#canadahousingcrisis Archives

Plans for Canada. When Will The Recovery Begin?

What in the World?

Well, I think we have all heard quite enough of the word “Tariff” these days, what happened to duties, or just taxes? Also, we would be at least 10 states, if not 13.

Backstory:

If you are reading this in the future, you may have no idea what I am alluding to. Tis the year 2025, May hath just begun and methinks I have heard the dastardly word “Tariff” more than one thought ever possible. Canada’s federal liberal party had possibly the quickest U-Turn to an election victory in history; everyone thought they had no chance just a few months ago. The guy running the US is convinced Canada should be “the 51st state”, among about 500 other things. What a weird timeline. I think in 10 or 20 years we will all look back on this and be very confused. At least I hope that is the case and all the world’s problems are solved, one can at least dream. For now, this is the world we live in and there are some pressing problems facing Canada and the new Prime Minister.

Mark Carney:

Arguably one of the best moves of Trudeau’s political career was knowing when to bow out. The new leader of the Liberal Party Mark Carney really appeared to come out of nowhere and swept the liberal leadership race becoming the new prime minister, then quickly called a snap election to solidify his position for the next 4 years. Looking at his resume he has been quite involved in government prior to this. Working with a what was almost certainly a defeated liberal party just months ago, he managed to come within 3 seats of a majority government. With the new US leadership and Tariff policies we are all getting a crash course and re-learning that the links between the Canadian and US economies run deep and trade policy is very important to not only the price of goods, but consumer confidence in spending money and retaining jobs. While I would love to chat about everything, my main focus is going to be talking about what plans Mark Carney has for Canada and what the future might look like if he is able to follow through on some of his election promises. A lot of the points he was touting on the campaign trail I have addressed as problems in my prior posts. Things such as the need for better trades education, lowering cost of housing, and more investment and innovation in Canada. I have also made some videos to go alongside those conversations which you can find at youtube.com/oliverfoote. Now, let us dive into the promises and what some of the outcomes might be.

One Economy:

This is an idea that has come up ever since the start of the trade war. The idea of “one Canadian economy”. Canada is made up of 10 Provinces and 3 Territories and many have local industries they try to protect, through methods such as non-compatible worker credentials, export restrictions of certain goods to other provinces, and a general higher willingness to trade with the US than ship across this massive country (understandably). Many of the provinces are on board with the idea of demolishing some of these barriers and now that there is the political will to find a way to remove them largely thanks to Trump’s trade war, I think it is likely that this will get done between Carney and the premiers. There have been some numbers quoted that if we are able to do this it would return around the same amount of economic activity to Canada as a 25% tariff from the US would cost Canada. I am of the belief that pretty much everyone is in agreement that more labour mobility, easier flow of goods, and accepting credentials across provinces is just a sensible thing to do, would improve workers ability to move to better opportunity increasing competition and wages in the labour market, filling worker gaps across provinces which could also help bring costs down in some industries. This could help provinces that need workers, and provinces that have an oversupply of workers balance out their supply dynamics a bit. We have already seen an outflow of people from provinces like Ontario to provinces like Alberta and the Maritimes. The idea would be a win-win, takes pressure off for example Ontario’s employment and housing and provides much needed workers to places that are having a hard time finding them; if people are willing to move across country of course.

Build Baby Build:

There was one line that stood out to me on housing and that was when Carney said, “we need to build homes on a scale not seen since the Second World War”. The outline of how they plan to accomplish this is multi-layered, but in essence the plan is to create a new government agency with the goal of investing in new home building technology, providing low-cost financing for affordable units, tax incentives for multi-residential unit construction and conversions, and importantly cutting governmental charges on building homes. Of all the costs of construction, (mostly) municipal-government development charges have gone up the most in percentage terms of any development cost in the past 20 years, for a variety of reasons there are a few very interesting videos done by YouTuber “About Here” covering this topic in detail. The liberal government claims on their website that cutting development costs in half will spur $8 Billion of private investment (every year!). We will bookmark that and see how it pans out 5 years from now. They also claim they will work with cities to speed up approvals and try to systematize credentials across Canada so builders can work anywhere, again I think this is a positive thing. Toronto has one of the worst approval timelines in North America at around 30 months, that is just the approval stage! The actual construction of a high rise takes about 2-3 years, but the approvals and delays add 7 years on average to that timeline. Therefore, if we can cut down these delays caused by zoning and city approvals by half, it would immensely improve affordability as every delay adds cost to the price of the end unit. My hope is that provincial and municipal governments across Canada can get on board with the federal government, simplify their processes, standardize approvals, and start rubber stamping thousands more units per year.

