Housing Bubble II: The Quest To Build Enough Homes Where People Actually Need Them

[kwoldtimer]

Originally Posted by someone123

I don't think it's possible to have a healthy economy where a big percent of the population is engaged in rent-seeking by passively borrowing against their real estate and buying more. The gambling aspect of this is also clear now in that it obviously had risks relating to interest rates and rent and taxation levels. It's not a productive endeavor, it's just a financial scheme that works with a screwed up market and tax system.

The thing that really sucks is these investor condos are mediocre to poor housing. People want 2-3 BR units, not shoeboxes. Even if a lot of these investors lose their shirts the housing situation may not improve much and quality units will remain scarce because investment was misallocated for so long.

Canada has made some major policy errors for many years. Real estate for us is like Germany's genius plan to stop using nuclear power and rely on Russian gas. I think these compounding policy errors are how countries fall down the ladder.

Is it really a big percentage?

[lio45]

Originally Posted by niwell

In my friend's particular case their insurance is affected by the fact the area can easily flood during rainstorms

Huh, I hadn't read the whole thread before posting, but guessed correctly!

[casper]

Originally Posted by lio45

Yeah, I said exactly this earlier (in this very thread even, IIRC).

I'm a perfect example: I'm currently sitting on a ton of empty Canadian real estate, just because I'm too busy to bother renting it out. The yearly costs are negligible.

At the opposite end of the spectrum, someone here posted a house in New Jersey that costs like $30k in taxes per year. No one is going to buy that to leave it empty because their plan is to sell it in X years for [[[What They Paid] + [X * $30k]] * [1.z * X]], where the variable z is defined by your Yearly Expected Minimum Acceptable Return.

Your probably not doing that in the metro areas in BC. Vacant property is subject to a surtax of 0.5 - 5% of assessed value.

[someone123]

Originally Posted by kwoldtimer

Is it really a big percentage?

Not sure of the exact source but I saw a CBC story that pointed out that a majority of Toronto condos built in recent years are not owner occupied, with the typical landlord being an average middle aged person, presumably a property owner (e.g. a 60 year old couple who own a house in the GTA borrowing against that to buy a shoebox condo). There must be hundreds of thousands of investors like this.

We can quibble about the wording but I would guess that because a major demographic is eligible to do this and the amount of financing is large, the overall economic impact is significant. This article from 2023 projected 32,000 new condos just in 2023 and just in Toronto with a majority being purchased by investors.

[lio45]

Originally Posted by someone123

I don't think it's possible to have a healthy economy where a big percent of the population is engaged in rent-seeking by passively borrowing against their real estate and buying more. The gambling aspect of this is also clear now in that it obviously had risks relating to interest rates and rent and taxation levels. It's not a productive endeavor, it's just a financial scheme that works with a screwed up market and tax system.

The thing that really sucks is these investor condos are mediocre to poor housing. People want 2-3 BR units, not shoeboxes. Even if a lot of these investors lose their shirts the housing situation may not improve much and quality units will remain scarce because investment was misallocated for so long.

Canada has made some major policy errors for many years. Real estate for us is like Germany's genius plan to stop using nuclear power and rely on Russian gas. I think these compounding policy errors are how countries fall down the ladder.

We all agree that what this means is that Toronto market rents right now are too low compared to construction costs, and that the only way to "fix the problem" is to make sure that while new construction grinds to a halt, lots more of new suckers move to Toronto in order to inflate rents so they become much less low than they are now...? Then, at some point when Toronto rents have become much higher, new construction will become viable again and will resume.

[lio45]

Originally Posted by someone123

Not sure of the exact source but I saw a CBC story that pointed out that a majority of Toronto condos built in recent years are not owner occupied, with the typical landlord being an average middle aged person, presumably a property owner (e.g. a 60 year old couple who own a house in the GTA borrowing against that to buy a shoebox condo). There must be hundreds of thousands of investors like this.

We can quibble about the wording but I would guess that because a major demographic is eligible to do this and the amount of financing is large, the overall economic impact is significant. This article from 2023 projected 32,000 new condos just in 2023 and just in Toronto with a majority being purchased by investors.

