## Balancing Financial Stability and Housing Affordability: The Case of Canada

_IMF Working Papers, November 2, 2018_

## Source details

**Canonical URL:** [Balancing Financial Stability and Housing Affordability: The Case of Canada](https://www.imf.org/en/publications/wp/issues/2018/11/02/balancing-financial-stability-and-housing-affordability-the-case-of-canada-46299)

## Other formats

- [Markdown version](/en/publications/wp/issues/2018/11/02/balancing-financial-stability-and-housing-affordability-the-case-of-canada-46299/index.md)
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## Bibliographic details
- Authors: Troy D Matheson
- Published: November 2, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484381236.001

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### Summary
- Housing market imbalances are a key source of systemic risk and can adversely affect housing affordability.
- The paper utilizes a stylized model of the Canadian economy that includes policymakers with differing objectives—macroeconomic stability, financial stability, and housing affordability.
- When faced with multiple objectives, deploying more policy instruments can lead to better outcomes.

### Methodology
- Model type: stylized DSGE model of the Canadian economy.
- Policy makers modeled with differing objectives: macroeconomic stability, financial stability, housing affordability.
- Policy instruments evaluated include macroprudential policy and property-transfer taxes (transaction taxes).

### Key Findings
- Macroprudential policy can be more effective than policies based on adjusting property-transfer taxes.
- Property-transfer tax policy entails excessive volatility in tax rates, reducing its effectiveness.
- 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.

### Policy Implications / Recommendations
- Deploy multiple policy instruments when policymakers face multiple objectives (macroeconomic stability, financial stability, housing affordability).
- Prioritize macroprudential instruments over property-transfer tax adjustments for addressing housing market imbalances and systemic risk.
- If transaction taxes are employed, design them to target a broader set of homebuyers rather than narrowly targeting subsets like nonresident buyers to improve effectiveness and reduce excessive rate volatility.

### Subjects and Keywords
- Subjects: 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

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## Content in this bundle

- **1. Calibrated Parameter**
  - [1. Calibrated Parameter (Markdown version)](/-/media/files/publications/wp/2018/wp18237.pdf.md){rel="alternate" type="text/markdown"}
  - [1. Calibrated Parameter (PDF)](/-/media/files/publications/wp/2018/wp18237.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2018/11/02/balancing-financial-stability-and-housing-affordability-the-case-of-canada-46299_