Canada’s Housing Shortage is Bad for Business – and Getting Worse
Amazon faced backlash from locals in 2021 after it announced plans to set up a second headquarters in northern Virginia. The potential influx of people would put further pressure on the already stressed D.C. housing market. The multinational’s original solution was to invest in and build thousands of affordable housing units, but the criticism was that the Amazon rentals would still favour those on the higher income side.
This is the current reality for businesses trying to set up shop in pricy urban centres. With Canada’s population set to increase dramatically in the next two decades, the outlook here could be bleak for both businesses seeking employees and for urban dwellers.
“Businesses shape housing and housing shapes businesses,” explains Andy Yan, urban planner and director of the City Program at Simon Fraser University, who says the need to plan for and consider workforce housing has been an issue for years, but it is reaching a critical point in some of Canada’s cities.
“My favourite line about this is: ‘If you don’t deal with workforce housing, I hope you have a lot of self-services,’” Mr. Yan says. He adds that if people can’t afford to live in cities where they work, then businesses––from restaurants to retail––will have to go elsewhere, which will have a drastic impact, making urban centres less liveable and not as productive. “Picking up your own sandwich is one thing,” he continues, “but what about firefighters, nurses and paramedics? Those will be a problem too.”
A 2020 report, Housing a generation of workers, by the Toronto Region Board of Trade, highlighted statistics from Silicon Valley, using it as a cautionary tale of what could happen if workforce housing disappeared in Canada’s most populated city. The report states that while Silicon Valley created a record number of well-paying jobs and reached the highest average wages worldwide in 2019, “the area has also seen homelessness rise by 17% and the loss of up to one-fifth of all teachers in a school district each year.”
The coming decades will see Canada’s population balloon from 38.2 million in 2021, to upwards of 52 million by 2043, according to Statistics Canada. The shift could exacerbate the cracks in affordable workforce housing that are already forming.
Mr. Yan says when it comes to the future planning of Canada’s urban centres, those in charge need to start asking themselves: Who are we building for? “If it’s not the workers then that’s going to show.”
For Mr. Yan, this issue is a result of lack of housing diversity. “There used to be basement suites and little apartments for the people that worked at the local restaurants, but many of those are gone now.”
Is Canada ready for this housing need given the future population projections? “Right now? No,” says Shauna Brail, associate professor at the Institute for Management & Innovation at the University of Toronto Mississauga. She quickly adds that Canada could start to move in the right direction if there is a shift in mentality about how cities are built, mainly around the dedication by Canadians to the single-family home.
“We know that it’s incredibly important to actually build up rather than build out,” Ms. Brail says. “That’s a big change. There is an enormous amount of pushback by neighbourhood associations to try to prevent the densification of neighbourhoods that could and should accommodate more density.”
Without these changes, Ms. Brail explains, businesses may not be able to attract or retain talent, an issue that is already having a significant impact on several sectors. “It wouldn’t be inappropriate for firms, who are embedded in a city or in a region, to think through how they maintain their presence in that region.”
Add to this the strain being felt by some Canadian universities that can’t find affordable housing for students and faculty on or around campuses, and the future talent pipeline for Canadian businesses could be in real trouble.
“It’s not out of the realm of possibility. In fact, it already happens,” says Ms. Brail, “where people say, ‘I’m not coming to work for you because I can’t afford to live there.’”
Source: Globe and Mail
Toronto’s Real Estate Market Will Crash 30% or More by the Spring, Economists Say. How Bad Will It Be?
The majority of economists surveyed by the Star forecast that Toronto’s home prices are set to decline by 30% or more from the February 2022 peak to spring 2023. A drop that many economists would define as a housing crash — as the Bank of Canada continues to push interest rates upward to curb inflation.
If history is any guide, there is a chance prices could drop even more, as the crash takes on a life of its own and investors abandon a tanking market, propelling house prices down longer and further than many expect. “The housing crash in the late 1980s and 1990s was painful because house prices fell substantially and didn’t recover for a decade. Toronto’s market will crash, the question is for how long? That determines how bad it will be,” said Ben Rabidoux, founder of Edge Realty Analytics, a real estate data firm.
The UBS Global Real Estate Bubble Index 2022 placed Toronto in the top spot out of 25 cities, calling it the riskiest housing bubble in the world. A housing bubble is a run up in housing prices fuelled by demand, which reaches unsustainable levels to the point of collapse.
The report found that home price levels in Toronto have more than tripled in the last 25 years fuelled by strong population growth, a housing shortage, and falling mortgage rates. High investor demand has also added significantly to the price increase.