As giallo pointed out last page, few people with the means to buy would want to make such a designed-for-investors shoebox their permanent home, so it's extremely likely that the % of them being investor-owned and suckers-rented, rather than owner-occupied, is quite high. They are the target buyers these condos were designed for, after all. Normal that they'd be the ones buying them.

[MonkeyRonin]

Originally Posted by kwoldtimer

Is it really a big percentage?

Yes. Apparently, 4.4 million Canadians (just over 10%) own investment property, while this survey found that 26% of Canadians "plan" to buy investment property in the next 5 years: https://www.newswire.ca/news-release...839743697.html

Unlikely that most of those will, but it does speak to the popularity & appeal of real estate investment in this country.

Meanwhile, we also know that 30% of residential properties are bought by investors (and most of those are amateur investors with small portfolios).

[someone123]

Originally Posted by lio45

We all agree that what this means is that Toronto market rents right now are too low compared to construction costs, and that the only way to "fix the problem" is to make sure that while new construction grinds to a halt, lots more of new suckers move to Toronto in order to inflate rents so they become much less low than they are now...? Then, at some point when Toronto rents have become much higher, new construction will become viable again and will resume.

That is one outcome but I believe the investor capital driving a frenzy of poor quality condo construction bid up construction and land costs, making other types of housing more expensive. Inflated development fees also hurt affordability.

An example better affordability scenario would be to stop the TFW scheme (except skilled trades and the like who I'd guess aren't a big component of the TFWs since Canada struggles to build housing for the new people) and let investor condos crash. Land prices would correct downward. Maybe cut another $50k off condos by lowering development fees and absorb that through a mix of municipal funding cuts and increased property taxes. The $700k-1M condos could correct down to the $500-700k range. We can also see that interest rates are moderating so borrowing costs will go down and more middle class people will be able to afford that price range. The real estate frenzy and TFW scheme are part of what led to higher inflation even as the overall economy wasn't very healthy.

If I were in charge of the government I'd also build a bunch of bare bones public housing apartment towers around the country to crash rents. I'd stage it so that by the time angry property owners voted me out, the damage would already be done.

[YOWetal]

Originally Posted by someone123

That is one outcome but I believe the investor capital driving a frenzy of poor quality condo construction bid up construction and land costs, making other types of housing more expensive. Inflated development fees also hurt affordability.

An example better affordability scenario would be to stop the TFW scheme (except skilled trades and the like who I'd guess aren't a big component of the TFWs since Canada struggles to build housing for the new people) and let investor condos crash. Land prices would correct downward. Maybe cut another $50k off condos by lowering development fees and absorb that through a mix of municipal funding cuts and increased property taxes. The $700k-1M condos could correct down to the $500-700k range. We can also see that interest rates are moderating so borrowing costs will go down and more middle class people will be able to afford that price range. The real estate frenzy and TFW scheme are part of what led to higher inflation even as the overall economy wasn't very healthy.

If I were in charge of the government I'd also build a bunch of bare bones public housing apartment towers around the country to crash rents. I'd stage it so that by the time angry property owners voted me out, the damage would already be done.

This is as good a plan as any. By TFW you also mean fake students and some of the economic migrants as well. Could work.

[niwell]

I'm on board with that plan.

The big issue that will be faced in the shorter term comes down to land prices and a lesser extent high development charges. Too many projects in the pipeline where finances are dependent on the extremely high land costs borne through assembly and often subsequent re-sellings of plots. Not a good situation when projects essentially demand shoebox units on expansive floorplates to come out ahead.

I suppose on the plus side rental projects owned by REITs with longer-term thinking may fill some of the gap. We are already seeing this to a degree in Toronto. This plus interest rates has probably driven the increase in rental projects much more than the removal of rent stabilization on new projects.