Innovation and Investment:

I heard a business owner once say and I think this goes for builders and housing developers, that they are running their businesses in Canada “in spite of” the local government, not because of it. I believe strongly that government has a role to play, making sure workers are safe, making sure that monopolies are not stamping out competition, supporting and championing local businesses. I believe that all levels of government should work hard to be partners with business, not roadblocks. This is where a line from the liberal platform comes in, they said “[lets change] why are we doing this” to “how can we get this done”.

When it comes to housing, when it comes to business, when it comes to trades, innovation and re-investment, we really need to start asking how we can enable things to happen, not why they should or shouldn’t be allowed in the first place. I have made videos and written about Canada’s declining business investments in the past and how a lot of our private sector business investments have moved into the residential housing sector and inflated residential asset prices. This has been somewhat of a trend across many western countries. The liberal platform addresses this as well and points to specific plans for increasing investment in Canadian companies and businesses. I read a very interesting working paper from the Bank of Canada that is related to this. They discuss global capital flows and how money historically flows to the US and their huge “Superstar” firms, which also tend to attract global talent. Canada has a bit of a history with tech firms imploding, think Blackberry and Nortel, but this is not an excuse to not compete at all. Canada needs to invest and encourage a greater start-up and entrepreneurial culture that can potentially create some of these global superstar competitors that will make Canada a more attractive place for global capital, talent, and diversify our economy. Naturally, at some point every company will expand internationally, and finding success in the US is the ultimate victory because of the liquidity of financial markets, start-up culture, the tendency of the American consumer to spend their money, all help companies to grow exponentially. I believe there is more room on the world stage for Canada to innovate at a greater pace and be more than just America’s little brother.

The Future of Canada

There is so much to talk about here and the layers go very deep. I am unsure of how much the Carney government will be able to accomplish, but I do hope that at least some of their ideas make it through. As a nation we have reached a point in time where everyone is in a very patriotic mood and seems very willing to resolve some of these bigger political issues and people are united in the idea of doing so. I hope that this new government can jump on this moment and that this can be a catalyst towards Canada become a larger player on the world stage once again. If there has even been a moment in time where the country and all levels of government seem willing to make massive changes, it’s right now. Amidst all the chaos of the past 5 years, first COVID, now a trade war with very clear signs of recession looming, I find myself feeling optimistic about what the future of Canada might hold. I no longer feel this imminent urge to pack my bags and leave for better opportunities elsewhere in the world, but if one presents itself, I will still likely make the jump if only for the experience of having done so. Only time will tell what ends up happening, but I have a lot more hope than I did a few months ago. There will be a lot of bumps in the road along the way but I am willing to give this new government a chance to see what they can do.

-Oliver

Why Are Rentals Affordable All of a Sudden?

As someone who likes to stay on top of what’s happening in Real Estate and the economy. I have noticed something happening that honestly, I’m not sure many people saw coming. Rental prices are dropping in major city centers across Canada, and have been on a slow but steady decline for a good 6-8 months. The main reason for this change simply has to do with a supply and demand problem (on many levels), and it’s all happening at the same time, right now.

