Canada's 'housing bubble' deemed close to bursting

[FarmerHaight]

Originally Posted by whatnext

Why do you think non-Canadians should be able to own property in Canada, especially when the common refrain here is we are in a housing crisis and there's not enough supply? If we didn't have enough food supply, would you advocate shipping the little we had to foreign countries?

Try a little harder to come up with a metaphor. "Canadians" is a very transient term, and it doesn't always mean what you think it does. Again, why is it better for a Canadian-born person who works in New York and buys millions of dollars of Canadian property and occupies the property for a few days per year, than a Chinese-born millionaire who does the same? For that matter, why is it better for someone who lives in Edmonton but has an apartment in Victoria than someone who lives in Hong Kong? They are both depleting the property market to the same degree. The idea that foreign property owners are taking more properties off of the market then Canadians who own homes in multiple cities and leave them vacant for most of the year is ridiculous.

I am all for restricting who can buy homes in Canada, but creating legislation is very difficult. There is a reason the ITA's pages number in the thousands: it is not very easy to close all of the loopholes while not simultaneously dissuading perfectly acceptable and desirable behaviour.

[thebasketballgeek]

I’m going to keep reiterating but there should not be any restrictions on housing. We just need to increase our supply and that comes with relaxing zoning regulations such as removing single-family zoning, banning parking minimums, and getting rid of the commercial designation to make it solely mixed use. Canadian cities waste an absurd amount of space because of Euclidean zoning.

Also removing parking minimums dramatically reduce construction costs. It’s not a Canadian birthright to live in a detached single family home with 2 cars.

[yaletown_fella]

Originally Posted by Al Ski

It's not a "problem" for innocent homeowners who have suddenly discovered that they're 'paper' millionaires.

It IS a problem for people who don't have mommy and daddy money who can't find a place to live.

It's an entirely fake economy that has been created by trillions of $$ of free money and 0% interest rates.

It's entirely unsustainable and it will inevitably implode.

You really have to wilfully put your brain in park to think otherwise.

And no government has had the balls to do the right thing because that would entail lowering home prices - and the boomers wouldn't vote them.

And so we just continue on this path of ultimate destruction..

I agree with this. But I personally feel theres is no way of fighting this system other than acquiescing to it. This is largely due to voting demographics and the lobbying power behind organizations like TREB. Ive given up on critizing monetary/taxation incentive policy or the housing the market ever being cooled, I'd just be screaming into the wind.

I predict many people [including myself possibly] will dump all of their savings and/or future inheritance into a home and fall back on government's social assistance as a plan B if they lose their jobs [the upcoming years will see a lot of work in the white collar world absorbed by artificial intelligence and plateau/negative growth also due to the inverted population pyramid where boomers comprise a much larger percentage of the population than millenials and gen Z ]

I hate to admit I've taken a hard look at this plan B because rent inflation is a very scary monster in the closet.

We have a system where someone who inherits a $2,000,000 home and throws all of their inheritance into renovations is able to qualify for assistance while a renter who works his tail off in a low paid job to scrap together $75,000 and who falls on rough times won't receive a dime, apart from perhaps food banks in their local community. Even if they are lucky enough to keep their current jobs 10-15 years down the road, rent inflation will most likely be a hole in the bottom of their bathtub of TFSA savings.

Sorry to be demoralizing, I understand the frustration.

[Al Ski]

Finish your drinks, the party is about to end.

Powell Lays Groundwork for Faster End to Stimulus as Inflation Outlook Worsens
The Fed chairman hints at a pivot in weighing inflation and unemployment risks amid renewed coronavirus threat
https://www.wsj.com/articles/powell-warn...flation-boosting-bottlenecks-11638280800

[Al Ski]

Originally Posted by whatnext

Why do you think non-Canadians should be able to own property in Canada, especially when the common refrain here is we are in a housing crisis and there's not enough supply? If we didn't have enough food supply, would you advocate shipping the little we had to foreign countries?

Then perhaps the U.S. should ban Canadians?
Maybe that would solve their housing crisis?
And what if they were to retaliate?

Origin of major foreign buyers of residential property in the United States in 2021, by country

https://www.statista.com/statistics/6111...oreign-buyers-of-us-property-by-country/

[Al Ski]

Originally Posted by thebasketballgeek

That doesn’t seem right because if you’re completely dependant on your parents you can save much more money then $3600 a year. When I took a gap year in college and worked for 10 months at close to minimum wage I saved close to $20000. So really it can be as simple as two years of being super frugal with your purchases and boom you get a cheap 🞵🞵🞵 house by 21.

