Canada's 'housing bubble' deemed close to bursting

[LightingGuy]

A note regarding why infill alone isn't enough to solve the housing crisis, and why it is absolutely necessary to expand our urban boundary in the GTA.

From 2006 to 2021 the GTA's population increased by ~1.375M people - an average of 91,600 people per year.

The Places to Grow Act requires 40% of all development to be infill - basically up until recently municipalities have not been allowed to build more than 60% of new housing units on farmland. If you do the math, that means that (since 2006) 550,000 more people have been expected to find housing somewhere within the existing urban boundaries.

Assuming the infill gets built at a European density level of 5000/sqkm (which is being generous, since this includes the housing and all the supporting businesses/schools/services that they would require, and we don't have the public transit to support this density for that many people), that equals 110 sqkm of land that would've had to be redeveloped over the past 15 years in order for our market to have maintained affordability.

The image below is the approximate current urban boundary of the GTA. (Places to Grow is based on 2006 boundaries, but this is what I have access to). As you can see, the approximate urban boundary of the GTA is ~2150 sqkm. The red square is what 110 sqkm looks like.

110 sqkm = 5.1%

In order for our market to have remained affordable, we would've had to redevelop 5.1% of all existing urban land over the past 15 years.

As a fraction, that is saying that 1 out of every 20 existing urban properties uses would have had to have been redeveloped over the past 15 years.

The problem with this is that you have to actually find land that:
1. Is in a location that people would actually want to live
2. Is in a location that can be rezoned for much higher density housing
3. Have an owner willing to sell you that land

This was doomed to fail from the start. There is no way that we could've redeveloped that much land in only 15 years. I don't know the actual number, but by simply driving around and using your eyes, ask yourself if 1 out of every 20 properties you see has been redeveloped in the past 15 years, within the 2006 urban boundary.

And, since the the Places to Grow Act says that no more than 60% of new housing units can be built on rural land, we're effectively limited to whatever pace infill can happen at. We can't develop more rural land, even if it's in the whitebelt and available, until a certain amount of infill has occurred.

That is why we have a housing shortage in the GTA, and why prices are what they are.

[WarrenC12]

Originally Posted by whatnext

Yes, I'm sure overpriced schlock like this is helping with affordability. What's a poor offshore buyer to do if we didn't have one of Justin's big donors churning out 1 bedroom condos for $1.5 million?

You do know what Supply/Demand is right?

[whatnext]

Originally Posted by WarrenC12

You do know what Supply/Demand is right?

The demand for that isn’t coming from Canadians

But since you mentioned it why does everyone continue to focus on Supply when I’m fact Demand could be managed much more easily?

[WarrenC12]

Originally Posted by whatnext

The demand for that isn’t coming from Canadians

But since you mentioned it why does everyone continue to focus onSupply when I’m facto Demand could be managed much more easily?

Yeah, we could completely shut the door to immigrants and housing demand would drop, especially as population starts to decline. That's an option.

[thebasketballgeek]

Originally Posted by whatnext

The demand for that isn’t coming from Canadians

But since you mentioned it why does everyone continue to focus onSupply when I’m facto Demand could be managed much more easily?

Because if the demand is met with an adequate supply it’s a recipe for booming economy. Even with the crunch of housing affordability in places like BC and Ontario, a primary reason is simply that these places are world-class destinations that people from all over the world are flocking too and as a result have seen huge increases in capital for both regions. This type of demand would be something a lot of countries envy and would even dream of.

This might be one of the first times in human history where people are looking at cutting demand to deal with an issue that has risen from a lack of supply.

[niwell]

Originally Posted by LightingGuy

A note regarding why infill alone isn't enough to solve the housing crisis, and why it is absolutely necessary to expand our urban boundary in the GTA.

Infill policies that encourage massive tower communities and little else aside, there's still a massive amount of land within designated greenfield areas / the approved urban boundary. Even more on the so-called white belt. Not opposed to releasing land faster than anticipated if the growth is there, and *some* (not all) of the greenbelt redesignations may make sense. They were done under the Libs too, albeit at a smaller scale.

