?

The word of the week has got to be “Brexit.” Unless you’ve been living on a remote island in the South Pacific, you know that Great Britain voted to exit the European Union. Since the vote, every feed, timeline and old-fashioned print pub has been awash in details, back stories and predictions of doom.

As stock prices and currencies plummeted in the ensuing days, my thoughts selfishly (but hopefully understandably) turned to what effect Brexit might have on our domestic economy. According to economists at BMO, it isn’t going to do much to cool housing prices here at home — it will likely put the pressure on to keep interest rates low — but it may well have a negative effect on the overall economy, as we currently ship $16 billion in products over to the UK.

It may also make the nearly-quarter-million Brits who plan Canadian holidays each year rethink their destination, according to Walter Melanson, a lead analyst and founder of PropertyGuys.com. “That doesn’t mean Canadians with vacation rentals should expect a loss in income, as the uncertainty in Europe has certainly helped the U.S. dollar and that could mean more visitations from our neighbours down south,” he told MoneySense.ca.

Overall, it may mean a surge in foreign property investment, as the hot London housing market may be in for a dip. Alternately, it may actually heat up our market, as uncertainty abroad sends investors looking for other markets. This makes it even more imperative that we put some restrictions of our own on foreign investment by individuals who have no plans to live even part of the year here, but rather just to tuck their money away somewhere safe and lucrative.

Melanson said, though, that such investors don’t really care whether they’re buying $1 million homes in Vancouver or five homes worth a million total in, say, Newfoundland — they just want our stability. That may make it worthwhile to incentivize investment in less popular markets, which would seem a fairly easy thing to do; simply tax foreign investment on homes over a certain price.

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Finance Minister Bill Morneau last week announced the forming of a new working group to examine the factors fanning the flames of our hottest markets. The group will comprise federal officials, provincial reps from Ontario and B.C., and municipal officials from the two hottest cities, Vancouver and Toronto. Morneau stressed the importance of a coordinated effort at all levels of government.

While the Bank of Canada controls interest rates and the federal government mortgage rules, it will fall to the provinces to deal with the lack of supply, and on the municipalities to address planning issues. Industry representatives, such as lenders and builders, at least for now, will be left out of the group, with the suggestion that impartiality is the goal.

The idea that any government regulator is agenda-less seems naïve to me — if they really want objectivity, a better idea might be to bring in a working group from outside Canada altogether.

At the 30,000 foot level, there are two ways to gently deflate the bubble without bursting it: make more housing or deter people from buying up what’s already out there at whatever price they can.

According to the Toronto Real Estate Board (TREB), Toronto housing prices are up 15% over year (prices in Vancouver surged up about 25% in the same period), so a cooling is becoming more and more likely. The third option — encouraging buyers to settle in less popular markets — is a lot more complex.