Canada's 'housing bubble' deemed close to bursting

[Innsertnamehere]

yea that one's confusing. It's a small econobox home designed for a narrower lot than it actually has with basic finishes.. how is that worth a million, even in the current market? That would probably be worth about a million much closer to the GTA, but way out in Welland? I'm not sure that would fetch 7 figures until it was in Grimsby or Stoney Creek in terms of location normally..

Also, why the heck did they build a super narrow house model on a lot that clearly has the space for a wider model? It just creates an unnecessarily small backyard and a god-awfully ugly snout-house.

[ssiguy]

Originally Posted by FarmerHaight

It's clear?

Neither the Liberals nor the Conservatives are interested in attacking affordability because it would make first-time home buyers mad (by raising interest rates and creating stricter lending rules) and alienate the most dependable voting and donating class (older home owners who don't want their wealth to disappear because housing prices fall).

This is not a strategy by the Liberals to turn new sections of the country red; it is a strategy to retain their current supporters.

Well I agree with what you say, I don't think you can put the Tories and Liberals on the same page.

O'Toole had many innovative ways to help tackle the affordability/availability crisis in the country and the Liberals had basically nothing except building more lower income housing which, although good, doesn't get at the core of the problem.

It was O'Toole who wanted a foreign buyers tax and the Liberals only begrudgingly decided to run with it and whether they implement it is a whole different matter.

O'Toole's best proposal was an excellent one............getting rid of the massive amounts of government owned land over to developers and/or cities to build affordable housing. In today's market,, it's the land costs that are the problem not the actual building of the homes themselves. This is why high income Calgary has new homes 1/3 the price of Vancouver new homes.

Also he would take advantage of the COVID led transition of working-from-home and get rid of many under utilized government buildings to be used for affordable housing.

Instead of the Liberal's plan of simply throwing more money into an endless pit, the O'Toole plan would a have provided thousands of more affordable units, be far more financially sustainable over the long-term, and get built much faster.

[FarmerHaight]

Originally Posted by Innsertnamehere

Also, why the heck did they build a super narrow house model on a lot that clearly has the space for a wider model? It just creates an unnecessarily small backyard and a god-awfully ugly snout-house.

That lot is zoned RL2 (add says R1 but the city's map says RL2) which means the maximum lot coverage is 50% of the property. It also means the front of the garage needs to be set-back 6 meters from the property laws, and the side of the house must be 1 meter from the edge of the property line.

https://welland.maps.arcgis.com/apps/webappviewer/index.html?id=8ba470d4cff748a582d1ff30dc6fcf78

https://www.welland.ca/Planning/zoningreview/DraftZoningBy-lawApril2017.pdf

[MolsonExport]

I've said it before. It is yet another example of the Miltonization of Canada. Everything is becoming just like Milton.

[FarmerHaight]

Originally Posted by ssiguy

O'Toole had many innovative ways to help tackle the affordability/availability crisis in the country and the Liberals had basically nothing except building more lower income housing which, although good, doesn't get at the core of the problem.

It was O'Toole who wanted a foreign buyers tax and the Liberals only begrudgingly decided to run with it and whether they implement it is a whole different matter.

O'Toole's best proposal was an excellent one............getting rid of the massive amounts of government owned land over to developers and/or cities to build affordable housing.

Also he would take advantage of the COVID led transition of working-from-home and get rid of many under utilized government buildings to be used for affordable housing.

Instead of the Liberal's plan of simply throwing more money into an endless pit, the O'Toole plan would a have provided thousands of more affordable units, be far more financially sustainable over the long-term, and get built much faster.

It's very Conservative to blame foreigners for the skyrocketing housing prices. Although they play a part, I can't believe that foreign buyers are a main cause of the housing bubble. Does anyone have stats on what percentage of homes, especially low- to mid-market homes, are bought by foreigners?

Quote from the CPC platform:

Review the extensive real estate portfolio of the federal government – the largest property owner in the country with over 37,000 buildings – and release at least 15% for housing while improving the Federal Lands Initiative

5,550 buildings is a good start, but I'm not sure it would be the silver bullet you are saying. Besides, not all of these buildings could be easily converted to housing. Did the CPC say they would require the landlords of redeveloped former government property to designate a certain percentage to affordable housing?

