Housing Shortage Becoming More of a Crisis

Christopher Alexander, President of Re/Max Canada, talks to Financial Post’s Larysa Harapyn about how Canada’s housing shortage is becoming a crisis and all levels of government need to act to increase supply. Here is a recap of the video

Can you give an overview of current market conditions?

“Inventory is extremely tight again. Typically during this time of year we do see a lot less listings come out, we are getting into the holiday season and most consumers don’t want people coming through their homes interrupting all of the festivities. But it is cause for concern because right now I’m talking to our peers and our associates in the different provinces across the country, a lot of them are telling us this is the lowest they have seen inventory almost in their entire career. This is cause for concern considering how many inventory challenges we’ve had year after year in Canada.”

What is the answer when it comes to affordability?

“Well we need to find a solution, that isn’t what we are calling band-aid. There’s been government policy from time to time that is very well intentioned but it’s always directed at curbing demand and we really need to find a supply solution. Housing starts fell 5% month-over-month and that’s actually the fifth straight month that we’ve had a decline in housing starts. I can totally appreciate given that the world supply chain is facing all kinds of constraints, that that would have an effect on housing starts in Canada. But really long-term, we need to find a solution to be able to satisfy the demand that we are seeing in the marketplace or we are going to see continued rising prices. I do however think that 2022 is going to see ab it more calm than this year, but it really needs to be the focus of all three levels of government to find a way to stimulate supply.”

Is housing something that needs to be tackled from the ground up at the municipal level as opposed to the federal level?

Yes, it all starts at the municipalities, each one has different rules and regulations for development. It starts at the municipal level, works it way up through the provinces, and then of course the federal government helps facilitate funding and certain projects and things like that. There are all kinds of challenges that we need to address. I’ve seen a big rise in consumers that are reluctant to sell because of the cost that comes associated with selling their home specifically land transfer tax, specifically in the city of Toronto where you have a double tax. I know that it is a great source of revenue for the city of Toronto, however prices have risen so much so quickly in the past several years that it’s becoming an even bigger deterrent than in years past for people who are wanting to move, and they would rather put that money back into renovating their home rather than spending it on moving.”

Let’s talk about house prices, what’s fuelling the market?

“People have a lot of buying power right now and they believe in the long term health of the Canadian real estate market. But it does all trickle back to the supply challenges and that’s what is putting the upward pressure on prices. And yes, people can afford more because the rates are so low, they are so low right now that even with gradual hikes which are expected in the middle of next year, that I don’t see it having adverse effects on the market.”

When you look at 2022, will we continue to see a constraint on the supply side?

“I think with immigration getting back to pre-pandemic levels and going well beyond that.
 The goal is 1.2m new people in the next three years. That’s 400,000 people per year, our peak of housing starts was about 335,000 in 2019, there’s a shortfall there. Is every new Canadian going to buy a home the day they show up, no… but it’s still a deficit.” 

What solution would you like to see?

“I would suggest if you are a municipality and you’ve got two land transfer taxes or provinces, consider capping it. We have to find a way to speed up the approval processes when it comes to approving new development. And I also think we need to make some very tough decisions when it comes to urban sprawl versus building vertical to accommodate the housing needs of the different provinces.”

To watch the full interview visit the Financial Post website. 

Source: Financial Post

Montreal Might Now Be the City Most at Risk of a Downturn in the Real-Estate Market

Ground zero of the national housing crunch has shifted to Central Canada’s biggest cities, and excess demand appears to be coming from investors, not households, according to the Bank of Canada’s bi-annual review of the financial system. The housing mania that has gripped the country for more than a decade originated in Vancouver, where the combination of ultra-low interest rates, international money and low supply combined to ignite a real-estate boom that captured global attention, and eventually morphed into an affordability crisis that turned housing into an important political issue.

But demand and supply in British Columbia’s main urban centre has been roughly balanced since the end of 2019, according to the Bank of Canada’s House Price Exuberance Indicator, which combines various strands of housing data to assess whether prices have become “extrapolative,” the central bank’s word for demand explained by an expectation that prices will keep rising, not market fundamentals such as population growth and the rate of housing starts.

Now, authorities in Ontario and Quebec should be most worried about a housing bust. The Greater Toronto Area, which, to be sure, soon caught up to Vancouver as a troubling source of house-price inflation in the aftermath of the Great Recession, continues to exhibit signs of “exuberance,” as do Hamilton and Ottawa, according to the central bank’s analysis. But Montreal might now be the most at risk of a downturn, as it’s square on the Bank of Canada’s heat map, and went from red over the first half of the year to an even darker red in the third quarter.

