IMF Working Papers

Balancing Financial Stability and Housing Affordability: The Case of Canada

By Troy D Matheson

November 2, 2018

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Troy D Matheson. Balancing Financial Stability and Housing Affordability: The Case of Canada, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Housing market imbalances are a key source of systemic risk and can adversely affect housing affordability. This paper utilizes a stylized model of the Canadian economy that includes policymakers with differing objectives—macroeconomic stability, financial stability, and housing affordability. Not surprisingly, when faced with multiple objectives, deploying more policy instruments can lead to better outcomes. The results show that macroprudential policy can be more effective than policies based on adjusting propertytransfer taxes because property-tax policy entails excessive volatility in tax rates. They also show that if property-transfer taxes are used as a policy instrument, taxes targeted at a broader-set of homebuyers can be more effective than measures targeted at a smaller subset of homebuyers, such as nonresident homebuyers.

Subject: Consumption, Financial sector policy and analysis, Housing, Housing prices, Macroprudential policy, National accounts, Prices, Taxes, Transaction tax

Keywords: Affordability concern, Canada, Consumer goods, Consumption, Consumption index, Cost-push shock, DSGE model, Housing, Housing affordability, Housing market imbalance, Housing preference shock, Housing prices, LTV policy, LTV ratio, Macroprudential Policy, Preference shock, Transaction tax, WP

Publication Details

  • Pages:

    21

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2018/237

  • Stock No:

    WPIEA2018237

  • ISBN:

    9781484381236

  • ISSN:

    1018-5941

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