I am as skeptical of the Liberal party actually implementing many of their housing polices as I would have been with the CPC and their policies..

[WarrenC12]

Time to end the complete capital gains exemption for principal residences. Lifetime limit? Small inclusion rate? Something has to give.

[mikevbar1]

Pardon my lack of knowledge in following this thread. Why exactly can't we create a model that separates home/unit value from LAND value? Shouldn't SFH owners be able to profit massively in a scenario where land prices keep rising, but individual homes go down? Naturally, that requires more than one unit per lot, but if a sfh owner could redevelop their own lot into a tri/quadplex, they have every right to sell those units at market rate. They'd have enough money leftover to probably buy a new detached home at that point. I get this deals with zoning, for which I am more familiar with the issues of this idea, but I don't seem to understand why any political entity doesn't see the financial opportunity to actively incentivize rich homeowners to self-develop (densify!) their own lots for bank. It wouldn't solve the affordability crisis completely of course, but it would be a start, no?

This is presumably the premise behind upzoning neighbourhoods in general after all. If all sfh were to become, say, triplexes, they'd have tripled population density, increased affordability (theoretically) etc. And, implementation for this would need to actually acknowledge the typical issues of policy and nimbyism, but this discussion is very much about upper-level Government influence right now. To reiterate the premise, is there a gap in reasoning to suggest that property owners now have enough collateral from their own land that they could become mini-developers themselves? The incentive obviously is that if a quadplex is strictly rental for instance, the prior owners can continue holding that land as a landlord and reap the same if not more financial benefit. They could even live in a self-designed 'penthouse unit', give themselves access to the green space on the lot (if any) or whatever other incentive you could imagine for these 'landlords' to have a relatively unimpeded life (assuming ideally they don't just move away to another burb and further the issue).

This is meant to be a solution that appeases land/homeowners in the short term while slowly separating urban housing price/stock from the land it all sits upon. This would naturally foster lots of development, drive down home prices, and keep landowners happy. If there's anyone who sees obvious flaws in my logic here, I'd love to hear it!

[rofina]

Originally Posted by FarmerHaight

It's very Conservative to blame foreigners for the skyrocketing housing prices. Although they play a part, I can't believe that foreign buyers are a main cause of the housing bubble. Does anyone have stats on what percentage of homes, especially low- to mid-market homes, are bought by foreigners?

Even if someone has the stat, it will be nearly completely irrelevant.

Plenty of homes are owned by permanent residents. The issue is not the citizenship, the issue if the origin of funds.

Saying foreign owner evokes a certain trope; someone sitting in China on a computer buying up RE indiscriminately in Canada sight unseen.

The reality is a family will send a child to study at McGill or UBC, and that child will be used a proxy to buy $10, $20, or $50 million of Canadian RE.

None of those purchases would be filed under "foreign" despite the money being earned under drastically different economic realities.

[whatnext]

Originally Posted by rofina

Even if someone has the stat, it will be nearly completely irrelevant.

Plenty of homes are owned by permanent residents. The issue is not the citizenship, the issue if the origin of funds.

Saying foreign owner evokes a certain trope; someone sitting in China on a computer buying up RE indiscriminately in Canada sight unseen.

The reality is a family will send a child to study at McGill or UBC, and that child will be used a proxy to buy $10, $20, or $50 million of Canadian RE.

None of those purchases would be filed under "foreign" despite the money being earned under drastically different economic realities.

Or combine all the tropes into one unsavoury package. But I'm sure they're the only ones.

International students and offshore banking flagged in Canadian real estate money laundering
By Sam Cooper Global News
Posted November 25, 2021

In August 2012, a 19-year-old student from Guangdong arrived from the Dominican Republic to Montreal with $23,800 in euros and U.S. dollars stuffed into his backpack. Four months later, Zhang Guanqun purchased an 8,500-square-foot mansion in Coquitlam, B.C., for $2.1 million.


