There's a bidding war for government action on Canada's soaring housing market, but as fingers point to foreign buyers as a reason for escalating prices, governments at all three levels are not yet motivated to cool the market down.

Young Canadians complain home ownership is increasingly beyond their reach. Governments fear rules to put a lid on stratospheric prices — expected to show another strong increase in today's real estate data for April — could have an an economic impact far beyond the first-time buyer market.

Chinese is the first language on a sign outside a mansion under construction in Vancouver. (Reuters) The difficulty governments face is that while Canadian manufacturing and exports fall, while oil and resources crash, the property market has become the spark plug of the economy . The proverbial engine of growth is firing on a single cylinder.

Efforts to tabulate exactly how much foreign money is entering the market are unlikely to be definitive. The debate over whether it is five, 14 or 66 per cent of sales, to quote some of the estimates in a recent Maclean's article, will not be easily resolved.

Family members can be placeholders for overseas investors. Layers of corporate ownership can do something similar, as South China Morning Post Vancouver correspondent Ian Young explains.

And that may be just the way a lot of those who benefit from the real estate market want to keep it.

Every year some economists predict the end of Toronto's condo building boom, but GDP figures show construction activity continues to be the main creator of jobs in the city. (Mark Blinch/Reuters) The fact is the foreign contribution to rising prices is only accelerating a global phenomenon that would have happened in Canada anyway. The real issue is land, hence the real estate truism: "They ain't makin' any more of it." As populations grow, prime land close to where people want to live inevitably gets bid up in value.

Compared to the rest of the world, Canada has been living in a bubble. Ours is a huge country with a small population, so for decades Canadians have imagined it their God-given right to sprawl out over the best agricultural land surrounding our cities, offering everyone a suburban backyard and a picket fence.

The end of that seemingly endless sprawl just happened to coincide with historically low interest rates and large parts of a global population having risen from poverty to be at least as rich as Canadians. No longer the poor and hungry, many now have a healthy down payment.

The very difficult question facing municipal, provincial and federal governments is exactly how they should respond if the new data on foreign ownership shows overseas money is significantly distorting Canadian markets.

A construction worker builds a new home in Oakville, Ont. Despite repeated warnings of a property crash, prices keep rising. (Canadian Press) According to GDP figures, the two hottest cities in the fastest-growing provinces are both being powered by the property market.

"British Columbia led the country with 3.0% growth, the best pace since 2006. Residential construction offset a downdraft in mining investment," BMO economist Robert Kavcic wrote last week. "Ontario was also strong, rising 2.5% for a second year, led by the biggest gain in construction output (residential with an assist from transportation) in 14 years."

Foreign vs. domestic demand

Even if the Canadian housing market is principally driven by domestic demand, markets that have been rising so relentlessly could be reaching a point of instability.

What governments quite rightly must be considering is what would happen if legislation to discourage foreign buyers was just enough to crack confidence and pop what so many people worry may be a property bubble.

With houses selling over asking price year after year, buyers are convinced it's safe to overpay for a home because they'll make their money back as prices continue to rise. (Mike Cassese/Reuters) Vancouver prices have hit such staggering levels that even talk of a special tax or restrictions on what properties foreign investors can buy could feasibly send the market into a tailspin. In both Toronto and Vancouver, a slide in prices would have echoes far beyond house prices.

Without a continuing influx of foreign investors, new construction would likely slow and deprive the economy of jobs. The sellers of existing homes would no longer count on a premium for their fixer-uppers.

Worst of all, those who entered the market recently would be under water. Younger people who are already spending almost everything they earn on mortgage bills would feel even poorer as falling prices swallowed up years of payments.

Not only that, a general decline in employment could lead to a vicious cycle of economic weakness.

In the bidding war for government attention, legislators must weigh the outrage of those priced out of the market against the fears of those whose livelihoods depend on a continued boom.

The best solution would be to meet in the middle, with rules that would help new buyers without mortgaging their economic future. But like your dream home, engineering a soft landing may be out of reach.

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