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Here's how government can cool housing prices without hurting homeowners – Financial Post

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The three tiers of government should collaborate to address the chronic undersupply of housing

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The rapid escalation of housing prices in the middle of a pandemic has alarmed many and so, not surprisingly, the calls for governments to act are getting louder.

A buffet of interventions, from eliminating the exemption on proceeds from the sale of a principal residence to the tightening of mortgage regulations, has started to surface.

Of course, the proper way to cool housing prices depends upon an informed prognosis of market conditions. Is the rapid increase in prices driven by market fundamentals, or is it a result of speculative bidding in a market where “animal spirits” are running loose?

Interest rates in Canada have steadily declined over the past two decades and that has put mortgage rates at historic lows, which can have two direct consequences. First, ultra-low mortgage rates reduce the borrowing costs for homebuyers such that their monthly mortgage payments are considerably reduced. Second, they cause upward pressure on pricing because these monthly mortgage payments are less affected by increasing prices than they would be at higher interest rates.

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Given the current circumstances, prospective homebuyers have two rational responses: Leave money (cheap debt) on the table and wait for a future where prices might be lower, but interest rates will be higher; or buy now to take advantage of the low interest rates.

Even if monthly mortgage payments are similar in high and low interest rate scenarios, a household’s long-term finances are impacted differently because a monthly mortgage instalment has two components: interest and principal.

With a high mortgage rate of five per cent or more, the interest component could consume more than two-thirds of the first monthly instalment, while the rest is dedicated to reducing the principal owed.

The balance between interest and principal reverses at lower interest rates. At a mortgage rate of, say, two per cent, the principal paid could account for two-thirds or more of the monthly instalment, and the interest accounts for the rest of the payment.

Will Dunning, a veteran housing economist, believes housing affordability has been improving over the past 15 years because homeowners can save more when principal payments account for a large share of the monthly instalment.

But although low interest rates improve affordability, some believe the recent rapid increase in prices is also a sign of irrational exuberance.

Sal Guatieri, a senior economist and director at BMO Capital Markets, said market fundamentals drive housing prices and demand. More buyers and fewer sellers have created a situation where prices have appreciated faster.

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Potential buyers can make two assumptions about the future when housing prices rapidly rise. They may believe that prices will continue to grow, and so the rational response will be to buy now rather than later. Or they may assume that the so-called bubble will burst soon, and they may stay on the sidelines waiting for favourable buying conditions.

As housing prices climb, many point to metrics such as the housing price-to-income ratio, which suggests a worsening of housing affordability. But the price-to-income ratio would only matter if homebuyers were paying the full price in cash. Most homebuyers borrow money to finance a house purchase. Therefore, the share of income consumed by housing costs might be a better metric to gauge affordability.

  1. Toronto, Ottawa and Halifax moved to high vulnerability in the fourth quarter of 2020, says the CMHC.

    Canada’s housing market in overheating territory, warns CMHC

  2. A For Sale sign in front of a row of homes in Vaughan, Ont.

    Canadian housing market is ‘overheating,’ RBC warns

  3. The Bank of Canada says it’s seeing evidence of more investor activity in cities such as Toronto, where the average home selling price topped $1 million for the first time.

    Bank of Canada sees ‘a lot more flipping’ in housing market

  4. Six in 10 Canadians believe the value of real estate in their neighbourhood will increase over the next six months, says a recent poll.

    More Canadians than ever before are expecting home prices to keep climbing

Either way, the unintended consequences of government interventions can often have lasting impacts. In the early 1970s, the federal government implemented the capital gains tax on the Carter Commission’s advice. An unintended and immediate consequence was the precipitous decline in the construction of purpose-built rental housing. More than four decades later, rental housing construction has never achieved the same heights as in the early 1970s.

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The same holds true for the supply of housing in general. In the 1970s, when the Canadian population was much lower than where it is today, far more housing was built. Since the mid-1970s, however, housing construction has been comparatively lower, even though the population has continued to increase.

If governments feel tempted to act, they should finally realize that residential construction in Canada has not kept pace with the population over the past five decades. Rather than hurt existing homeowners and current homebuyers with knee-jerk regulations, the three tiers of government should collaborate to address the chronic undersupply of housing.

Murtaza Haider is a professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin websitehmbulletin.com.

