Owning a home is a major milestone for people building their futures in Canada. Investing in Canadian real estate creates a solid foundation on which to build an appreciating fortune, and gives families a vested stake in the politics and well-being of their nation.
However, for Canadians in today’s economic landscape, home ownership is becoming more and more of a pipe dream. Politicians are quick to point this out, but many of them also have not put forth real plans for addressing the increasing cost of housing.
The Bank of Canada has tackled the issue of inflation to an extent by raising its policy interest rate, but the problems with real estate news run deeper than tweaking inflation with interest rate hikes.
Keep reading to find a breakdown of how the government is addressing housing price concerns, as well as information on why politicians seem to want housing prices to stay high.
The 2022 federal budget outline was heavily focused on addressing housing prices. Among other things, the budget proposal included the introduction of a tax-free “first home savings account”, allowing potential homeowners to contribute $40,000 towards their first home.
The problem with this approach is that it may not be enough to encourage first-time buyers to participate in the real estate market. In many major Canadian cities, $40,000 is not enough for a down payment on a house.
Furthermore, families are likely already contributing to other savings funds, such as a TFSA or RRSP. This means that they may not have the disposable income to hit contribution limits on a new savings account, even if it is tax-free.
The budget also included a $4 billion dollar proposal to start a “Housing Accelerator Fund” for cities to encourage the building of new homes, along with a $1.5 billion extension of the Rapid Housing Initiative.
However, the issue of housing prices is more serious than supply-and-demand. Around two-thirds of Canadians already own houses. In other words, two-thirds of Canadians are invested in real estate news, and falling prices will negatively affect the value of their investments.
This issue runs deeper than it may seem. Mortgages (and the interest being paid on them) are a huge cornerstone of our economy. It was largely the collapse of the subprime mortgage market in the US that catalyzed the financial crisis of 2008.
What this means is that the government must be very careful when playing around with the housing market. Increasing supply and lowering demand for mortgages (and increasing the cost of taking one out) can have disastrous effects on economic stability.
One example of this is reflected in some of the policies undertaken to address housing prices. For example, the Liberal government has implemented a two-year ban on foreign housing purchases.
While this may seem like a good start on the outside, it may not prove effective. Provincial governments in Ontario and BC tried to raise taxes on foreign house purchases, and it barely made a dent in the rising cost of housing.
According to Professor Joshua C. Gordon of Simon Fraser University in BC, many foreign buyers actually purchase real estate through naturalized relatives living in Canada. Bans and taxes on foreign ownership cannot address these types of purchases.
At the end of the day, these policies make it seem as though the Liberal government is talking about wanting lower house prices, while their actual policy alternatives on the issue are more of a band-aid than a panacea.
According to the Bank of Canada, affordability is the worst it has been in over thirty years. Rising costs of financing mortgages are supposedly the leading cause of the most recent spike in the Housing Affordability Index.
Even though these numbers seem grim, the Bank of Canada stresses that the recent troubles are likely temporary. This is because they expect housing prices to come down eventually due to higher borrowing costs and increased interest rates.
The Housing Affordability Index (HAI) is a measure of costs versus income among Canadian citizens. It is mostly calculated using an average of discounted mortgage rates against known disposable income numbers.
One large reason that this crisis has gotten so bad is that first-time homeowners are demographically different than they have been in the past. Age distribution in the 90s meant that first-time homeowners were not yet at the peak of their lifetime earnings potential.
Nowadays, first-time home buyers are slightly older, and median individuals in Canada are mostly past the peak of their earnings potential. This means that future income is unlikely to provide relief for financial obligations.
In other words, any increase in affordability vis a vis the housing shortage will have to come from lower house prices. As mentioned before, much of the population (and financial institutions) is heavily invested in real estate, making house prices a touchy subject.
On one hand, new home buyers will be less likely to invest in a home due to high home prices and a fall in earnings. On the other hand, existing homeowners and mortgage lenders will likely have to take a loss if housing costs are lowered too much.
Democratic politics is an arena where rhetoric reigns supreme. This is why political entities do a lot of talking and grandstanding when it comes to hot-button issues, but their actual policy differences are largely superficial.
For example, the Conservative contrarians have criticized the Trudeau government for their lacking response to the affordability crisis. However, they themselves have only given vague hints at how they would address the rising costs of housing and rental housing.
One harsh reality about this issue unique to Canada is that the federal government is actually quite removed from the practical aspects of the real estate market. The bulk of real estate development and policy is handled at the provincial and municipal levels.
On that note, while provincial governments across Canada are quick to promise “attainable” housing, their actual policy changes have had little effect on the housing shortage in their provinces.
Doug Ford made statements during his provincial election victory speech about aiming to make housing more “attainable” for citizens in Ontario. Critics have been quick to point out the vague choice of words during this speech.
Still, Ford managed to introduce the Housing Affordability Task Force in February 2022, showing at the very least an intention of addressing the issue of rising housing costs. However, this in and of itself is not a policy change.
The task force consists of expert consultants meant to provide policy recommendations to the provincial government of Ontario to increase the supply and reduce the cost of housing for first-time home owners.
Of course, this is no guarantee that the government will actually follow the advice of this task force. Furthermore, there is also no guarantee that the members of the task force will recommend what really needs to be done to bring down housing costs.
One potential red flag is the actual membership of the task force. The group is headed by Jake Lawrence, the CEO and Group Head of Global Banking and Markets for Scotiabank. He has also acted as Scotiabank’s Deputy Treasurer and Senior Vice President.
While his extensive financial background certainly makes him qualified to make policy recommendations for housing, the reality is that he works for Scotiabank: one of the largest providers of mortgage loans in Canada.