Extrapolative price pressures “can occur when people fear missing out or expect to make future capital gain from reselling, or both,” Paul Beaudry, a deputy governor at the Bank of Canada. “The good news is that the somewhat slower house price growth that we saw over the summer should lower the chances of undesirable extrapolative price dynamics. But some markets still show signs of such expectations.”

The Bank of Canada’s ability to influence housing prices is often overstated. Higher interest rates would deflate demand, but policy-makers would rather avoid harming the prospects of households and businesses to disrupt excessive speculation in individual cities. The central bank has no regulatory power, so all it can do is use its analytical heft to advise politicians and regulators of the situation. “It starts at the municipal level,” Christopher Alexander, president of Re/Max Holdings Inc.’s Canadian unit, told the Financial Post, citing land-transfer taxes, the slow approval of building permits, and local fights over whether cities build up or continue to sprawl as barriers to accelerating supply. 

In May, when the central bank last reviewed the financial system, it singled out troublesome local markets for the first time, a decision that should make it harder for provincial and municipal politicians to ignore the threat. In the November update, Beaudry added new analysis that shows much of the pandemic-era demand for housing has come from investors and repeat homebuyers; year-over-year growth in mortgages taken out by investors surged 100% in the second quarter, compared with about 60% for repeat buyers and about 40% for first-time buyers.

“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” Beaudry said. “In such a case, expectations of future price increases can become self-fulfilling, at least for a while. That can expose the market to a higher chance of a correction.”

Housing was specifically mentioned in Prime Minister Justin Trudeau’s throne speech on Nov. 23, highlighting the extent to which real-estate prices have become a political issue. The government cited its campaign pledge to create a $4-billion fund to finance 100,000 new urban homes by 2025 and a separate promise to create a new rent-to-own program as examples of its commitment to lowering the cost of shelter.

It also said it would follow through on a promise to revamp the First-Time Home Buyer Incentive, a demand-side sop that has Canada Mortgage and Housing Corp. helping with an initial payment in return for an equity stake in the property. The program adds fuel to the fire by stoking demand, if only marginally, but at least it stops stretched households from taking on more debt. That’s important because the debt Canadians have piled up chasing rising housing costs remains a weak spot that continues to worry the central bank, especially as it readies to resume raising interest rates from ultra-low levels.

Source: Financial Post

Average Home Costs Are Up 30% Since Before the Pandemic, a Spike CHMC Links to Speculative Investors

Canada’s housing agency is concerned about speculative investing in residential real estate, saying it is contributing to the froth in the market and pushing home prices higher. “What worries me is the role of speculative type investors and the kind of market we have seen over the last year,” said Bob Dugan, the chief economist at the Canada Mortgage and Housing Corporation (CMHC).

The average home price across the country is 30% higher than before the pandemic, with smaller cities and semi-rural areas experiencing record price increases. In less than two years, the average price of a home is up 167% in Ontario’s Bancroft region. Home prices have almost doubled in other parts of the province, such as North Bay, as well as in communities in Atlantic Canada such as Cape Breton, according to Canadian Real Estate Association data.

Buyers are trying to get into the housing market and have increasingly turned to cities and regions that were once considered affordable or to condos, which typically have a lower purchase price. That includes preconstruction condos, where the buyer is initially only on the hook for a relatively smaller down payment.

The CMHC has already warned that the country’s housing market is overvalued and vulnerable to a price correction. It has identified six major metropolitan areas at risk of a downturn: Montreal, Hamilton, Toronto, Ottawa, Halifax and Moncton.

Mr. Dugan’s comments came one day after the Bank of Canada singled out domestic investors for the first time as a potential problem in the housing market. The central bank said they have likely contributed to the rapid rise in home prices. “That can expose the market to a higher chance of a correction. And, if one occurs, the damage can spread far beyond the investors,” the bank said.

The Bank of Canada found that investor buying has doubled over the past year, whereas purchases by first-time homebuyers have risen about 45%. The bank also expressed concern about high levels of household debt and the quality of borrowers; in particular, it is concerned that highly indebted households are borrowing at a faster pace.

The bank is doing more research on this topic and said it will look at the types of investors buying homes during the pandemic and whether investors are more sensitive to price changes than other homebuyers. As well, it said it would look at what impact the increase in investor buyers might have on the home resale and rental markets.

The CMHC has long said that investors who rent out properties – as opposed to those speculating on price appreciation – have a positive effect on housing availability. Condo rentals are key in the Toronto region, which has suffered from a lack of apartments or rental housing units.

Source: Globe and Mail