Demand:

Let’s talk about demand first. Allow me to tell you a bit of a short story about recent events, namely something called COVID-19. The effects of the pandemic are beginning to show up in so many different aspects of society, and what I’m going to talk about here is another example of how generational of a shift was caused by COVID. Prior to COVID, people knew we had a bit of a housing shortage in Canada, in bigger cities multiple offers were common, but politicians were making some small policy changes to try and address some of the problems. Fair housing plan, first time home buyer tax rebates etc. But these were really drops in the bucket, and I don’t know that any politicians were earnest sitting down and thinking to themselves that there was a real problem here and that things needed to change. Enter the pandemic, low interest rates, followed up quickly by a completely crazy housing market. What COIVD did, was shine the worlds biggest spotlight on housing and made the entire country realize how bad housing could really get if we let things go too far. All of a sudden, every level of government is talking about housing, all of a sudden we’re talking about educating trades workers again and doing something to fill in these gaps in our economy that have been growing for decades leading to the problems that we are now experiencing.

Interest Rates:

So what did the various levels of government do in order to try and reduce this crazy demand in housing that was brought on by COVID? Many things. The Bank of Canada (not technically the government, although still a government entity?), increase interest rates by 4.75% over the course of 1 year, the fastest rate increases in history, which made housing extremely unaffordable at current market prices. Almost instantly, a ton of demand dried up because, financially, it became a horrible deal to purchase a home. Real estate prices move in the downward direction a lot slower than they move in the upward direction, which meant that while the cost of owning a home climbed in lockstep with rate increases, prices did not fall at the same pace. Even with these high interest rates reducing the pool of potential buyers significantly, there’s just so little supply, that some people who really need a home, were still buying homes. We didn’t see a huge flood of inventory (until about a year or two later), because most people who were already in their homes might not have to renew their mortgage for another 3-5 years and don’t need to sell. Rates were a big hit to demand, but everyone was finally beginning to realize the gravity of the situation, and the Bank of Canada made it pretty clear that the high rates would eventually come down once they dealt with inflation. So while the oven was still hot, governments began to put other policies into place.

Foreign Buyers Tax:

In some provinces, mainly the larger ones, foreign investor taxes were put into place in order to reduce speculation on the Canadian housing market as an investment vehicle. Canada is a very stable country, so if you have money from another country that is less stable, why not just park it in a piece of land located in Canada, and as a side benefit watch the investment grow. Makes perfect sense from an outsider point of view. But what this means is that local “middle class” people have to compete with the global rich, who may want to send their children to school in Canada or for whatever other reason have an interest in real estate. There have been arguments made about whether of not the percentage of foreign investment in Canada was actually making a dent at all in the cost of housing and what even counts as foreign investment. But on the whole, if the goal of this policy was to reduce demand, a 25-30% tax on foreign investment is one way to accomplish that.

Foreign Buyers Ban:

Following this policy, but at the federal level, we had a foreign buyer BAN for 2 years starting Jan 1, 2023. Which has been extended for an additional 2 years until Jan 1, 2027, and who knows, maybe it’ll be extended again. What this means is that if you weren’t a citizen, or don’t have Permanent Residency (PR) status in Canada, you CANNOT buy real estate here, at all. So even if you were willing to pay the provincial tax of 25-30%, with the hopes of getting a rebate (within 4 years) once you have your PR, you can’t do that anymore. Again, if the goal of the policy is to reduce demand for housing. This will have likely accomplished that. However, a potential side effect of this policy is driving up rent prices, because there may be a situation where you have a highly skilled worker who comes here and is making really good money or may have the means to purchase a home, but now they are forced to rent. Which means more demand for rental housing from people who are barred from buying, even if they plan to make Canada their home long term. I would consider this a more artificial and temporary reduction in demand, because these skilled workers will probably buy after getting PR.

Less Immigration:

Wow what a great transition, let’s talk a bit more about PR shall we. Quite recently, the government has been walking back the number of people that can apply for PR and officially immigrate to Canada. This has made the process of becoming a Canadian citizen a lot more competitive, and if you combine this “reduce immigration” policy with the previous policy which only allows citizens or PR holders to purchase homes, you will see a notable reduction in demand for buying housing. There will literally be fewer people who are legally able to purchase homes in the coming years. That’s not technically correct since we’ll be increasing the number of Canadian’s every year while still not building enough. The pace of new entrants will still be outpacing construction. But at least with these new policies things will get worse slower than before.

