Not if the barrier-to-entry is still so high that only foreign investors and speculators are allowed to participate.
The barrier to home ownerships have always been high, perhaps not as high as they have been the last 2 years.
If they increased the supply of Rolls Royces, doesn't mean everyone on the block will have one in the garage.
There needs to be a correction in the market, and increasing supply is not going to fix that. More needs to be done to identify the buyer from someone who intends to live in the home and someone who intend to make a buck from it, and favoring the former while penalizing the latter.
Thing is we're not talking about luxury items like Rollers, they are not a commodity that is supply and demand driven. We're talking about houses - they are supply & demand driven.
Increases in supply does fix prices. Speculator and investor interest is quelled when supply meets demand as the opportunity for capital gain diminishes. They're out -- remember investors want the money, they don't fall in love with the 'home' like a homeowner.
Increase in interest rates does put downward pressure on selling prices, but it doesn't change the barrier to entry as the carrying costs don't change. There is also a risk that hiking interest rates will drive investors toward less expensive entry level homes, which increases the challenge for first time buyers.
I wouldn't bet on a correction of any great magnitude. Too many things have to go wrong in the economy and too many things have to go right on the supply side for that to happen. If a correction does happen, I'd bet on a quick recovery AND less affordability 36 mos later. When basic houses cost $250-300'sq to build, builders stop building - back into a supply issue.
There are a lot of things pressuring house prices. Investors, speculators, tax cheaters do make houses more expensive -- but in the great scheme of things I'm not so sure their impact is is all that great. They are the easiest to blame. I put the blame on gov't - inadequate taxing, rules favoring cheating, and a mish mash or regulation and red tape that adds cost and complexity to development and redevelopment.
If the GTA had a master plan with uniform zoning rules it would be easier to get the stock of housing increased quickly. Look at Markham's Cornell and Markham Center as examples. Cornell was built in 12 years and has about 6,000 homes, Markham center 10 years and has about 20,000 homes. Both have excellent infrastructure, transit, surface road and highway access, both have lots of outdoor space and they each have an energy district that efficiently heats and cools millions of sq feet, reducing the need for every building to have furnaces A/C. Do that again on the fringe North Pickering airport lands, docklands, Milton, Ajax and you could build a gazillion integrated and planned communities. That would get closer to fixing the supply side problem.