Population growth is one aspect that needs to be addressed, but speculative investment is another. It's easy to point at foreign money for this (which is valid), but Ontario based investors increasingly own multiple properties. This was something that was actively made easier with the spike in housing prices. Corporations have gotten into the game as well. Hence the eagerness to develop investor-geared tower communities. Overall though there's a vested interest in ensuring that prices don't really go down across the board.

I agree that we have a housing shortage, but it's less because we aren't building enough than we aren't building the right type of stuff.

[SignalHillHiker]

This one just around the corner from me sold earlier this year (when it looked like 🞵🞵🞵🞵) for almost half the price The renovation was excellent - it's a bit too farmhouse (especially sink and light fixtures, pipe-style shelving supports, etc.), the curtains are too short but, otherwise, it's perfect for my tastes (excluding the traditional furnishings, of course lol). Even the same colour kitchen cabinets as me lol



https://www.realtor.ca/real-estate/25092931/68-livingstone-street-stjohns

[casper]

Originally Posted by WarrenC12

Yeah, we could completely shut the door to immigrants and housing demand would drop, especially as population starts to decline. That's an option.

We could also close hospital beds, and Tim hormone and have Air Canada cancel more flights or have Canadian factored turn away orders or milk farmers not milk cows.

Immigrants play an important role in our economy. Not having
Immigrations has a. Impact across our economy.

[WarrenC12]

Originally Posted by casper

We could also close hospital beds, and Tim hormone and have Air Canada cancel more flights or have Canadian factored turn away orders or milk farmers not milk cows.

Immigrants play an important role in our economy. Not having
Immigrations has a. Impact across our economy.

Yep, I agree.

I'd be ok with closing TH.

[LightingGuy]

Originally Posted by niwell

Infill policies that encourage massive tower communities and little else aside, there's still a massive amount of land within designated greenfield areas / the approved urban boundary. Even more on the so-called white belt. Not opposed to releasing land faster than anticipated if the growth is there, and *some* (not all) of the greenbelt redesignations may make sense. They were done under the Libs too, albeit at a smaller scale.

Population growth is one aspect that needs to be addressed, but speculative investment is another. It's easy to point at foreign money for this (which is valid), but Ontario based investors increasingly own multiple properties. This was something that was actively made easier with the spike in housing prices. Corporations have gotten into the game as well. Hence the eagerness to develop investor-geared tower communities. Overall though there's a vested interest in ensuring that prices don't really go down across the board.

I agree that we have a housing shortage, but it's less because we aren't building enough than we aren't building the right type of stuff.

Regarding blaming this on investors/speculators/foreign buyers - I believe this to be a symptom, not the cause. Let me explain...

If you are looking somewhere to park your money and watch it grow, you are generally going to want some combination of the following factors:
1. High ROI that beats inflation
2. Very low volatility
3. Potential for high dividend
4. Easy to sell

From an outside investor's POV, what they saw was a local market with:
1. High population growth = high demand
2. Above average incomes, = high affordability
3. An artificial urban growth boundary = increasing scarcity
4. Very long permitting process = further increasing scarcity
5. Above average rental rates (and low vacancies) = high dividends

It doesn't take a genius to look at these factors and realize that you are virtually guaranteed to make a good stable return, that pays a high dividend which you can also basically sell whenever you want. There was basically no risk at all.

Now, the amount of investors these conditions attracted certainly added fuel to the fire, but they wouldn't have been attracted here in the first place if the conditions weren't ripe for it. Even without an above average number of investors, we would've had a problem. There's a reason they came here, and not Edmonton/Calgary/Montreal. And then as a side effect you had the local residents who saw their home valuations skyrocket and used it to leverage themselves into second and third properties. But this wouldn't have been possible if the housing market wasn't already inflated to begin with.