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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96% of COVID-19 cases are among those not fully vaccinated, B.C. health officials say – Global News

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Ninety-six per cent of the COVID-19 cases recorded from June 15 to July 15 were among people who were either only partially vaccinated or not vaccinated at all, B.C.’s health minister says.

“If you take all the cases from June 15 to July 15, 78 per cent of those cases are among those who are unvaccinated,” Adrian Dix said.

“I think the evidence will encourage more people to get vaccinated. That tells you people should need to get vaccinated. We are seeing new cases and they are largely in unvaccinated people.”

Read more:
B.C. reports over 100 new COVID-19 cases for first time in five weeks

The B.C. government will not require people to get the vaccine, but will not stop private businesses from doing so.

The seven-day rolling average for new cases rose from 42 new cases a day one week ago, to 73 new cases a day on Friday.

Most of the new cases are linked to indoor social gatherings at people’s homes, Dix said.


Click to play video: 'COVID-19: B.C. reports 89 new cases of virus, highest daily total in more than a month'



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COVID-19: B.C. reports 89 new cases of virus, highest daily total in more than a month


COVID-19: B.C. reports 89 new cases of virus, highest daily total in more than a month

“We are not going to deny access to services. Based on your vaccinated. That is our position. It will not be mandatory in that sense. There will be requirements in certain sense if people are not vaccinated,” Dix said.

“I think if you are going to have someone over to your house for dinner, you should ask them if they have been vaccinated, and it’s ok to tell them not to come if they haven’t been.”


Click to play video: 'COVID-19: B.C. government provides $36.5M to 83 anchor tourist attractions, higher vaccination rates mean lower cases'



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COVID-19: B.C. government provides $36.5M to 83 anchor tourist attractions, higher vaccination rates mean lower cases


COVID-19: B.C. government provides $36.5M to 83 anchor tourist attractions, higher vaccination rates mean lower cases

As of Friday, 80.3 per cent of eligible people 12 and older in B.C. have received at least one vaccine.

The province is hoping to hit 85 per cent immunization.

All five health authorities have been adopting additional strategies to supplement the mass immunization clinics, including pop-up clinics for first doses at parks, amusement parks, and beaches.

Read more:
COVID-19: B.C. reports no deaths but 89 new cases, highest daily total in over a month

Dr. Navdeep Grewal of the South Asian COVID-19 Task Force said the province or private businesses should consider vouchers for food or sports tickets to encourage immunization.

“I think it is that final 10 per cent (of the population) we need to get vaccinated, so we can avoid the fourth wave in the fall and winter,” Grewal said.

“We need to find out where they are gathering, give them the information they need, and then give them that first dose that is so needed.”

© 2021 Global News, a division of Corus Entertainment Inc.

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Run, don't walk, to the nearest clinic to get vaccinated before September, families told – CBC.ca

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Kids who are going back to local elementary and high schools in September must get their first COVID-19 shot by Saturday to ensure they’re eligible for their second dose and be fully vaccinated by Labour Day, according to the health unit. 

The Middlesex-London Health Unit (MLHU) says 73 per cent of those aged 12 to 17 in Middlesex-London already have their first shot, and just over a quarter have two doses. 

 “The uptake among this age group has been tremendous, right on board with some of our older population who was really eager to get vaccinated,” said Dr. Alex Summers, the associate medical officer of health for the MLHU. 

“We see eagerness for people to get vaccinated and we’re just delighted by that. 12 to 17-year-olds will be back in in-person activities, and that’s where they flourish, that’s where they want to be, and we want to be able to support them to do so in a way that COVID isn’t transmitting.” 

Vaccination is the “key ingredient” to maximizing the coming school year and making sure there are few disruptions. 

With school eight weeks away, Ontario health officials examine what the upcoming school year will look like. Overall, vaccine numbers are good but the data shows a lag in vaccination rates among eligible younger Canadians. If vaccine pickup does not improve before the beginning of the school year, Ontario’s Chief Medical Officer Dr. Kieran Moore is concerned about rising infections. 4:06

COVID-19 vaccines have yet to be approved for those under 12. 

“That’s why it’s really important to be gathering outdoors and making sure that everybody who is older than the age of 12 who is interacting with kids is vaccinated,” Summers said. “We can limit transmission among those who just can’t get the vaccine because they’re not old enough as we approach the school year.”

What exactly school will look like in September isn’t quite clear, but screening for symptoms, staying home when exhibiting symptoms, and wearing masks in classrooms are likely.

