Canada's 'housing bubble' deemed close to bursting

[zoomer]

With average and benchmark home prices now north of 1 million in Victoria, there is a rental building boom as most folks can’t even afford condos anymore. Being able to own a home, heck even a condo is becoming a pipe dream for young people.

The numbers are just that until you see a news story that puts things into perspective with the headline: Middle-income first time homebuyers gain access to nine homes in Victoria

Middle-income homebuyers will soon have access to nine affordable homes being built in partnership with Abstract Developments through BC Housing’s affordable home ownership program...

The six-storey building will have 49 units including studio, one-bedroom, junior two-bedroom and two-bedroom units. Nine of those will be reserved for families, seniors and individuals with middle incomes. The remaining 40 units will be sold at market value...

Buyers must have a combined household income no greater than $116,330 for the units with fewer than two bedrooms, and no greater than $163,220 for the two-bedroom suites.

These homes are not even houses, but small condo units along a busy road about 2 km from downtown.

https://www.vicnews.com/news/middle-inco...a/?utm_source=dlvr.it&utm_medium=twitter

[someone123]

Originally Posted by Innsertnamehere

39% of housing in the Toronto CMA is still detached homes, and 56% is low-rise. That number will decline over time, but it's far more than 5%. And people will live in those units.

You can live in a detached home and still have poor quality housing. For example maybe you live with your parents when you're 35, or you live with 6 roommates.

The cities are growing mostly through immigration and immigrants or companies buy up a lot of the housing. The population of today will not come to inherit 100% of the surviving building stock.

Maybe we can leave the "dream" thing aside since it means different things to different people. I don't think a large percentage of Millennials living in Toronto or Vancouver will own detached houses, and I think the younger cohort will own less, not more, real estate.

[Innsertnamehere]

well, yes, overall they will, as supply of the larger forms of housing is artificially restricted.

My point was more so that while that number will be lower, I think saying that only 5% will like in adequate housing is a bit hyperbolic. The "standard" is increasingly shifting from a 3 bedroom detached home to a 2+1 condo with 1 parking spot in the GTA and GVA, but that isn't per se inadequate housing based on demographic shifts, and is actually roughly equal to living standards of the 1970's in terms of living space per person (houses are slightly smaller but households are smaller too).

The average family has less than 2 children today as well, which needs to be remembered.

[Truenorth00]

Originally Posted by Innsertnamehere

One of the biggest differences is boomers were happy to drive till they qualified. Now, they had to drive less than many Millennials do, but that attitude has largely disappeared in Millennials. They place a higher priority on things like commute distance and walkability than previous generations did, I think.

Driving till you qualify is very different in 70s GTA of 4M vs. 2020 GTA of 7M.

Driving till you qualify may now mean living in Barrie and taking a 1.5 hr GO train ride each way, while paying $400/mo for that privilege. Quite different from driving till you qualify meaning driving to Pickering or Mississauga.

Originally Posted by Innsertnamehere

The average family has less than 2 children today as well, which needs to be remembered.

In no small part because they can't afford the space to house another child.

[MonkeyRonin]

Originally Posted by Innsertnamehere

well, yes, overall they will, as supply of the larger forms of housing is artificially restricted.

My point was more so that while that number will be lower, I think saying that only 5% will like in adequate housing is a bit hyperbolic. The "standard" is increasingly shifting from a 3 bedroom detached home to a 2+1 condo with 1 parking spot in the GTA and GVA, but that isn't per se inadequate housing based on demographic shifts, and is actually roughly equal to living standards of the 1970's in terms of living space per person (houses are slightly smaller but households are smaller too).

The average family has less than 2 children today as well, which needs to be remembered.

But again this is in part a positive feedback loop. If all you can afford is a 2-bedroom condo, then you're probably not going to have more than 1 child.

And before anyone mentions that a standard of 1-kid-per-bedroom is a modern luxury, keep in mind that a condo bedroom might be 8' x 10' at most. You aren't fitting two beds and two kids worth of stuff in there. You're lucky if it has an actual window to the outside too. And in any case, why should we accept that cramming kids into tiny rooms together should be what a middle class lifestyle now entails?

[Truenorth00]

Millennials are such spoiled brats. They are supposed to wait till their 50s to have a second kid. It'll be just great to have only seniors at high school graduations.

[Innsertnamehere]

Shrinking household sizes are occurring across the country regardless of if housing is affordable or not so I’m not sure there is as much of a feedback loop as being made out. Correlation isn’t necessarily causation.

There is likely a small correlation but not one so great that the trend would stop entirely if housing were affordable.

If you don’t want to live out in Brampton there are lots of townhouses and 800-1100sf condos in the price range of median household incomes for families with children.

The housing market has shifted towards smaller housing types over the last 15 years partially because of government regulation but also partially because of shifting demographics. A huge portion of household growth is in households with 1-3 people, all across the country. Canada’s birth rate has been declining for a while and this is resulting in fewer households with children.

At the end of the day when government intervenes in market economies the market gets skewed. And the government is majorly intervening in the housing market in the GTA right now, which is resulting in supply shortages in the housing types people want to purchase, causing affordability problems.

