Quote:
Originally Posted by StEC
Any smart real-estate people here that can explain this a bit.... I understand the market is cooling but we still have a serious housing shortage and if I remember correctly that I read we need 150,000 units a year for many years (decades I believe) just to keep up with demand. So what needs to be done to push these developers to move on with construction? Or what does the various levels of government need to do to get developments moving?
It seems many if not most developers only want to build when they can get maximum dollars per unit which isn't realistic with what the government wants and needs to happen!?
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There is nothing for the government to do here. The government isn't in the business of building houses.
The best they can do is reduce the taxes for developers to create a condition where building houses is profitable and therefore desirable for developers to do.
What is currently happening is the Bank of Canada has dramatically increased its policy rate in the past few months to cool inflation. Increasing the key policy rate cools inflation because it ultimately increases the cost of borrowing money. By increasing the cost of borrowing money there is two effects. The first, it reduces the ability for consumers (and businesses) to spend, as they have less expandable income. This reduces demand for goods, and therefore reduces the price of goods, lowering inflation. The second consequence of increasing the cost of borrowing is that it puts pressure on employers to reduce their hiring of new employees, because they can't afford it. This increases the unemployment rate, and therefore ultimately reducing the demand for goods and lower the cost subsequently as there is less people buying goods.
All of this has a large impact on the demand for housing for the reasons I listed off above. We will definitely see a reduction in development in the coming couple years. Developers will not be able to finance new projects as it becomes more expensive, and consumers will not be able to afford to buy condos as the mortgage price increases. I expect that a lot of the proposed developments will not happen, if they aren't far along already. This is all by design by the Bank of Canada, and should not be a surprise for people that follow/study economics.
Hamilton may be in a unique position, as it is in one of the cheaper markets in Ontario and there is some significant infrastructure projects coming up (LRT, waterfront). So there may be some demand there, where people can't afford Toronto. But there is definitely going to be a slow down here.
The condo boom that we witnessed between 2009-now was directly due to the extremely low policy rate. Mortgages and borrowing money had never been cheaper. It is a serious shame that Hamilton was so late to the game due to a sluggish and NIMBY city hall. There was a lot this city could have done to attract development in that period, but for whatever reason it decided to turn down developments left right and centre and slap an artificial height restriction that did nothing but turn developers to Mississauga and Toronto.
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