As the year comes to an end…
Soctiabank’s recent housing report titled “All we want for Christmas is more supply” describes the state of the housing market in a very timely and accurate way!
It’s been another incredible year in real estate but the story is not much different: heightened demand and limited supply, increases prices. Politicians continue to focus on the demand side of the equation as the real challenge lays on the supply side: housing shortage and an affordability crisis as population continues to grow at a rapid pace.
Here’s a look at both the demand and supply sides and how we got to where we are today.
Canadian real estate had one of it strongest years in 2021 just a year after the start of the pandemic. At the time this article was written we are nearing another lockdown this time in response to the Omicron variant. However just a few weeks ago in November 2021 the level of housing sales had already broken last year’s record.
These Strong demand fundamentals have triggered an increase in the number of sales across the country:
Toronto where nearly 1 in 4 homes are bought by investors (according to research from the Bank of Canada).
Multiple data points suggest a significant pick-up in investors’ activity this year.
Recent research published by credit rating agency Equifax found that the number of people adding a fourth mortgage or more (i.e., investors with more than four properties, etc.) surged at twice the rate as the number of first-time borrowers. A recent report from the Canadian Housing Statistics Program also found a sharp rise in the number of buyers looking for investment properties in Canada.
Data from the Bank of Canada breaking down the year-over-year increase in the number of new mortgages by purchaser type point to an influx of investors to the market in 2021Q2. Compared to the same time last year:
Data from Teranet shows that as of August of this year, 25% of Ontario buyers were multiple property owners, making it the largest buyer segment and setting a record.
However some economists argue that strong demand from investors is a good thing for our housing market since these investors are adding to the rental supply and thus making renting more affordable.
Addressing the Ontario Securities Commission on Nov. 23, Bank of Canada deputy governor Paul Beaudry said a “sudden influx” of investors in the housing market likely helped fuel rapid price growth in early 2021
“Our analysis finds that many Canadians are buying homes as investment properties — that is, in addition to their principal residence — and the importance of this phenomenon has grown,” Beaudry said in prepared remarks.
Many investors perceive housing as a less risky place to put their money compared with financial markets, King says. And the record price gains recorded since the summer of 2020 mean “real estate continues to be something that attracts people,” she adds.
In Ontario, homeowners who already have one or more homes made up fully 25% of property title changes between January and August of 2021, according to a recent analysis by Teranet. That’s up from around 16%t in 2011.
According to a report, investors seem to be playing a larger and larger role in driving up the city’s real estate prices. “While end-users were the primary driver of the Toronto area’s housing boom in 2020, that trend appears to be changing in 2021,”
When purchasing property, investors are less constrained by income considerations than traditional homebuyers because they count on turning a profit by eventually selling the home for a higher price, the report explains. the report explains. That also explains why investors may not be deterred even when the carrying costs of a home far surpass the rental income the property can generate.
Policy proposals put forth by the Liberals in their recent re-election campaign, which, like that of the other parties, focussed largely on the need to build more new housing.
Last week (December 2021), in an attempt to make home ownership a reality for more Canadians Justin Trudeau handed his housing minister a series of tasks — including some targeting foreign buyers – addressing mostly the demand side.
The prime minister asked for measures that include a temporary ban on non-recreational residential sales to foreign buyers which he believes will help ensure that housing does not sit vacant and unavailable to Canadians wanting to buy homes.
The ban is a cornerstone of Trudeau’s plan to address Canada’s frenzied housing market that has become synonymous with limited supply leading to bidding wars, extreme buyers’ anxiety and skyrocketing costs.
Trudeau also wants to review down payment requirements for investment properties, create a fund to develop rent-to-own projects and an an “anti-flipping tax” on residences that would require properties to be held for at least 12 months before they can be sold. He also asked for a ban on blind bidding, a widely-used practice, where homebuyers submit offers to sellers who don’t disclose the details of competing bids.
Critics took issue with these and with regards to the foreign buyer ban in particular, some realtors deem it unnecessary as they believe that foreign buyers make up only a small fraction of purchasers in the country.
Trudeau hopes he can reverse these trends by investing in a new housing accelerator fund intended to boost inventory with measures such as inclusionary zoning, increased densification, reductions in construction approval timelines and the rapid development of vacant or underused lands.
Most experts and analysts believe bringing more meaningful inventory to the market could help. However, addressing supply cannot be solved immediately – it is a giant task in of itself. However, it is time for politicians to push for it aggressively as a top priority and to do it SOON