Although it would be very interesting if u fully sacrificed your adulthood with that strategy by age 30 you could hypothetically save $240000 by age 30 without doing investment. If you invested all your earnings and got a 10% annual return on the stock market you could be closer to $500k by 30. Of course it comes with massive sacrifices to your social life and mental health but that amount of money by age 30 just working minimum wage is nothing to scoff at. This is not even taking into consideration likely raises for working at a place for 12 years, locating a higher paying job with no experience or going full fomo in crypto and being a millionaire.

Perhaps you're right but I find it sad that we expect teenagers to become financial con artists before they even know who or what they are.

I guess if the goal is to breed a new generation of maladjusted, greed-driven psychopaths then.. ok.

Not to mention that all their 'hard work' will likely be wiped out in the next 2008.

What a pathetic, casino mentality world we've created.

*And I have worked since I was 12, left home the day after I graduated from high school because that's what everyone was able to do before we created this dystopia.

[Al Ski]

Originally Posted by lio45

~15 years ago, I worked for a year while living at my parents and saved enough for the downpayment on a four-story building (3 retail commercial units on the ground floor, 12 little residential units on the three other floors) in the downtown of a midsized Canadian city, and after cleaning it up and refinancing it, used those funds to acquire another mixed use building in the same area, etc.

I think the only things that would be different today are: 1) less choices of cities remaining where that kind of thing can be done and 2) the progression of the portfolio would be slower (smaller buildings).

But it's still doable, IMO. Of course, it requires sacrifices...

I "sacrificed" a chunk of my 20s (still consider I was happy tho) to build what I have, and don't regret it at all.

I'd like to tell you about the time that I climbed Kilimanjaro without the aid of Sherpas or oxygen but I don't think there's a thread for that..

[lio45]

Originally Posted by MolsonExport

Back in the eighties, I tried buying a condo tower, but alas, my McDonald's manager salary didn't yield enough cash flow.

Frankly, it would have been a mistake for you to buy a stupid tower when you could instead have bought many hundreds of thousands of bitcoins back then, even with McDonald's burger-flipper wages.

[thebasketballgeek]

Originally Posted by Al Ski

Perhaps you're right but I find it sad that we expect teenagers to become financial con artists before they even know who or what they are.

I guess if the goal is to breed a new generation of maladjusted, greed-driven psychopaths then.. ok.

Not to mention that all their 'hard work' will likely be wiped out in the next 2008.

What a pathetic, casino mentality world we've created.

*And I have worked since I was 12, left home the day after I graduated from high school because that's what everyone was able to do before we created this dystopia.

I’m a gen z and let’s call it like it is. In order to succeed in the world that boomers and gen x have set us up for you need a passive income stream and an active income stream. Millennials didn’t realize this and that’s why a lot of them are virtue signalling on Twitter about being unable to buy a house in Toronto or Vancouver.

Events like 2008 and 2020 are rare in the grand scheme of things. If you aren’t willing to take any risks you’re not going to get your money up. Our generations mindset is to be financially independent enough that when we work at a job we don’t like we can just quit instead of getting shackled by bills and taxes that would force us to work with potential abusive employers. Also, long term investing, maxing out tfsa and rrsp is just the logical thing to do. Considering they generally use ETFs, mutual funds, or index funds to get those 1-1.25% apy rates might as well skip the middle man and get that juicy 10% apy.

Also, we’re living in the future where soon almost everything we do will become commodified. Until Canada implements actions like universal basic income Gen Z will be the biggest risk takers the country has ever seen. A lot of my friends in Toronto hold relative large amounts of crypto with the assumption that the value of something like Ethereum will go up exponentially in the near future. I mean we gotta find a way to buy houses somehow.

[WarrenC12]

Originally Posted by whatnext

Why do you think non-Canadians should be able to own property in Canada, especially when the common refrain here is we are in a housing crisis and there's not enough supply? If we didn't have enough food supply, would you advocate shipping the little we had to foreign countries?

Who owns the property is only a supply problem if they leave it empty. I think that loophole was closed with the 2 levels of empty homes taxes we have now.

