On an Interest Rate Cut

For almost a year, Tembo has repeated a consistent and simple message. Our view was that the Canadian economy relies massively on low interest rates. Higher rates would cripple our nation’s real estate sector, its financial industry, and would raise borrowing costs on strained small and medium sized businesses. Higher rates would also force government across the country at all levels to cut spending and rein in their large deficits. But we also acknowledged that too much easy money for too long a time would weaken the economy, overload it with debt, and incentivize speculative economic activity.

We foresaw that rates would rise rapidly given recent trends as central banks wanted a healthy interest rate cushion in case of a recession. They did. 

And then, just as Tembo predicted, the BOC backed off. Weakening post-Christmas spending activity and a stagnant real estate rebound in early Spring unleashed a torrent of sub-par economic data. That, coupled with a topsy-turvy global macroeconomic and political situation, spooked not just the BOC, but Central Banks around the world. In the U.S., Trump and his Chief Economic Advisor Larry Kudlow berated the Fed for its higher interest rates and its wind down of monetary stimulus. Their sharp criticism forced Fed Chair Jerome Powell to participate in a rare interview where he ex
pressed the view that he could not be fired.

Now, media reports and rumours are spreading outlining the growing possibility of the Fed cutting interest rates by half a percent and intensifying asset purchasing and macroeconomic stimulus. If such a move would occur, the BOC would effectively be boxed in to cut rates here at home as well. A rate cut in Washington would likely raise the value of the Canadian dollar to the benefit of Canadian consumers. But, the growing rumours, if materialized, would mark a potent change of course and policy. How quickly times change. 

What A New Conservative Government of Ontario Means For Real Estate

Doug Ford’s Progressive Conservative Party won a decisive majority government last week

doug ford

Doug Ford Hands Liberal Party It’s Worst Loss In Years

Doug Ford’s Progressive Conservative Party won a decisive majority government last week, winning 76 out of 124 seats in the Legislature and ending 15 years of Liberal rule. Kathleen Wynne’s governing party lost 48 seats and official party status in the Legislature. It was the worst loss for a governing party in Ontario history and the first time the Liberals ever lost official party status. The last time the Government of Ontario changed was in 2003, Doug Ford’s win is the fifth time this has happened since the end of WW2. With the election over, the challenge of governing will now fall to Premier Ford and those close to him. This blog will analyze the effects of a PC majority government on real estate.

Market, Not Public Forces, Will Prevail

The PCs did not release a fully costed platform with significant detail but consistently voiced a preference to letting the free market sort out housing shortages and real estate matters. Unlike the Liberals and the NDP, the PCs did not show much interest in investing considerable public money into building affordable housing units.

The PC platform states that a PC government will maintain the rent control provisions the Liberal government has introduced. The PCs also mention stimulating the market to increase the supply of affordable housing across the GTA. The Greenbelt is also to be preserved in its entirety.

The PCs are likely to reduce regulation and red tape, simplify permitting for housing construction for developers, and promote both urban densification and suburban sprawl. Taxes on business and developers and trades will fall. Developers and construction companies have generally amicable relations with the PCs and Liberal parties. Former Ontario PC leader Tim Hudak is now the President and CEO of the OREA, the Ontario Real Estate Association.

Throughout the campaign, Doug Ford voiced his desire to scrap the foreign buyer tax and not to introduce a broad Speculation Tax the NDP outlined in their agenda. The new Premier and Government will face many challenges, but the demand for housing and high prices will likely see them introduce a comprehensive agenda to spur market forces.