[Truenorth00]

Well yeah. It's not exclusively housing costs. There's also the fact that you now need to pay off that $50k in student loans you took to get the Master's degree that gives you the income to buy the house that lets you house that second kid. Said kid also comes with $1500/mo in daycare and have to set aside another $200/mo for their RESPs.

But hey, at least you'll have lots of energy to be able to enjoy your second toddler at 50, with those 3 hr total commutes.

[ssiguy]

While it's true that there has been a shift towards smaller housing, the reality is that expensive housing does relate to lower birthrates. Vancouver has the lowest birth rate in the country and small wonder. The price jump between a one bedroom and a 2 {whether that be mortgage or rental} is astronomical and there are relatively few 2 bedroom apt/condos being built regardless.

For millions of young Canadians, a child is a commodity they can no longer afford. This does not bode well for our future economic growth and skilled labour shortage as we already have the lowest birth rate in both the English & French speaking world.

[Truenorth00]

Originally Posted by Innsertnamehere

At the end of the day when government intervenes in market economies the market gets skewed. And the government is majorly intervening in the housing market in the GTA right now, which is resulting in supply shortages in the housing types people want to purchase, causing affordability problems.

I don't buy the argument that all intervention is bad.

What is creating scarcity is intervention that creates supply which doesn't match demand. Both, not enough housing, and housing stock that is inappropriate for families.

It's not just the lack of single family detached. It's also the fact that a market focused on investors thinks 700 sqft is just fine for a 2 bdrm condo. There's no intention for these kinds of units to house families. That second bedroom is for your cat and your desk. Not your kid.

If the government passed legislation tomorrow lifting single family zoning, and set about minimums for condos (not just on the number of 2 bedrooms but the size of such units), this is intervention that would actually work towards the benefit of families.

[MonkeyRonin]

Originally Posted by Innsertnamehere

If you don’t want to live out in Brampton there are lots of townhouses and 800-1100sf condos in the price range of median household incomes for families with children.

Just for argument's sake I entered an income of $130,000 (average household w/ kids) into TD's online Mortgage Affordability Calculator. Assuming $50,000 available for a down payment, that would qualify a household for a mortgage of up to $688,000.

Rounding that up to 700, I put that into a search of 2-3 bedroom units in Toronto on BuzzBuzzHome. Now, these are strictly pre-construction sales which will be a bit more expensive than older units, but I want to see floorplans so bear with me here. There were a handful of results across the city:




Actually looking into what some of those units entail though, you mostly get stuff like this - windowless, tiny "bedrooms".

$699,995 in Liberty Village:


https://www.buzzbuzzhome.com/ca/liberty-market-tower/units/terrace-collection/lt-605


$650,475 in East York:


https://www.buzzbuzzhome.com/ca/theo1/units/condos/309--409


$699,900 in Etobicoke:


https://www.buzzbuzzhome.com/ca/kingsway-crescent/units/condos/2b---701



I know there's better stuff out there, but still, these aren't exactly encouraging or indicative of "lots" of affordable, family-sized condos being built in this city.

[niwell]

You're also likely to be paying a premium for parking with any of those units. If you're single or a couple that may not be an issue but let's be real - you'll probably want a family car once a kid is in the mix. Plus monthly maintenance fees of course. It all adds up fast.

[Innsertnamehere]

How many people buy preconstruction though, especially for your first purchase?

Just by doing that means you are stuck renting for years as you wait for the unit to get built.

This is MLS right now for 2+ bedrooms at $700k.



Units include stacked townhouses with rooftop patios and plenty of windows, including the bedrooms:

https://www.realtor.ca/real-estate/23327756/4-29-frances-loring-lane-toronto-south-riverdale

Spacious condos downtown with again, lots of windows:

https://www.realtor.ca/real-estate/23295949/309-260-sackville-st-toronto-regent-park

https://www.realtor.ca/real-estate/23303000/802-4k-spadina-ave-toronto-waterfront-communities-c1

go out to the suburbs and you get 2+1s with even more space while still directly on a subway line:

https://www.realtor.ca/real-estate/23321754/1310e-555-wilson-ave-toronto-clanton-park

Mississauga gets you a townhouse with garage right off the LRT:

https://www.realtor.ca/real-estate/23296334/23-80-acorn-pl-mississauga-hurontario

etc.

Actual sold prices aren't far off either. Seriously, go explore this realm of relative affordability here: This is all sold listings in the last 6 months with at least 2 bedrooms and 1 parking spot for under $700k.

https://housesigma.com/web/en/map?listin...443877,%22lng%22%3A-79.46102142333984%7D

[someone123]

Originally Posted by MonkeyRonin

Just for argument's sake I entered an income of $130,000 (average household w/ kids) into TD's online Mortgage Affordability Calculator. Assuming $50,000 available for a down payment, that would qualify a household for a mortgage of up to $688,000.

Asking a bank how much mortgage you can afford is like asking a car dealer how much car you can afford (congratulations, you qualify for a $100,000 vehicle!) or maybe asking a tobacco company in 1970 how many cigarettes you should smoke.

