June 13, 2016 / 3:42 PM / a year ago

UPDATE 1-OECD urges Canada to further tighten housing regulations

3 Min Read

(Adds comments from finance minister)

OTTAWA, June 13 (Reuters) - Canada's housing regulations should be further tightened and regionally targeted to help cool real estate markets that are booming in some of its major cities, a report from the OECD recommended on Monday.

A disorderly housing market correction, particularly in Toronto and Vancouver, remains the main domestic downside risk to Canada's economic outlook, the Organisation for Economic Co-operation and Development said.

Vulnerabilities related to housing and high household debt are still increasing, though at a slower pace, the report found.

Canadian authorities have taken steps to shore up the housing market, but further regionally focused measures should be considered, it said.

The Canadian government has acted five times since 2008 to clamp down on heated housing markets, most recently in December 2015.

But policymakers are challenged by the need to prevent certain housing markets, such as those in Toronto and Vancouver, from becoming overheated without further depressing slower activity in commodity-sensitive regions.

"We recognize it's a complex market with different situations going on," Finance Minister Bill Morneau told reporters.

Morneau said the government was looking closely at the impact of a number of factors in the housing market, including demographics, supply issues and foreign investment.

The Bank of Canada warned last week that the rapid pace of home price increases in Toronto and Vancouver was unlikely to continue.

Targeted measures could go beyond the changes to capital requirements in regions with high price-to-income ratios that are already planned by Canada's financial regulator to make capital requirements more responsive to market developments, the OECD said.

It cited New Zealand as an example where policymakers have put lower caps on loan-to-value ratios in the hot Auckland market.

On the whole, the OECD sees Canada's economy growing 1.7 percent this year and 2.2 percent next year, unchanged from its downgraded forecasts released earlier this month. It had previously forecast 2 percent growth in 2016 and 2.3 percent in 2017. (Reporting by Leah Schnurr; additional reporting by Allison Lampert in Montreal; Editing by Paul Simao and Bernadette Baum)

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