Fewer Students:

One final thing on the demand front deals with students and rental housing. Students make up quite significant portion of the rental market. Prior to, and just after the pandemic. The government was allowing pretty much anyone who would be accepted by a college or university, to come to Canada and study. Which in theory is an ok idea since we hope those people will stay, get a good job, and contribute positively to the productivity of our economy (not to mention spend money while they are here). But this unregulated environment led to some bad actors taking advantage of the situation. In some cases students were getting scammed by private “career colleges” which sold a promise of a Canadian education, and frequently didn’t deliver even the basics. It was a bad look on Canada, and brutal on students that took a huge risk spending international student tuition to get an education in Canada.

Aside About Higher Ed:

Additionally, at some point down the line, higher education institutions, including the prestigious ones. Began to cater their “services”, to the international student audience. Why? Because international students pay 2-4x the tuition rates of domestic students and universities have been dealing with consistent budget cuts from the provincial government over the course of decades (god forbid we help to pay to educate our future workforce). As an aside, I feel very strongly that higher education should be almost free in Canada for locals (which means more government funding). It’s ok if you disagree, but I would ask that you think about the implications on young people when education leads to debt, we are handicapping them before they even begin working. Additionally, if it’s too expensive, some people end up forgoing education altogether. More highly structured education after high school isn’t always the right answer. But, I think fundamentally we can all agree that continuing to get educated is a good thing and more funding for higher education is a great way to do that.

After years of cuts, universities felt the need to increase international student enrollment in order to make up for the difference, and the funnel was effectively endless. Obviously, this all came to a head and some people began to tell their MPs about these issues, namely scam colleges, and shortly after we see a cap on student visas. What does this means for housing? Likely there will be less rental demand in major metro areas where higher education institutions are located.

Supply:

Ok, I think that wraps up the demand side of the equation. Excuse me while I go and watch the 4 Nations Faceoff Canada vs. USA game (Canada lost, dang). Supply is up next, and this is where things get really fascinating.

Rents at 18 Month Low:

A report from Urbanation, who do really good research on housing in the Greater Toronto Area explained in October 2024 that average rents, especially in large cities across Canada have been dropping. An even more recent report by BNN said that rents across Canada have hit an 18 month low in January declining 4.4 percent to $2100. Rents are still 5.2% higher than 2 years earlier. But this is still a welcome sign for many renters. So what’s going on here?

Flood of New Supply:

We’re in a very interesting moment in time right now. As mentioned in the demand section, we’ve done a pretty good across the board job of slowing demand. At the same time, we have a flood of new condo completions hitting the market, actually a record amount for 2024, 29,800 in the GTA. In a normal year there might be 20,000 completions, which means we saw a 50% increase in inventory hitting the market. Approximately half of these new condos were listed for rent, since many owners are reading the writing on the wall and can see that they won’t be able to sell at a good price. In fact they may not even get the price they paid out of the condo. The pandemic also slowed and delayed condo completions, and 2024 just happened to be the year of reckoning where everything hit the market all at once. Additionally, purpose built rental completions were 5,537 in 2024, which is 86% above the 10 year average. In 2023 completions were 5,779 units.

What This Moment Tell Us:

When you combine the twofold pressures of ton’s of supply for sale, a smaller pool of buyers than usual, more nationalistic policies, higher interest rates than usual, and a “stable” housing market which is moving very slowly in the downward direction. Many new condos and purpose built rentals hitting the market. Leading new condo owners to attempt to rent out their units because they are unable to sell them right now. We have accidentally created an amazing case study that proves the point that politicians, and economists have been shouting from the rooftops. How do we make housing more affordable? We build more. Simple. This moment in time proves that if we build more, and build more variety, and have a constant flow of new housing coming onto the market, it will very likely relieve the pressures that we’ve been seeing on the housing market and make housing more affordable. On top of managing demand, filling gaps in our economy with tradespeople, and building a variety of housing (we don’t need to exclusively build detached low-rise or 60 storey high-rise). If apartments almost become a dime a dozen, a commodity, instead of something you need to be making six figures even to afford a rental. That will put a lot of downward pressure on prices and people will be less feral when trying to bid on a home or a rental.