Either you live there, rent it out, or we collect tens of thousands of dollars to pay for a home for somebody local.

Your food example doesn't correlate at all.

[CivicBlues]

Originally Posted by Al Ski

I'd like to tell you about the time that I climbed Kilimanjaro without the aid of Sherpas or oxygen but I don't think there's a thread for that..

As someone who did just that 2 years ago, that would be perfectly believable because you don't require either for a Kili climb. Plus Sherpas are not native to the region.

[whatnext]

Originally Posted by Al Ski

Then perhaps the U.S. should ban Canadians?
Maybe that would solve their housing crisis?
And what if they were to retaliate?

Origin of major foreign buyers of residential property in the United States in 2021, by country

https://www.statista.com/statistics/6111...oreign-buyers-of-us-property-by-country/

Absolutely.

As pointed out upthread, maybe we follow the Swiss system where foreign buyers (of any background) can only buy in designated resort areas (ie. Whistler, Muskoka, Mt. Tremblant etc).

[MonkeyRonin]

More evidence that we have an investor problem moreso than a supply problem - an all-time high of 25% of Ontario home purchases in the past year were made by "multiple-property owners". Within Toronto, that number is nearly 30%: https://financialservices.teranet.ca/act...arket%20Insight%20Report%20Q4%202021.pdf

This number does include those purchasing secondary recreational properties (so not strictly investors), though I certainly don't think that alone would explain the increase. Note the rapid growth in multi-property owner purchases starting in 2016:




Which also coincides with the rapid price appreciation that started around the same time:




So when ~99% of the population (ie. non-investors) is competing for space within ~75% of the property market, prices obviously go up. It's artificial scarcity.

[WarrenC12]

What is an investor problem, exactly? If they are holding empty, tax them.

You don't need to own a home, you just need a place to live.

[Nouvellecosse]

I actually tend to agree with both sides on the general principle. Yes having foreign buyers in the market increases total demand and thus raises prices, but it also puts more money into the system which can prompt more construction. And if construction keeps pace with demand then that will equalize prices. It's the classic supply and demand curves. On the supply curve, the quantity of supply increases or decreases based on the price point.

If some of the homes remain empty, more total supply is needed to house the population, but that also means more money coming into the system. And with taxes on vacant properties, this both reduces the number of properties left vacant and injects additional money into the government to counter the harm, such as through housing/income subsidies.

The first snag is if it isn't possible to provide the necessary supply for some reason. If there are shortages of land, labour, or building materials needed due to regulatory or macro economic factors then the prices just keep rising since there's no relief valve (inelastic supply). However, if one or more of these reasons make it impossible to provide sufficient supply then yes, placing controls on demand is the next best option. It's like, the water level of a dammed lake keeps rising if the outflow valve can't be opened wide enough. Problem is, there are still so many regulations pertaining to housing - often related to exclusionary zoning - that I'm not convinced that the "relief valve" has actually been opened to full capacity.

The second snag is that even if the number of units supplied is higher at a higher price point, the demand isn't coming from everybody. If 🞵🞵 units are supplied at price $$ while only X units are supplied at $ price, there may be more units supplied at $$ price than $ price, but it's only by people who can afford to be $$. So the greater number of total units supplied at price $$ doesn't necessarily do much to address demand from people who can only afford $ since the supply and demand curves intersect at $$ rather than $. That's why some housing experts argue that the issue is largely on the demand side because of the increased level of wealth/income inequality now compared to in past decades. Much of the supply capacity is exhausted by demand from people (whether foreign or domestic) with higher wealth levels. But of course, if supply capacity were greater, units would could be supplied at both $ and $$. Just like say, a phone maker will sell phones at both $1000 and $500 if it can, if it only has enough capacity to satisfy demand for the $1000 phone, then those who can't afford that do without.

So technically there are potential strategies on both the supply and demand sides.

[someone123]

This debate has a "groundhog day" feel in that a lot of the stuff people are saying either doesn't exist or can't be dealt with in this thread, as far as foreign capital and money laundering go, was acknowledged by the province and federal government circa 2016 and various steps have been taken by the government to try to improve the situation. I think we are probably already past the peak of the "suitcases of cash from China" phase of Vancouver real estate.

The #1 factor in Canada right now is likely low interest rates that expand the credit supply and raise asset prices. But the government has borrowed so much that it will be hard to raise rates.