No appointments are required for COVID-19 vaccinations for anyone 12 or older for first or second doses at walk-in and mass vaccination sites. For more information on vaccinations and locations, visit the health unit’s website here.

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Air Canada anticipating recovery in demand as travel restrictions are eased – Yahoo Canada Finance

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Air Canada is anticipating a recovery in demand in the coming months as travel restrictions are eased and leisure passengers look to get away after being grounded by COVID-19.

Although overall bookings remain below pre-pandemic levels, customer interest began to increase in June with the elimination of quarantines for fully vaccinated returning Canadians and the removal of other travel restrictions.

“We can now optimistically say that we are turning a corner, and we expect to soon see correlated financial improvements,” CEO Michael Rousseau said Friday during a conference call.

“Indications are that the worst effects of the COVID-19 pandemic may now be behind us. Based on what we are seeing in other markets that are further along in reopening in Canada, we anticipate travel will resume at a quickening pace.”

Rousseau said bookings are steadily increasing for domestic, transborder and Atlantic markets as well as to sun destinations for the coming winter. Future bookings In some weeks of June were ahead of the same period in 2019.

“We expect the most recent announcements of the Government of Canada relaxing existing measures will further help strengthen the interest of our customers in flying again.”

Current demand is largely for leisure and visiting friends and family, but Air Canada expects to see a progressive return of corporate demand in September and October, added chief commercial officer Lucie Guillemette.

That could be aided by the ability of Canadian passengers to rely on COVID tests taken in Canada for trips of less than 72 hours.

“We are encouraged by some of the commentary from our peers in the United States with regards to overall business travel recovery,” she told analysts.

Guillemette said that rebuilding its U.S. operations as the largest foreign carrier is key to its recovery. That will also expedite the recovery of international long-haul operations as it seeks to achieve or exceed its share of the U.S. long-haul global market.

The Atlantic business will recover quicker than the Pacific or Latin America because of high vaccination rates, strong cultural and business connections with Europe and strong leisure interest from Canadians.

“We are already observing healthy demand signals for Europe into 2022,” she added.

The Montreal-based company says it lost $1.17 billion or $3.31 per diluted share, compared with a loss of $1.75 billion or $6.44 per share a year earlier.

Adjusted profits were $1.08 billion or $3.03 per share.

Revenues during the three months ended June 30 surged 58.8 per cent to $837 million from $527 million in the second quarter of 2020. Passenger revenues more than doubled to $426 million from a year ago which marked the first full quarter to be impacted by the pandemic. Cargo revenues increased 33 per cent to a record $358 million.

Air Canada was expected to post $2.76 per share in adjusted profits on $848.2 million of revenues, according to financial data firm Refitinitv.

The country’s largest airline increased its seat capacity by 78 per cent compared to the same time last year, and was down 86 per cent from the second quarter of 2019. It plans to increase available seat miles in the third quarter so capacity will be 65 per cent below the same period in 2019.

In August, its domestic capacity is expected to be about two-thirds of what it was in 2019.

“The third-quarter outlook pointed to healthy demand recovery and a significant improvement in daily cash burn,” Walter Spracklin of RBC Dominion Securities wrote in a report.

Air Canada says it has refunded about $1 billion for non-refundable tickets and expects to pay an additional $200 million in the third quarter, which will be covered by the federal government’s $1.4 billion refund credit facility.

The airline says it has recalled about 2,900 employees in June and July as it restores service this summer to destinations, particularly in Canada and the U.S. More workers will be called back for the fall season.

Air Canada has retained about half of its workforce, including the vast majority of pilots who have remained current and ready to fly when conditions warrant.

While it works to rebuild operations, the airline said it is also preparing to meet the challenges from increased competition stemming from expansion plans for Porter Airlines and Flair Airlines. Porter plans to add jet service from several gateways, including Toronto’s Pearson airport, in the second half of next year, while Flair is adding aircraft and routes.

“We certainly welcome healthy competition. but suffice to say, we will be ready to deal with that situation,” Rousseau said of Porter.

He also said the failed purchased of Transat may have been beneficial long-term, but it would have been very difficult to integrate while also focusing on the post-COVID recovery.

This report by The Canadian Press was first published July 23, 2021.

Companies in this story: (TSX:AC)

Ross Marowits, The Canadian Press

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