[whatnext]

Well, so much for that myth:

Canada has a record number of skilled tradespeople but not enough construction activity
Not long ago, Canada had a shortage of skilled trades. Now it has a surplus and not enough construction projects to sustain them
Author of the article: Murtaza Haider and Stephen Moranis
Published Jul 24, 2024

Canada continues to grapple with meeting its housing construction targets. Until recently, a shortage of skilled trades was seen as the primary obstacle to housing construction growth. However, recent data reveals a troubling trend: while the number of construction labourers has reached an all-time high, construction activity has not followed suit, resulting in a significant drop in productivity. The discrepancy between workforce growth and construction output is yet another challenge for a country struggling to reach its housing goals.

Earlier in the summer, the Canada Mortgage and Housing Corporation (CMHC) noted that despite “a record high 650,000 construction workers” registered in 2023, Canada produced only 240,267 houses. If one accounts for the inflated size of the construction labour force, Canada could build more than 400,000 homes each year....(bold mine)

https://financialpost.com/real-estat...h-construction

[Hecate]

Originally Posted by whatnext

Well, so much for that myth:

Canada has a record number of skilled tradespeople but not enough construction activity
Not long ago, Canada had a shortage of skilled trades. Now it has a surplus and not enough construction projects to sustain them
Author of the article: Murtaza Haider and Stephen Moranis
Published Jul 24, 2024

Canada continues to grapple with meeting its housing construction targets. Until recently, a shortage of skilled trades was seen as the primary obstacle to housing construction growth. However, recent data reveals a troubling trend: while the number of construction labourers has reached an all-time high, construction activity has not followed suit, resulting in a significant drop in productivity. The discrepancy between workforce growth and construction output is yet another challenge for a country struggling to reach its housing goals.

Earlier in the summer, the Canada Mortgage and Housing Corporation (CMHC) noted that despite “a record high 650,000 construction workers” registered in 2023, Canada produced only 240,267 houses. If one accounts for the inflated size of the construction labour force, Canada could build more than 400,000 homes each year....(bold mine)

https://financialpost.com/real-estat...h-construction

lol… this government is just lie after lie after lie.

[Nite]

Construction starts for the first 6 months of the year



seems like the places where prices are falling the fastest are down while where they are steady or rising are up.
With lower interest rates now, the last 6 months see more than a 7% growth yoy

[Nite]

Originally Posted by Hecate

lol… this government is just lie after lie after lie.

Wasn't it the critics of the government claiming we didn't have enough worker to meet the federal government ambitious building targets.
Anyways it seems labour isn't the issue and soon interest rates will not be as well to see if these targets can be achieved.
However local governments have always been the main bottleneck to more construction in this county.

[Hecate]

Originally Posted by Nite

Wasn't it the critics of the government claiming we didn't have enough worker to meet the federal government ambitious building targets.
Anyways it seems labour isn't the issue and soon interest rates will not be as well to see if these targets can be achieved.
However local governments have always been the main bottleneck to more construction in this county.

You’d think the left hand would know what the right is doing but with this government it’s just bullshit. Constant bullshit. From the poverty numbers, to the immigration levels, to the scandals. How come no one’s talking about that liberal who resigned from cabinet for running his business while sitting in office.


But but but… the conservatives.

Check your own before calling out others.

[Nite]

Another month and another 0.4% fall in average house prices in the country




https://wowa.ca/reports/canada-housing-market

[WarrenC12]

Monthly numbers are pretty noisy, but interesting to see even Alberta down.

[lio45]

AFAIK Quebec has never stopped going up and is continuing to go up (and with rates getting lower, this should continue).

[YOWetal]

Originally Posted by lio45

AFAIK Quebec has never stopped going up and is continuing to go up (and with rates getting lower, this should continue).

Quebec is going from strength to strength as is Nova Scotia. Both are not the epicenter of the immigration boom so interesting as that is blamed for all the problems.

[theman23]

Interesting graph from Mike Moffatt:


https://x.com/MikePMoffatt/status/1818614675413639526

Asset shielded from taxes
+
Activity needed to acquire asset is heavily taxed (income)
= Asset value grows disproportionately.

EDIT:

Also, Trudeau just tweeted again about having peoples rent count towards their credit score. Are they actually doing this? This does nothing but harm renters. The next election cannot come soon enough.