Canada's 'housing bubble' deemed close to bursting

[thewave46]

Originally Posted by Wigs

If there's no crash certainly there got to be a point where things level off, no?

A lot of Canada’s current ‘prosperity’ is a result of:

1. Reasonably high commodity prices.
2. Generational changeover causing low unemployment in long-term employment positions that had been previously stagnant.
3. A large surge in government deficit financing to keep taxes low and provide services for an aging population
4. High immigration to backfill those positions.
5. An influx of foreign money at the high end of the market in big cities.
6. Much lower interest rates than current the economic situation dictates.
7. An anti-development mentality among existing cities for various reasons.
8. The positive feedback loop created by bubbles.

Leading to:

The bubble we see today.

How does this potentially unwind?

1. Commodity prices crash, leading to disinvestment in our resources sector with knock-on effects in the economy.
2. Government decides to tax more and borrow less to fund current expenses.
3. Interest rates climb due to persistent inflation concerns.
4. Time puts increasing pressure on our demographic change. Natural change goes negative, mostly affecting those who are long-term owners of homes.
5. Immigration is not sustained at such a high level.
6. Cities become more pro-development.

What will happen? Your guess is as good as mine.

[niwell]

^Good summary.

The problem with a lot of the ways out is that the people who have a vested interest in things continuing along this path control a LOT of assets. Unfortunately, the longer we we continue the harder the way out is going to be.

[Wigs]

Great bullet point summary, thewave46.

niwell, like you basically said who's going to encourage a housing market cool down, or even the construction of vast amounts of affordable/and/or middle income housing to be built when those in charge and who control the most assets want prices to keep increasing 20-30% a year, ad infinitum?

[Architype]

Originally Posted by thewave46

. . .
7. An anti-development mentality among existing cities for various reasons.

Leading to:

. . .
6. Cities become more pro-development.

What will happen? Your guess is as good as mine.

People here echo the anti-development complaint, yet it seems to me our major cities (i.e. Toronto & Vancouver) have been in a development frenzy for the past few years. Our skylines are much fresher than similar U.S. ones for residential development. Where is the disconnect?

[casper]

Originally Posted by thewave46

A lot of Canada’s current ‘prosperity’ is a result of:

1. Reasonably high commodity prices.
2. Generational changeover causing low unemployment in long-term employment positions that had been previously stagnant.
3. A large surge in government deficit financing to keep taxes low and provide services for an aging population
4. High immigration to backfill those positions.
5. An influx of foreign money at the high end of the market in big cities.
6. Much lower interest rates than current the economic situation dictates.
7. An anti-development mentality among existing cities for various reasons.
8. The positive feedback loop created by bubbles.

Leading to:

The bubble we see today.

How does this potentially unwind?

1. Commodity prices crash, leading to disinvestment in our resources sector with knock-on effects in the economy.
2. Government decides to tax more and borrow less to fund current expenses.
3. Interest rates climb due to persistent inflation concerns.
4. Time puts increasing pressure on our demographic change. Natural change goes negative, mostly affecting those who are long-term owners of homes.
5. Immigration is not sustained at such a high level.
6. Cities become more pro-development.

What will happen? Your guess is as good as mine.

You missed the most significant factor. Shortages of workers across the board. COVIiD has triggered so many people to take early or semiretirement that it is causing businesses to close earlier or turn away work. Our low immigration level is not sustainable. We need to add housing for all theses people that we desperately need to bring into the country.

[thewave46]

Originally Posted by Architype

People here echo the anti-development complaint, yet it seems to me our major cities (i.e. Toronto & Vancouver) have been in a development frenzy for the past few years. Our skylines are much fresher than similar U.S. ones for residential development. Where is the disconnect?

When I refer to anti-development, I refer to large areas of single family housing in cities that stubbornly resist any change until the point is reached that one needs a giant tower placed on a small plot to make best use of land value that has exploded.

[thewave46]

Originally Posted by casper

You missed the most significant factor. Shortages of workers across the board. COVIiD has triggered so many people to take early or semiretirement that it is causing businesses to close earlier or turn away work. Our low immigration level is not sustainable. We need to add housing for all theses people that we desperately need to bring into the country.

I mentioned the generational turnover in the workforce in point 2, and high immigration level in point 4.

[jamincan]

It seems to me that one thing the government could do is collect comprehensive data so that we can better understand exactly what is going on with the housing market. Can anyone even say what the housing vacancy rate is in Toronto, for example?