The other reality is low and middle income earners have gotten squeezed by globalization and immigration and in Canada the government has not really made up for that. The people who would have been middle class in 1980 but fell off the asset ladder and now make low wages are much worse off. Given our inflation rate a lot of people now have seen their real wage drop over the past few years. There are probably a lot of people who make no more now than they did in 2007.

I generally have no complaints about the supply-side points people make but I am not sure they can by themselves fix the situation. It is very easy for capital inflows to overwhelm the ability to build housing in Canadian cities (the price increases themselves drive away the people who build the housing). Since this problem has gone on for so long it's also debatable if the supply side can or will be fixed. At the end of the day I think this system is just working as intended for the most politically connected groups. If you're in the upper half of Boomers or above, or you are some upper level government official, you're probably doing great.

[WarrenC12]

Agree generally with your points. Interest rates are the driving factor for sure, but as usual raising them will hit the most vulnerable (at least, of those able to purchase).

Zoning is a giant mess that's also extremely harmful in our efforts to fight sprawl, emissions growth, and climate change.

Some level of capital gains taxation on PR, while political suicide, would help solve the issue permanently. It's just too attractive a place to put your money.

[FarmerHaight]

Originally Posted by Nouvellecosse

So technically there are potential strategies on both the supply and demand sides.

The other issue is we are talking about housing as if the same issues present themselves in every market across the country. This is not surprising since the political rhetoric will always centre on the parts of the country with the most political value, and Vancouver, Toronto, and Montreal all have similar unaffordability issues.

However, the vast majority of the country is still very affordable. From Saskatoon to St. Johns, entry level SFHs do not outstrip wages like they do in the larger markets. These cities would love for foreign billionaires to buy up new builds, because they don't face the same supply-demand imbalance that Vancouver or Toronto does. This foreign investment that is such a drag on the housing market, would normally be actively courted by the federal, provincial, and civic governments.

Because of the political climate in these large cities, the major parties are attempting to placate both the younger generations by banning foreign buyers (which I doubt will have much of an effect on market prices) and the older, home-owning, NIMBY generation by maintaining zoning restrictions and other barriers to actually solving the supply issue.

[someone123]

Originally Posted by FarmerHaight

This is not surprising since the political rhetoric will always centre on the parts of the country with the most political value, and Vancouver, Toronto, and Montreal all have similar unaffordability issues. ... However, the vast majority of the country is still very affordable. From Saskatoon to St. Johns, entry level SFHs do not outstrip wages like they do in the larger markets.

Toronto + Montreal + Vancouver are around 1/3 of the population of Canada and the list of unaffordable markets keep expanding. It is increasingly all of Southern Ontario that is unaffordable and BC as a whole became unaffordable a while ago. And I'd guess that even today's "cheap" places are much less affordable than they were 20 years ago.

I'm waiting for this inflation to continue and for Saskatoon to be replaced by somewhere in northern Saskatchewan. Even if we do think these places are affordable today they're clearly not a "solution" for Canada since it's not possible for significant numbers of Ontarians to move to these much smaller places without driving up prices. And anyway I would argue that Canada is not a very good place to live if most people can't afford to stay within hundreds of kilometers of where they were born. I don't think it's humane to expect that people should have to min-max their location within millions of square kilometers to have a middle class standard of living, and that is a big step down from the norm in Canada in past decades.

[whatnext]

Originally Posted by FarmerHaight

The other issue is we are talking about housing as if the same issues present themselves in every market across the country. This is not surprising since the political rhetoric will always centre on the parts of the country with the most political value, and Vancouver, Toronto, and Montreal all have similar unaffordability issues.

However, the vast majority of the country is still very affordable. From Saskatoon to St. Johns, entry level SFHs do not outstrip wages like they do in the larger markets. These cities would love for foreign billionaires to buy up new builds, because they don't face the same supply-demand imbalance that Vancouver or Toronto does. This foreign investment that is such a drag on the housing market, would normally be actively courted by the federal, provincial, and civic governments.

Because of the political climate in these large cities, the major parties are attempting to placate both the younger generations by banning foreign buyers (which I doubt will have much of an effect on market prices) and the older, home-owning, NIMBY generation by maintaining zoning restrictions and other barriers to actually solving the supply issue.

That's BS. If you want foreign investment put it into something that grows the economy. Housing already has a disproportionately high share of Canada's economy and that has never been a recipe for success.