This means that if Jake Lawrence were to actually suggest policies that lead to a fall in average home prices, he would also very likely make his primary employer lose money. Does that actually make any sense?
As private citizens, we are expected to assume good faith when seeing things like this unfold. However, it is exactly this type of complacency that leads to ineffective policy at best and outright corruption at worst.
Other members of the task force are equally suspect; such as Lalit Aggarwal, who also acts as the president of Manor Park Holdings, a real estate development and operating company. His primary employment literally depends on high home prices.
Real estate and economics are complex issues, and understanding these topics takes years of prudent research and education. However, there are many public sources where people can find information, including statements by established experts.
One place to get expert opinions on housing and governmental policy is the Canada Mortgage and Housing Corporation. The CMHC is a crown corporation meant to help Canadians find affordable housing.
The CMHC projects that Canada will need to increase new construction rates for housing by about 3.5 million units to start making a dent in home prices. Most of this disparity is concentrated in BC and Ontario, the first and third most populated provinces in Canada.
Outside of British Columbia, Ontario, and Quebec, the CMHC observes that housing is relatively affordable for most Canadians. That being said, low-income families in other provinces may still have trouble finding affordable housing.
Still, this type of analysis only covers one aspect of housing: supply. There are many other issues that can positively or negatively affect home prices, including median income, immigration, and central bank policies, such as interest rates.
According to Re/Max, many Canadians are starting to consider relocating to other provinces in order to combat rising real estate prices. About 65% of Canadians surveyed have indicated that they are willing to move to another province in order to afford housing.
The majority of this is due to rising costs of living. However, other factors play a key role in this response, including falling wages and market volatility. Overall, the average Canadian’s willingness to participate in the market is recovering from recent lows.
Benjamin Tal, Deputy Chief Economist for the CIBC, has stated that “the pace at which interest rates increase poses a greater risk to the housing market and economy in the short-term. In the long run, factors such as rising immigration levels putting further strain on demand, limited housing supply, supply chain hold-ups, and the shortage of skilled labourers will be the greatest hurdles in overcoming Canada’s housing crisis.”
If Canadian policymakers want to affect positive change in the housing market, they will need to base their policy changes on these types of analysis. But what do politicians actually intend to do about the affordability crisis?
So it is quite clear that the Liberals and Conservatives are more happy to talk about this issue than actually address it. What about the other parties in Canada? The political landscape is complex, but many of the parties practice the same approach.
Even without control of the house, the other federal parties can influence the politics of the nation in unexpected ways. Without a majority, the Liberal government must toe the line to an extent to avoid a coalition government forming in the opposition.
Like the Conservatives, the NDP, Greens, and Bloc parties are more than happy to criticize the Trudeau government for their failure to properly affect housing. Also like the Conservatives, these other parties are equally vague when it comes to their own plans.
“We have an ambitious plan that will make a difference in every community in our country – because finding a good, affordable place to live shouldn’t be like winning the lottery.” claims the NDP website.
Unfortunately, the details of such a plan are conveniently absent. The NDP seem to realize that more detached houses must be built, and population growth demand must be curbed, but they don’t actually describe exactly how they intend to accomplish these feats.
The Bloc Quebecois has a surprisingly comprehensive outline for their housing plan. Their platform is focused on using federally owned land to build affordable housing for low-income families, as well as ending foreign speculation in the Canadian real estate market.
However, the Bloc platform vis-a-vis housing prices also includes an extensive focus on socialized policies regarding land ownership and funds for low-income families, such as the continuation of federal funding for homelessness programs stemming from the pandemic.
What this means is that the Bloc Quebecois platform regarding housing overwhelmingly favours low-income households and Canadians facing potential homelessness. Some experts say this may be ineffective in the long run.
The Greens, on the other hand, plan to declare a national emergency and moratorium on evictions to curb an increase in homelessness. How this is supposed to actually address affordability remains to be seen.
The only party with a clear and hard-hitting plan to address housing concerns seems to be the People’s Party, headed by Maxime Bernier. They intend to address housing in a number of ways:
Although this is the only federal party with a specific outline for addressing the housing crisis, the People’s Party only managed to grab 4.9% of the popular vote in the last federal election, failing to earn even a single seat in the house of commons.
Furthermore, Maxime Bernier has come under fire for non-compliance to covid restrictions during the pandemic, as well as accusations of toxic nationalism from both private and governmental sources.
As Canadians, it doesn’t do us any good to sit around arguing over red-versus-blue politics when every single party has a vested interest in avoiding the issue. What really must happen is a serious and coordinated effort to spur politicians into actual action.
Writing your representatives is a good start. As citizens of a democratic country, we have a duty to hold our elected officials responsible for their behaviour. This goes double for representatives you didn’t personally vote for.
Furthermore, if you have the means to do so, investing in private affordable housing initiatives is a very direct way of affecting the issue. Forbes reported in August of 2021 that private investors have more power over affordable housing than they realize.
In fact, private investment in affordable housing might even be less risky than traditional securities such as stocks. After all, affordable housing is always in demand, even during a recession.
Although this past federal election had very high levels of voter participation, provincial and municipal elections rarely garner the same attention. It is important for Canadians to pay attention to local politics as well as the federal circus if they want to affect affordability.
In the end, however, it will come down to making our voices heard when it comes to federal and provincial policies on this issue. It’s imperative that Canadians start to keep their ears to the ground when it comes to politicians and their actions.
If you have something to say about the policies being put in place by the Canadian government, the Bank of Canada and their interest rates, or politicians, then you should make your voice heard. Write to your representatives today and start making a difference.
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