City		Total Dwellings		Occupied Dwellings
St. John's	97429			89999	92.37%
Halifax		211789			201128	94.97%
Moncton		157717			144810	91.82%
Quebec		411415			387954	94.30%
Montreal	1929263			1835698	95.15%
Ottawa		638013			604721	94.78%
Toronto		2394205			2262473	94.50%
Hamilton	320081			307382	96.03%
Kitchener	229809			219060	95.32%
London		235522			222239	94.36%
Sudbury		78225			73387	93.82%
Winnipeg	347144			330326	95.16%
Regina		108120			100211	92.68%
Saskatoon	134720			125100	92.86%
Calgary		594513			563440	94.77%
Edmonton	589554			548624	93.06%
Vancouver	1104532			1043319	94.46%
Victoria	186674			176676	94.64%

This is the dwelling data for CMAs from the 2021 Census. I'm not sure how comprehensive it is, and I think 5-year intervals for occupancy data is wholly inadequate, but it's something at least. It does seem to point to a disconnect between housing prices and occupancy, which suggests there are other forces at play that are significantly altering market dynamics.

[goodgrowth]

Originally Posted by Architype

People here echo the anti-development complaint, yet it seems to me our major cities (i.e. Toronto & Vancouver) have been in a development frenzy for the past few years. Our skylines are much fresher than similar U.S. ones for residential development. Where is the disconnect?

Visually observing towers going up is not housing market data...

Though the conspiracy side of me wouldn't be surprised if that's what some municipalities hope for...

[thewave46]

I am more curious if we have hit peak household formation.

What I mean is this: Population pyramids give hints as to how households form. Households today have ~2.5-2.6 people per household, a marked decline from peak. However, the likelihood of such another precipitous drop is unlikely given that the lower bound is 1 in absolute terms, but more likely going to be at around 2-2.5 given the nature of families in this country.

So, with the bulk of Canada’s population pyramid in the independent household portion of their lives and given that <18 portion of Canada is shrinking, while the >80 portion is rising rapidly, one wonders if the demand pressure will continue to hold. Immigrants are much more likely to come from multi-generational housing situations today too, as the nuclear family ideal constructed post-WWII is fading.

[1overcosc]

Originally Posted by Truenorth00

Remarkably, this urgentcy isn't reflected in voting. And there's no penalties for parties who don't make housing a serious policy priority.

See the debate in Ontario right now. It's incredible. Not one of the major three parties promising to implement the recommendations of the housing taskforce, most significantly the recommendation to scrap the yellow belt.

I am unbelievably disappointed in the Ford government. Their housing taskforce report was radical and I honestly thought they would follow through - the main opponent was big city municipal councils and that's the governments that right wing populists hate the most, so I totally could have seen Ford branding an abolition of the yellow belt as red meat to his base.

But they watered it down to a pathetic joke in the actual bill.

[Truenorth00]

Originally Posted by 1overcosc

I am unbelievably disappointed in the Ford government. ....

I don't know why you're surprised. I thought everyone knew he was in the pocket of developers. Also, he thinks his base is 905 NIMBYs. So he's not going to do anything to upset them.

The really sad reality here is that NIMBYs rule the roost on the right and the left. The right sees current suburbs as some kind of cultural phenomenon to be defended. The left thinks all development is evil. I really hope the Greens take up the mantle of the pro-development party in the centre. A real opportunity to stand out from the cowardice of the other parties.

[SignalHillHiker]

Originally Posted by jamincan

It seems to me that one thing the government could do is collect comprehensive data so that we can better understand exactly what is going on with the housing market. Can anyone even say what the housing vacancy rate is in Toronto, for example?

City		Total Dwellings		Occupied Dwellings
St. John's	97429			89999	92.37%
Halifax		211789			201128	94.97%
Moncton		157717			144810	91.82%
Quebec		411415			387954	94.30%
Montreal	1929263			1835698	95.15%
Ottawa		638013			604721	94.78%
Toronto		2394205			2262473	94.50%
Hamilton	320081			307382	96.03%
Kitchener	229809			219060	95.32%
London		235522			222239	94.36%
Sudbury		78225			73387	93.82%
Winnipeg	347144			330326	95.16%
Regina		108120			100211	92.68%
Saskatoon	134720			125100	92.86%
Calgary		594513			563440	94.77%
Edmonton	589554			548624	93.06%
Vancouver	1104532			1043319	94.46%
Victoria	186674			176676	94.64%

This is the dwelling data for CMAs from the 2021 Census. I'm not sure how comprehensive it is, and I think 5-year intervals for occupancy data is wholly inadequate, but it's something at least. It does seem to point to a disconnect between housing prices and occupancy, which suggests there are other forces at play that are significantly altering market dynamics.

