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Policy needs to rejig the balanceLast updated 1 hour ago You can save this article by registering for free here. Or sign-in if you have an account.Homes in Toronto, Ont. Photo by James MacDonald/Bloomberg filesCanada’s housing market correction offers a rare opportunity for a much-needed policy reset. For decades, public policy has centred around supporting homeownership, relying mainly on demand-side measures that helped fuel today’s overly expensive market, the steady rise of home prices since the early 2000s having far outpaced incomes. Meanwhile, underinvestment in other productive assets, such as machinery, equipment and intellectual property, has resulted in a lopsided economy and weakened Canada’s productivity performance.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Subscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorBut recent data from the Canadian Real Estate Association now show a housing market that is at least on pause. Sales were down year-over-year in every month from January through April, while the benchmark price of a typical home also fell year-over-year in every month — clear signs of a downturn.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe country is also now in a technical recession with the latest GDP reading confirming what many Canadians had already been feeling — growth has at least stalled. Recent data from Statistics Canada show an economy that is losing momentum and struggling to find a clear source of growth.Instead of continuing to lean on policy levers that have boosted housing demand and contributed to the current imbalance, Ottawa should use this moment to let capital move toward other sectors, where it will strengthen Canada’s productivity and support broader long-term economic growth.Canada’s outsized reliance on housing as a driver of economic growth has come at a steep cost. Our collective focus on real estate has driven household debt to levels nearly equal to Canada’s annual economic output, placing us among the world’s most indebted countries. This has resulted in a widening productivity gap with the U.S., which invests 40 per cent less than we do in residential construction, but two times more in productive assets.There are also mounting inflationary risks. Residential construction costs continue to rise even as pandemic-era demand has normalized, which suggests the sector is operating at capacity. These pressures are spilling over into non-residential construction, increasing the cost of critical infrastructure and further constraining economic growth.Canada’s preoccupation with homeownership is understandable. Housing hits people — literally — where they live. But the policy response has missed the mark. Although governments have multiplied incentives to support homebuyers, housing has not become affordable. First-time homebuyers continue to be older and increasingly come from wealthier backgrounds, suggesting these measures have had limited market-wide impact.In many cases, incentives have created the illusion of helping while in fact worsening affordability by fuelling demand. Programs such as the First Home Savings Account have proved most attractive to higher-income households, but that means they have often benefited people who would have bought homes regardless. The GST rebate on new homes is relatively narrow in reach and unlikely to materially improve affordability.These outcomes reflect a broader policy bias that has consistently favoured housing over other forms of investment. By maintaining this imbalance, governments risk reinforcing the very dynamics they are trying to address. The current softness of prices therefore represents a clear opportunity to pivot toward more neutral and sensible policies.Rather than layering on new measures, policy-makers should scale back demand-side supports and allow housing markets to adjust more naturally. This would reduce upward pressure on prices while freeing up capital to flow into more productive areas of the economy.At the same time, governments should focus on increasing housing supply. Current policy does include supply-side measures, but they are undermined by continued demand-side supports. That limits progress on housing affordability and keeps capital tied up in housing rather than flowing into other sectors.Policy-makers also need to be clear, both with themselves and with the public, about whether their priority is improving affordability for homebuyers and renters or preserving high asset values for existing homeowners. They can’t do both at the same time. Favouring affordability — which is the declared policy — means pulling back, or at least pausing, demand-side incentives and allowing the market to adjust accordingly. If oversupply emerges, prices will correct or units will shift to rental use, supporting affordability over time and allowing leftover cash flow to move elsewhere.None of these challenges is insurmountable. Governments have the tools to design more effective, balanced policies. The harder question is whether they have the political will to move beyond the status quo.Housing remains central to the Canadian dream. But the current policy mix is not delivering on that promise and is, simultaneously, weighing on the broader economy. The current correction provides a window to act. By rebalancing housing policy, redirecting investment toward more productive sectors and allowing market adjustments to take hold, governments can improve affordability while strengthening Canada’s long-term economic performance.But without a meaningful shift in approach both goals will remain far out of reach.David-Alexandre Brassard is chief economist at CPA Canada. Join the Conversation This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.