It was only one of Zhang’s many multimillion-dollar transactions while attending Coquitlam College. From about 2012 to 2015, Zhang would funnel at least $33.75 million in electronic funds and cash through Canadian and Hong Kong bank accounts.

As it turned out, however, the Canada Border Services Agency and Fintrac, Canada’s anti-money laundering watchdog, had long been monitoring Zhang’s movements. They watched his parents, too. While living in Markham, Ont., they were wanted in China for allegedly defrauding 60,000 investors of about $200 million in a pyramid scheme, according to filings in a Federal Court case involving a refugee claim by the parents.

The filings by CBSA and Fintrac, whose accusations were not ruled on by the court, reveal details of the complex investigation. Zhang, now 28, successfully fought a deportation case based on CBSA accusations that he was involved in money laundering schemes and transnational organized crime....

...CBSA’s files names dozens of people in China, Canadian law firms, a prominent federal Liberal Party organizer and even a Dominican Republic official in the country’s visa renewal department. They also outline a much broader concern of capital flight from China and secretive offshore banking routes through Hong Kong and Caribbean tax havens, which allow corruption suspects to spirit their gains abroad, buy passports of convenience, and hide dirty money in Canadian real estate....

https://globalnews.ca/news/8383731/inter...n-canadian-real-estate-money-laundering/

Note the disgusting fact the perp successfully fought a deportation case. Oh Canada!

[thewave46]

Originally Posted by WarrenC12

Something has to give.

The economy, probably.

At some point, we'll have to face the music. Government deficits will have to be tamed, or interest rates will have to rise, or inflation will erode consumer confidence. Or some ugly combination of the above. Unemployment will rise, immigration will slow, and population growth will stall demographics being what they are.

It's all and nice if you own the house with no debt and no plans to sell. The valuation is irrelevant. A paid for house is paid for shelter.

🞵🞵🞵🞵🞵 to be you if you have to unload a home whose value dropped like a stone and you have the outstanding mortgage on. Admittedly if 🞵🞵🞵🞵🞵 for the banks more, as they're going to be holding a depreciating asset after the homeowner defaults. 🞵🞵🞵🞵🞵 for us all if the banks collectively have a coronary and run to government for help.

It'll be fun.

[thewave46]

Originally Posted by mikevbar1

Pardon my lack of knowledge in following this thread. Why exactly can't we create a model that separates home/unit value from LAND value?

We're too far down the rabbit hole with freehold, but I'm wondering if some sort of land leasehold system might work better.

The concept: One leases the lot from a municipality for a fixed term - say 30 years - in lieu of property taxes. The leaseholder can build on it whatever it is zoned for - single-family home, multi-unit residential, whatever. The structure itself is owned, the land isn't.

At the end of the lease, it comes up for renegotiation. If said lease is in Kapuskasing and the land value hasn't moved zilch in 30 years, the municipality re-leases the property for the same zoning (SFH) for another fixed term. If the property is in Toronto, the municipality 'buys out' the structure from the owner and re-leases the property for a higher value use (multi-unit residential, for instance).

The land cost and house costs are divorced. One doesn't buy a house to speculate on land, one buys a house to live in.

I'm sure there's a bunch of issues I'm not thinking of, but it is a concept that has been used for cottages on Indigenous reserves near where I live.

[cabotp]

Originally Posted by yaletown_fella

Thats a shame because younger millenials and gen Z like me would support this move. But because of demographic collapse boomers and gen X , the debt generation, will compose the majority of the population and voter base for the next 40 years at least. So it's very possible the market will be inflated to cater due to policy that panders to debtors and "homeownership as an investment" types for the next 40 years!

I hope you realize in 20-40 years things will still be the same. The difference is a Gen Z like you will be nearing retirement and not wanting to see the value of your home drop.

The circle goes round and round and always has since the beginning of time.

[cabotp]

Originally Posted by WarrenC12

Time to end the complete capital gains exemption for principal residences. Lifetime limit? Small inclusion rate? Something has to give.

I'm just curious as to how ending the capital gains exemption for principal residences would make housing cheaper.