“Toronto has strong risk signals,” said Mattias Holzhey, co-author of the UBS report. “Prices are moving faster than peoples’ income. More people are leveraged, prices have tripled in a short time frame, outstanding mortgages are up … it’s an overheated market.”
Since the market first showed signs of breakage in early 2022, uncertainty has taken hold. Unit sales plunged by more than 44% in Toronto from September 2021 to September 2022, and the average selling price dropped to $1.09 million, down from the February peak of $1.33 million, according to the Toronto Regional Real Estate Board.
This sales slump is “a major correction,” said Philip Cross, senior fellow at the Macdonald-Laurier Institute and former chief economist at Statistics Canada, and prices will decline further as sellers realize the market sales price will not reach the February market peak again for a long time. Right now, sellers are holding off on lowering home prices, waiting to see if prices will rise again, which is why prices aren’t falling as drastically as sales.
A 30% drop in Toronto prices would bring prices back down to where they were in December 2020. For Cross, a 40% to 50% home price decline — which would take prices back to where they were in 2015 — is needed in the country’s major markets to make real estate sustainable again.
Tony Stillo, director of Canada Economics at Oxford Economics, said the housing bubble in Toronto is already starting to burst as sales and prices drop sharply. But home prices in Canada are still 35% higher than what buyers making a median household income can afford, he said.
Despite the more than 15% drop in house prices since the February peak, the real cost of buying a home for a Toronto buyer taking out a typical mortgage is still higher than it was at the housing peak, due to the run-up in borrowing rates. “Prices can only outpace household income for so long,” Stillo added.
The biggest question remains whether the housing crash will be long and drawn out like it was in the 1990s, or whether there will be quick recovery. If the fall in prices bottoms out in spring 2023 and manages to bounce back later that year, the crash will cause limited damage.
But if interest rates remain elevated for a long period of time, which seems increasingly likely, the housing market — and the larger economy — will be impacted heavily, said Cross. The real estate market accounts for a staggering 14% of Canada’s economic growth. If it falters there is “tremendous collateral damage,” Rabidoux added.
Source: The Star
Canadian Home Prices Tumble in September, Posting Largest Monthly Drop Since Index Launched in 1999
Canadian home prices tumbled in September from August, posting the largest monthly decline since the index was launched in 1999, while year-over-year price gains continued to slow, Teranet–National Bank National Composite House Price data showed. The index, which tracks repeat sales of single-family homes in major Canadian markets, showed prices dropped a record 3.1% in September from August, led by sharp declines in Toronto and Hamilton, Ontario.
The major market index is now 7.0% below the May peak, with Hamilton down 13.5% and Toronto down 11.1%. Calgary and Edmonton, Alberta, by contrast, both hit fresh index highs in August.
Prices are still higher than in 2021, up 6.0% from September 2021, but gains are slowing. The Teranet index tracks closings, so it typically lags realtor sales data by three to five months.
Source: Globe and Mail
Why Aren’t More Homes for Sale? They’re Being Rented.
Like many housing markets across the country, the Toronto region is lacking for resale inventory. In September, for instance, new home listings in the Greater Toronto Area were the lowest in two decades.
In many cases, homes are getting pulled from an ice-cold resale market – and rented out.
Over the first three quarters of 2022, more than 24,000 low-rise homes were rented in the GTA, an increase of 29% from the same period in 2021, according to John Pasalis, president of Realosophy Realty. His analysis focused on detached and semi-detached homes, along with freehold townhomes that were rented on the Multiple Listing Service system.
Mr. Pasalis has looked at GTA homes that were listed for sale between May and July, but did not sell by the end of August and were taken off the resale market. Of that group, nearly one-quarter of condos and about 8% of low-rise homes were leased. And that doesn’t include homes that were rented outside the MLS system – for instance, places that were advertised on Kijiji, Craigslist and elsewhere.
“I think the spike this year is people who said, ‘Forget it, the market is not doing well. I’m just going to rent it out, rather than try to sell it,’” Mr. Pasalis said.
The rental market is red hot, with demand bolstered by strong population growth, while many hopeful buyers are getting priced out of homeownership by rising mortgage rates. On a per-square-foot basis, the average condo rent in the GTA jumped 17% in the second quarter from a year earlier, according to real-estate consulting firm Urbanation. For some renters, it won’t be the most secure form of tenancy.
“If someone’s looking at a home that was previously or currently listed for sale and lease, it’s very possible that owner may try to sell it in the next year,” Mr. Pasalis said.
Source: Globe and Mail