Quebec is Doing It Better:

We have a case study in Canada that we can look to, Montreal and Quebec. In general, Quebec has not seen the same problems with cost of housing that we have. The pandemic did make things worse for them as well. But I was wondering why they don’t seem to be having as severe of a crisis as we do in Ontario and BC. I learned that a few reasons for their ability to managing housing costs a bit better is because they have fewer exclusionary zoning by-laws, aka. They build a larger variety of housing. The home construction market in Montreal is able to adapt much quicker to changes in demand, they also don’t exclusively rely on high-rise condo’s to solve their supply problems. They build a variety of housing types, like 3-4 storey apartment buildings. That are able to be built quicker and meet demand quicker. Our supply is very inelastic in Ontario, which the supply in Quebec and Montreal tends to be more elastic preventing prices from going to crazy. They also prove the point that the fundamental issue surrounding housing is a simply supply and demand issue. We do have to look into all the layers that cause a supply problem, or lead to unusually high demand. But if you boil it down, we need to build a whole lot more, become a lot more creative, and as 2024 proved, the problem can get better. Thanks for reading, hope you found this interesting.

Keep Investing,

-Oliver

Why Are People Leaving Ontario for Other Provinces?

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

People leaving Ontario for other provinces was a headline that really took off during the pandemic. Everyone was forced to work remotely and it opened up opportunities for mobility. It made good financial sense that you could keep your big city salary and move to a lower cost of living area to make your money go further. This led to a spike in inter-provincial migration numbers and local rural properties becoming more expensive as people left larger cities to find more space. However, for some people the choice to move may have backfired. I am aware of more than one person who moved out from Toronto with the expectation that they would be able to work from home for the rest of time and they ended up moving back in 2022 or 2023.

Migration out of Ontario has been quite variable over the years, from 2003-2015 there was net out-migration to other provinces, from 2016-2019 there was net in-migration, then largely due to the pandemic and skyrocketing housing costs Ontario saw out-migration from 2020-2022. However, Ontario is far from the worst. People have been leaving Quebec, Saskatchewan, and Manitoba every year since 2015 for other provinces. Alberta only recently saw more people come in than leave, as of 2021. Most of the Maritime provinces saw significant proportional spikes during the pandemic.

I could go on and on listing different datapoints, and really it wouldn’t matter all that much since the numbers of total migration between provinces barely tops 100,000 people per year in most years. When we’re bringing in 1,000,000 new residents to Canada in one year we have a larger issue at hand. The more important trends would be to see where people immigrate to, and as you might imagine people will immigrate to where they have the largest networks, or where the most jobs are which tend to be the larger cities. This means that the supply crunch in the Greater Toronto Area is not likely to see relief because people are unlikely to choose to immigrate or migrate in large numbers to other provinces where they don’t have a support network and fewer job opportunities. People want to be where things are happening, and the largest city in Canada, tends to be a solid go to choice.

If you have taken a trip on the TTC at some point in the past 2 years you would have likely seen at least one advertisement encouraging you to move to Alberta. The campaign Alberta’s provincial government came up with is called “Alberta is Calling” and they are pitching Alberta as “affordable, friendly, and rich in opportunity.” I’ve only been to Alberta once for a wedding in Banff, and from that experience I can say that it does have a lot of natural beauty. But from the news this past week, I can also say that it’s cold. -40° C cold. The -10° C in Toronto today feels downright balmy compared to that. Like most of Canada the cold doesn’t last forever and it does eventually just become part of your life, but I can’t help but point out the weather conditions as someone who prefers it to be a bit warmer.

