Should the Government Try to Control the Real Estate Market?

The water cooler talk in Vancouver surrounds two topics: The Canucks and Vancouver Real Estate.  I do not believe that you are interested in my thoughts on our goal tending and third line centre so I will address the latter.  As prices continue to climb in many markets throughout the region and across the country we are seeing more and more articles by “experts” stating that the market is 10% - 30% over valued and that the bubble will burst; this time.  Predicting the market is an inexact science in that for every bubble theorist there are those who think the market will double in the next ten years much like it has done in the past.

One thing is for certain and that is that the market will go up and it will go down as it always does with the natural ebb and flow of the markets.  The larger question is whether government should step in and attempt to control these market movements.  At the base of this post is a link to an article where Finance Minister Joe Oliver states that the “government may take steps to rein in an overvalued housing market.” 

Government officials may feel that they can control the market, however, this would be a major mistake.  In many ways the damage has been done by letting the interest rates fall to their current levels.  Due to the household debt levels that this article discusses, it will be difficult to raise these rates.  Now it goes without saying that there are many factors involved in interest rates that go far beyond the housing market but they have the ability to swing the market one way or another with substantial movement up or down. 

Over the years we have seen a substantial tightening in financial regulations for those trying to get mortgages.  This has been meant to protect the consumer, however, the regulations have not been extended to toxic debt on items such has household goods, cars, credit cards, etc.  These are the credit facilities that should see further regulations should they choose to tighten the rules further.  The government’s attempt to protect consumers from themselves is understandable however their idea of controlling the market is absurd as they will only cause problems.  Check out the article below as it is an interesting read.

http://www.repmag.ca/news/finance-minister-talks-reining-in-housing-market-186374.aspx