[theman23]

Housing is a favoured investment class in Canada because gains are tax free. Seems logical that removing that favouritism would deflate the bubble somewhat.

[Wigs]

Originally Posted by Innsertnamehere

yea that one's confusing. It's a small econobox home designed for a narrower lot than it actually has with basic finishes.. how is that worth a million, even in the current market? That would probably be worth about a million much closer to the GTA, but way out in Welland? I'm not sure that would fetch 7 figures until it was in Grimsby or Stoney Creek in terms of location normally..

Also, why the heck did they build a super narrow house model on a lot that clearly has the space for a wider model? It just creates an unnecessarily small backyard and a god-awfully ugly snout-house.

in Welland, $1M was reserved for the rare house that was about 8,000 sq ft on a huge lot with professional landscaping and inground pool with probably a 3 car garage.



Now people have the audacity to ask $1M for a 1,600 sq ft snout house with no real usable yard on a street of other cookie cutter 1600-2000-ish sq ft homes on the less desirable East side




As Molson says, the Milton-ization of Southern Ontario (and Canada) is in full swing.

[WarrenC12]

Originally Posted by theman23

Housing is a favoured investment class in Canada because gains are tax free. Seems logical that removing that favouritism would deflate the bubble somewhat.

Exactly. It's a weird distortion to have something we consider essential to life (a home) simultaneously be the best investment vehicles possible.

Nothing else is non-taxable like your personal residence. Blows away the already favorable taxation rules on RRSPs, TFSAs, etc.

[Arrdeeharharharbour]

Originally Posted by theman23

Housing is a favoured investment class in Canada because gains are tax free. Seems logical that removing that favouritism would deflate the bubble somewhat.

Not too sure about that. Wouldn't we just have less housing perhaps creating a bigger bubble? And perhaps even a bigger homelessness problem?

To add a bit more context to the conversation, I believe that in California proceeds from the sale of ones principal residence are non taxable only if one puts their proceeds back into housing. Once one has sold their principal residence they have two years to reinvest the proceeds into housing or face taxation on their proceeds. I really don't know if California has a housing bubble or not.

[cabotp]

Originally Posted by theman23

Housing is a favoured investment class in Canada because gains are tax free. Seems logical that removing that favouritism would deflate the bubble somewhat.

The only time that favouritism would come into play is when the house is sold. A house sold with no capital gains just means the seller ends up with more money in the pocket. But that would mean they would be looking for another home. Unless the home is being sold due to a death.

Most people who are investing though are doing so on a 2nd, 3rd, 4th home etc. Thus they are already paying capital gains on that home. As well an individual or couple have to actually live in the home for over a year to get the exemption.

[cabotp]

Originally Posted by WarrenC12

Exactly. It's a weird distortion to have something we consider essential to life (a home) simultaneously be the best investment vehicles possible.

Nothing else is non-taxable like your personal residence. Blows away the already favorable taxation rules on RRSPs, TFSAs, etc.

Buying a home and living in it and earning capital on it is easy because it takes no work or thought. Besides the fact that everyone needs a shelter. Thus why it ends up being the best investment.

Most people when they buy a home are not thinking of it has an investment but simply a place to live their lives. The fact that it might go up in value over time is simply just a bonus.

Investing in RRSPs or TFSAs requires an individual to work or think more.

[theman23]

Originally Posted by cabotp

The only time that favouritism would come into play is when the house is sold. A house sold with no capital gains just means the seller ends up with more money in the pocket. But that would mean they would be looking for another home. Unless the home is being sold due to a death.

Most people who are investing though are doing so on a 2nd, 3rd, 4th home etc. Thus they are already paying capital gains on that home. As well an individual or couple have to actually live in the home for over a year to get the exemption.

That’s irrelevant because most people aren’t looking to raid their personal savings on a regular basis. Aside from low interest rates and supply constraints, one of the main reasons why prices have skyrocketed is because Canadians are able to dump all of their life savings into their primary home. It’s the most tax efficient investment vehicle available. The fact that this is true is why we’ll never see a capital gains tax under this current government. Adam Vaughan basically said as much during the last term.