A $3,000 a month mortgage is not really affordable to the typical family with kids earning $130,000 a year. That family's after-tax income is about $90,000 in Ontario, or $7,500 a month. There will also be taxes and, if it's a condo, condo fees. A little over $900/month for one of those listings above for $4,000/month total costs or over 50% of their income.

All of this is neither here nor there of course because most people are concerned with the deterioration of affordability and the bad direction things are headed in. In 10 years if things don't course correct we'll hear about how there's nothing to worry about because people can still afford 2/3 as much real estate as in 2021.

[Innsertnamehere]

That used to be the case but with the stress test the amount the banks are allowed to approve is much closer to actual affordability metrics today.

A 700k property with 10% down would be about $2,700 a month. Add in condo fees, utilities, and property taxes, and that first unit I linked would be netting $3,300 a month all in approximately.

A household with a 130k income can afford up to 33% of their gross income on housing according to traditional affordability metrics, which is $3,500.

After tax income for a dual income household would vary, but if it was evenly split between partners it would be netting about $98k annually, not $90k. Likely more like $96k or so as both partners are unlikely to make exactly the same, or $8,000 a month. If $3,500 goes to housing, you are left with $4,500 for everything else, which is generally plenty.

[someone123]

This sounds like "if everything stays the same or gets better, we will make ends meet" style financial planning. Both parents have stable or growing incomes, nobody has health problems, no surprises happen with the condo, interest rates never go up, and we don't save much for retirement.

I think it's a symptom of the lack of supply and the poorly functioning market that prices keep getting bid up to this level. It makes sense that with a lack of competitiveness on the supply side, the price of a necessity like housing will be bid up into a precarious price range for average earners. People who used to spend like this on housing would buy McMansions but now they are just hitting the table stakes point for mid-range condos or average outer suburban houses.

Statistics Canada reports that the median household income for census families in metro Toronto was $83,020 in 2017, i.e. half of families are below that (source). If the math sort of works out for families earning $130,000 a year in Toronto, most people are left out.

[Truenorth00]

Originally Posted by someone123

This sounds like "if everything stays the same or gets better, we will make ends meet" style financial planning. Both parents have stable or growing incomes, nobody has health problems, no surprises happen with the condo, interest rates never go up, and we don't save much for retirement.

It is incredibly dumb. And they debt statistics reflect how much of a bad policy this is. No amount of apologetics will change that.

[Innsertnamehere]

I mean has it ever been the case where you could buy a house for 15% of household income though, really? Many people choose that path if they have above median incomes, but has that ever really been the case for median income households?

We can talk ideals but it’s reality out there.

[thewave46]

Originally Posted by Innsertnamehere

I mean has it ever been the case where you could buy a house for 15% of household income though, really? Many people choose that path if they have above median incomes, but has that ever really been the case for median income households?

We can talk ideals but it’s reality out there.

As interest rates dropped, one could get ahead on housing costs as the principal was a fixed amount. Once interest rates hit near zero, the jig was up for that game. The country could get away with inflating prices, but the odds of getting 'ahead' in the same way became increasingly unlikely as rates dropped. A large principal is a large liability if the servicing costs are as low as they can be.

Do interest rates stay rock bottom in a growing country like Canada? Does the economy keep ticking along at the same rate if governments withdraw stimulus measures? Most level of government are running significant deficits.

I don't see how 30% price appreciation in a year is sustainable, nor desirable. I actually don't see much benefit to ultra-low interest rates for us, except to effectively inflate asset bubbles. Corporations seemed far more willing to invest in Canada 20 years ago, despite much higher rates.

I get the distinct sense that governments just want to keep the economic music going at any cost in the short-term, long-term damage be damned. It's not a reassuring feeling to know I'll be picking up the pieces of the excesses of today in the future.

[MonkeyRonin]

Originally Posted by Innsertnamehere

How many people buy preconstruction though, especially for your first purchase?

Just by doing that means you are stuck renting for years as you wait for the unit to get built.

This is MLS right now for 2+ bedrooms at $700k.



Units include stacked townhouses with rooftop patios and plenty of windows, including the bedrooms:

Yeah, for sure there are more & better options available on the resale market that are more representative of the market as a whole - this was just an illustrative exercise to show the kinds of poorly-designed units that make up a big chunk of those that are ostensibly accessible to the middle class. Which is part of the problem: so much of the supply that we do manage to build doesn't actually suit the needs of the end user because it's built for investors rather than real people (particularly families). Which subsequently drives demand for the limited supply of single family homes because that's where most of the stock of actual livable, family-sized units are.

If the market were better able to provide family-sized units in multi-unit developments, we wouldn't be having this discussion because there would be something closer to an adequate supply and buyers wouldn't be left having to choose between a rare $1 million 3-bedroom condo and a $1-million SFH. The problem is less about the regulation of SFH sprawl and more about the market failure to provide a diverse assortment of quality housing.

Also, keep in mind that the MLS listings include 1-bedroom + den as being grouped with the 2-bedrooms - and in my experience make up the majority of the supposed 2-bedrooms - while most of the rest have the dreaded, windowless-closets-with-sliding-doors as at least one of the bedrooms. The majority of units being built in Toronto are still 1-bedrooms or studios.