Is entrepreneurship the answer to Toronto’s rising home prices?

The federal government said this week it would conduct an analysis of the Canadian real estate market on the road to deciding whether legislative changes are needed to correct escalating prices or mitigate the effect of foreign investment on affordability.

This is welcome news for many concerned about the rising levels of household debt and the increasingly unaffordable housing market particularly in Vancouver and Toronto. Finance Minister Bill Morneau said they would take a “deep dive” into the necessary information so that any prospective changes would be evidence-based.

Historically, there has been a dearth of evidence directly linking high prices to foreign investment, although the connection has been posited by many economists and market-watchers. Morneau said the fact-finding mission would also concentrate on population growth, the labour market and housing supply as potentially influential factors.

The Paris-based Organization for Economic Co-operation and Development (OECD) last week released a report urging Ottawa to take action. The report cited Vancouver and Toronto specifically, as they comprise a third of the national housing market.

“Very low borrowing rates have encouraged household credit growth and underpinned rapidly rising housing prices, particularly in Vancouver and Toronto, which together are a third of the Canadian housing market,” the report says.

It recommended furthering tightening of “macro-prudential measures,” such as raising down payment requirements again and targeting them regionally.

Bank of Nova Scotia president Brian Porter urged similar action just the day before. Raising the minimum down payment on homes worth more than half a million dollars in February has done little to curb rising prices, and both our hottest markets continue to see record high prices.

Douglas Porter, chief economist at the Bank of Montreal said that raising property taxes as home values go up might be one answer, according to the Financial Post, but that the “super property tax” should be tax-deductible so as not to penalize existing homeowners.

“There is more than just the foreign investment component going on,” Porter said. “More broadly, there are internal supply-and-demand forces at work. Of course, in Toronto, what has changed in the last 15-20 years is the greenbelt around (it) which has constrained the construction side of detached homes.”

While that may all be true, the biggest problem we’re facing is a lack of economic growth. Porter also said that, on the demand side, we’ve seen a fundamental change that has weakened manufacturing in the last decade, such that many smaller centres don’t offer “meaningful” job opportunities, especially for younger people.

We aren’t alone. A dearth of manufacturing and other industries is affecting the global economy in unprecedented ways. We just don’t make anything anymore — I’m not the first to say that our economy is now essentially real estate-based.

The lengthy (300+ pages) OECD Economic Outlook calls for “comprehensive, coherent and collective” action to combat sluggish global growth, citing a mere 2% average growth in OECD economies over the past eight years, predicted to grow by just over 3% in 2017.

The 34 member countries that comprise the OECD economies are suffering from a negative feedback loop, the report said, in which slow growth constrains potential investment, output and trade, which of course leads to slow growth.

The report criticized overuse of monetary policy as a tool to stimulate growth, encouraging wider use of fiscal and structural policies. It called the need for policy revision “urgent,” saying that the longer the negative feedback loop persists, the harder it will be to get out of it and onto a high-growth path.

The average sale price for a Toronto-area home in April was more than $739,000, up more than 16.2% over the same time last year, according to the Toronto Real Estate Board (TREB). I am not a fan of legislative measures to curb a free market economy but it’s hard to argue that we don’t need to do something.

Instead of raising property taxes or down payment requirements to keep even more buyers from being able to afford the bottom rung on the property ladder, we should be creating legislation that encourages entrepreneurial growth.

I know a few people who have started businesses in the last couple of years, and between payroll taxes, federal taxes, WSIB, HST and all the other assorted government coffers that require cash injections, they often find themselves working for little more than enough to pay their taxes.

Entrepreneurship offers a wholesale solution — it allows for job creation in smaller markets outside the big urban centres, attracts investment, and places no risk on the government. We don’t need more legislation to curb housing prices: we need legislation that makes entrepreneurship a less risky, more attractive path not just for the daredevils and rogues, but for anyone with a great idea and a willingness to work hard.