Bank of Canada Governor Tiff Macklem waits to appear at a Finance Committee meeting on Feb. 1, in Ottawa.Adrian Wyld/The Canadian Press
The Bank of Canada governor is urging all levels of government to work together to boost the supply of homes across the country, arguing that the rising cost of housing, which has become the biggest driver of overall inflation, can’t be addressed by monetary policy alone.
In a Thursday appearance before the House of Commons finance committee, Tiff Macklem was peppered with questions about housing affordability and the central bank’s own role in increasing shelter costs for many homeowners by pushing up mortgage rates.
“You’re not going to solve housing with low interest rates and you’re not going to solve it with high interest rates. We’ve tried both, and we’ve had high shelter price inflation,” he said.
“The durable solution is to increase the supply, and that includes both the supply of homes and the supply of purpose-built rental.”
Even as overall consumer price index inflation has declined – falling to 3.4 per cent in December from a 2022 peak of 8.1 per cent – shelter costs have continued to surge.
This is partly a result of the Bank of Canada’s own monetary policy tightening campaign, as higher interest rates push up monthly mortgage payments. Mortgage interest costs rose 28.6 per cent in December from the year before.
But rents have also been rising rapidly, jumping 7.7 per cent year-over-year in December, as brisk population growth driven by immigration has run into a long-standing shortage of rental units. And home prices, while dipping from 2022 highs, have not fallen as much as the central bank had expected.
Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Wilkins make their way to the Finance Committee meeting.Adrian Wyld/The Canadian Press
Typically “as interest rates go up, you would see a decline in house prices,” senior deputy governor Carolyn Rogers told the parliamentary committee on Thursday. “But because we have sort of a chronic, structural shortage of housing in Canada, we haven’t seen that sort of offset.”
Both Mr. Macklem and Ms. Rogers batted away questions about when the Bank of Canada will lower interest rates. Last week, the bank held its policy interest rate at 5 per cent for the fourth consecutive time. It dialled back its threats of additional rate hikes, but said that it was too early to start talking about easing monetary policy.
Bay Street analysts and financial markets are betting the central bank will start cutting rates in the first half of 2024, with most pointing to the June rate announcement as the mostly likely date. Earlier this week, former Bank of Canada deputy governor Paul Beaudry, who left the bank last summer, said he thought a July rate cut was more likely.
“We can’t put it on the calendar,” Mr. Macklem said Thursday. “We need to see how inflation evolves.”
The bank’s latest forecast sees annual CPI inflation hovering around 3 per cent until the middle of 2024, before dropping to 2.5 per cent by the end of the year, and back to the bank’s 2-per-cent target sometime next year.
A big part of getting inflation back under control will involve getting a handle on increasing shelter costs. But here, the central bank faces several dilemmas.
Lower interest rates will be a relief to homeowners with variable-rate mortgages and fixed-rate mortgages coming up for renewal. But any hint of rate cuts could spark another run-up in home prices. That happened last spring when the Bank of Canada first announced a “conditional pause” to monetary policy tightening, which ultimately contributed to the bank’s decision to hike interest rates two more times last summer.
High interest rates also discourage new home construction by increasing costs for developers and reducing demand for preconstruction sales. This is showing up in a decline in housing starts. In effect, the bank’s efforts to reduce demand in the short-run could have a negative impact on longer-term supply.
Mr. Macklem downplayed this dynamic, arguing that there was a worthwhile tradeoff, at least from the perspective of controlling inflation.
“Yes, there is an impact on the supply side,” he told members of Parliament, referring to higher interest rates. “Developers have pointed that out. But when we look at the sector as a whole, the impact on demand is much stronger than on the supply side.”
In the medium-term, governments at all levels – federal, provincial and municipal – need to do more to encourage home construction while avoiding policies that increase demand for housing, Mr. Macklem said.
“Things that improve supply will be particularly helpful in the current situation … speeding up permitting, taking some of the uncertainty out of the process, making it more predictable.”
Federal and provincial governments have announced several policy changes in recent months aimed at boosting construction. This includes cutting taxes on new purpose-built rental units and increasing funding available to builders by expanding Canada’s mortgage securitization system.
The federal government has also taken steps to reduce demand on rental housing by capping the number of international students permitted to study in Canada. Last week, Ottawa said it would approve around 360,000 undergraduate study permits in 2024, a 35-per-cent reduction from last year.
Mr. Macklem said in an interview with The Canadian Press last week that the cap “will help take a bit of pressure off rents going forward.”
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