I wonder why ours is so low relative to the CMA’s population given we don’t have many big apartment buildings. Do duplexes count as one unit? If so that could explain it, there’s basically a ring of 60s-80s duplexes around the entire core.

[jamincan]

Originally Posted by SignalHillHiker

I wonder why ours is so low relative to the CMA’s population given we don’t have many big apartment buildings. Do duplexes count as one unit? If so that could explain it, there’s basically a ring of 60s-80s duplexes around the entire core.

I believe this is a count of dwelling units and then occupied dwelling units, so a house, apartment, bachelor apt, duplex etc. would all be included as dwelling units.

[casper]

Originally Posted by thewave46

I mentioned the generational turnover in the workforce in point 2, and high immigration level in point 4.

Clearly the only solution is to double down on the level of immigration. It is disappointing we are not processing our existing target levels as quickly as we should.

[zoomer]

Originally Posted by SignalHillHiker

I wonder why ours is so low relative to the CMA’s population given we don’t have many big apartment buildings. Do duplexes count as one unit? If so that could explain it, there’s basically a ring of 60s-80s duplexes around the entire core.

The real anomaly is Moncton - what’s going on there? Halifax has roughly only 35% more dwellings for 300% more population?!

[thebasketballgeek]

Originally Posted by jamincan

It seems to me that one thing the government could do is collect comprehensive data so that we can better understand exactly what is going on with the housing market. Can anyone even say what the housing vacancy rate is in Toronto, for example?

Here's CMHC 2021 Rental Market Report (PDF warning)

City		Rental Vacancy rate	Condo Vacancy Rate	
Halifax		1%			0% (wow)		
Quebec		2.5%			3%	
Montreal	3%			1.4%	
Ottawa		3.4%			0.8%	
Toronto		4.4%			1.6%	
Hamilton	2.8%			0.4%	
KWC region	2%			0.8%	
London		1.9%			0.3%	
Sudbury	        1.8%			N/A	
Winnipeg	5%			2.1%	
Regina	        7.1%			4.8%	
Saskatoon	4.8%			3%	
Calgary	        5.1%			4.2%	
Edmonton	7.3%			5.3%	
Vancouver	1.2%			0.8%	
Victoria	1%			N/A
Canada	        3.1%                    1.8%

I mean just look at those vacancy numbers it is quite an intense squeeze. There's a lot of factors in play but clearly the most prominent is lack of supply relative to demand. Although one caveat is that it doesn't include vacancy rates for single-family houses, but based on the huge vacancy rate disparity between rentals and condos I am going to make an assumption that single-family vacancy rate is even lower.

[thewave46]

Originally Posted by casper

Clearly the only solution is to double down on the level of immigration. It is disappointing we are not processing our existing target levels as quickly as we should.

We're adding ~400,000 people per year as natural change is about a wash right now.

The pressures we face as-is with respect to housing, combined with the fact we're still pretty close to peak housing demand due to other structural elements in the economy, and the fact that immigration isn't a necessarily a plug-and-play solution many make it to be lead me to think we should address other issues first.

My solution:

1. Bring government closer to fiscal balance in the light of our current and future demographic demands. Easier to take a bigger chunk of the paycheque when things are good instead of during the bad times, or when financial markets are downgrading government debt.

2. Aim for central bank policy to bring inflation rates under 2%. We got the tailwinds of low inflation for decades, but preventing entrenched inflation like the 1970s will be important for stability. Higher interest rates will slow home price growth.

3. Slowing the red-hot economy will allow some slack in labour markets and curb the positive feedback loop of housing price appreciation.

4. Pro-growth development in our largest cities. There's so much SFH-zoned land that has the capability to be more before land value escalates into 'We can only make money with a 40-storey tower' at Highway 7 and the 400 in Vaughan.

[someone123]

Originally Posted by casper

Clearly the only solution is to double down on the level of immigration. It is disappointing we are not processing our existing target levels as quickly as we should.

I wonder how much the immigration system brings in the kind of skills Canada really needs. If you look at the points system, it still rewards a university education heavily but we have a shortage of trades. I am not sure to what degree there is a stream for the in-demand trades.

If you just completed a PhD in underwater basket weaving at a Canadian institution and can do okay on a French exam then congrats, you likely qualify to move to Vancouver to ameliorate the shortage of skilled workers here. Time to start hunting for an apartment, or a condo if you have rich parents.

[Nashe]

Originally Posted by zoomer

The real anomaly is Moncton - what’s going on there? Halifax has roughly only 35% more dwellings for 300% more population?!

Yeah, that one struck me too. Fewer people in each place? Everyone has their own house?