[ssiguy]

Originally Posted by MolsonExport

Anyone else think that the BoC will drop interest rates dramatically once the recession kicks in (and it is coming hard and fast)? I get the reasons for aping what our American cousins are doing (to shore up the value of the currency and future yields on government debt obligations) but meanwhile things seem to be getting a lot worse on the ground for a heck of a lot of people. In terms of the housing market, I can't really see anyone that is currently benefiting. Rents are through the roof, supply is still scarce, current mortgage rates incur higher servicing costs on real estate that is slipping in value....

Everything you said is true but the problem is that the alternatives of not beating inflation to the ground is worse.

It's not called an inflationary "cycle" for nothing. Inflation builds upon itself because as inflation rises workers demand higher wages to compensate and in a tight labour market they are in a position to get those pay hikes. This, unfortunately, further spurs inflation as businesses have to increase their prices to compensate and rinse & repeat.

There is no such thing as temporary inflation. This what they thought in the 1970s when the oil embargo hit and oil prices soared {much like today with the Ukrainian war} but the central banks were too slow to react as the prices began to fall back down to Earth. By then inflation had become entrenched into the economy and inflation continued to soar until finally it became so out of hand that they had to raise interest rates to 20% to finally bring it down crushing the economy and blowing a hole in gov't finances in the process.

The health of an economy is much like the health of your body. If you are diagnosed with a new medical condition, you can either make some unpalatable health choices now to help your body recover or you can do nothing and just let the situation become worse until finally only surgery can save you.

[lio45]

Originally Posted by WarrenC12

Yeah, we could completely shut the door to immigrants and housing demand would drop, especially as population starts to decline. That's an option.

If you look at Japan (and Newfoundland?), the prices in urban areas would likely not become more attainable — it’s the rural areas that would empty out as people continue to move to cities.

Tokyo isn’t cheap and won’t become cheap anytime soon.

[swimmer_spe]

The assumption that infill will not solve anything is the same assumption that building on farmland is good.

What infill does is it uses existing infrastructure.You do not need to lay new sewers or water mains. You don't need to build a new road. Generally, all of those things and more are usually right at the property line. Go to any city in Canada and you will see areas of undeveloped land that are not green fields. The fact that that kind of land exists and has not been developed is a shame. Why take farmland and build on it when there is still land to be developed?

[GenWhy?]

For example Edmonton has had "an infill problem" for decades due to the exponential greenfield development.

[WarrenC12]

Originally Posted by lio45

Tokyo isn’t cheap and won’t become cheap anytime soon.

Rentals in Tokyo near transit are incredibly cheap compared to Vancouver/Toronto.

[swimmer_spe]

Originally Posted by GenWhy?

For example Edmonton has had "an infill problem" for decades due to the exponential greenfield development.

Yet they don't seem to have such an issue with housing. Why is that?

[thewave46]

Originally Posted by swimmer_spe

Yet they don't seem to have such an issue with housing. Why is that?

Japan is in decline.

It admits very few immigrants. The natural increase has been negative for a long while.

So, housing is viewed as a depreciating asset, like a car.

[swimmer_spe]

Originally Posted by thewave46

Japan is in decline.

It admits very few immigrants. The natural increase has been negative for a long while.

So, housing is viewed as a depreciating asset, like a car.

Not talking about Japan.Talking about Edmonton.

[GenWhy?]

Originally Posted by swimmer_spe

Yet they don't seem to have such an issue with housing. Why is that?

It's more or less 1 city and they have endless farmland to pave over. Well I should ad infill is like 3x more than suburb new

[theman23]

Originally Posted by lio45

If you look at Japan (and Newfoundland?), the prices in urban areas would likely not become more attainable — it’s the rural areas that would empty out as people continue to move to cities.

Tokyo isn’t cheap and won’t become cheap anytime soon.

https://www.realestate-tokyo.com/buy/H0061251/nishi-kasai-8-chome-house/
Seems like you can buy a house in Tokyo for 500K CAD. It would he on the outskirts and maybe not very nice, but you’d have access to shops and transit. For the same budget in the places most Canadians live you’d be getting a 50 year old 1br apartment or a new build bachelors suite in a place like Chilliwack.