I also want to touch on an article that I came across recently regarding Alberta’s immigration + migration capacity. As mentioned earlier, the whole of Canada is having a bit of a problem handling the number of people that immigrate here every year. Alberta’s campaign worked so well that there is a concern that they will not be able to meet the higher demands on their services like healthcare and education. They had 194,000 people come to the province last year which is a 4.3% increase in population. With the way things are going in Alberta and across the country. The investments and preparation to provide these types of services to a population influx has to take place years or months in advance. There is some concern that Alberta will not be able to just flip the switch to meet this new found demand. Eventually this problem will improve itself with the increased tax revenue from these new residents. But it will be reactionary, as most big moves in politics tend to be. Planning ahead seems to be verboten.

I do completely understand why some people might want to move to cheaper provinces with the current housing prices in Ontario and British Columbia. But comparing and contrasting Ontario with British Columbia shows an interesting trend. In 2020 Ontario saw net out-migration of -18,405, in 2021 it was -47,212. Surprisingly, or maybe unsurprisingly, British Columbia saw net in-migration throughout the pandemic. In the last 50 years BC has only seen 12 years where more people left the province than moved to it. Clearly, even with the highest costs of housing in the country, it is a place that people will sacrifice a lot, in order to have the pleasure of living there. If Alberta’s push to get people to move continues to be successful it is likely that a large number of the migrants into the province will come from British Columbia simply due to proximity, and of course high housing costs. As someone who has never been to BC but has dreamed of going there more than a few times, the pull of BC is quite strong.

The moral of all these inter-provincial migration numbers is that housing is still a crisis. People are not just contemplating moving to less expensive provinces, but are actually doing it. I believe this trend will continue for the foreseeable future, even with the historical investments in housing from all levels of government. Our economies have become so centralized, data is so accessible, and financial systems have enabled us to borrow huge amounts of money to purchase homes. We’ve underinvested in trades, have high numbers of immigration, and anticipate lower interest rates coming over the next decade. All of these factors combine to create a housing supply shortage and a financial system that will both work together to keep prices going up. We’re in a situation now that if prices do fall significantly it likely means there are much bigger problems in Canada than just housing. I want to be hopeful that this problem can be solved by a combination of investing in trades and housing. But I’m not sure that will be enough. It will be interesting to keep an eye on the migration trends in the coming years and I do wonder if at some point we will see emigration out of Canada, or if BC’s natural beauty will be enough to make people want to stay.

Keep Investing,

Oliver Foote

Newsletter #6: Alberta is Calling, RBC Economics & Housing Affordability

Welcome to another newsletter! Lots of fun stuff this week, RBC came out with a super interesting, somewhat shocking chart on housing affordability vs. median income. I talk about what Interprovincial Migration trends say about housing costs and how the pandemic has changed our mobility and more! Have a great week!

This Weeks Blog Post:

Why Are People Leaving Ontario for Other Provinces?:

Alberta’s successful campaign to attract residents
Will Alberta be able to provide services to their new influx of residents?
Will people leaving larger provinces relieve the supply crisis?

Read the full blog post here: https://oliverfoote.ca/2024/01/21/why-are-people-leaving-ontario-for-other-provinces/

Housing News:

5-yr Canadian bond rate seems to be trending upwards again from a recent low. Locking in a fixed rate mortgage at the end of Dec/start of Jan is proving to have been good timing, now is still a very good time based on the past 6 months.
Activity in the market does seem to be picking up somewhat for well presented and well priced homes. Many mispriced homes with unmotivated sellers continue to sit on the market.
Hamilton to create a bylaw preventing renovictions: CTV News Article
RBC: Affordability at an all time low

Graph: ownership costs, as a % of median household income:

Market Performance as of close Friday Jan 19, 2024:

S&P 500: 4,839.81 (+2.04% YTD)
NASDAQ: 15,310.97 (+1.70% YTD)
S&P/TSX Composite: 20,906.52 (+0.16% YTD)

Canada CPI Inflation Dec 2023: 3.4% (0.3% Increase from Nov 2023)
Current BoC Benchmark Interest Rate: 5% NC
Current Prime Lending Rate: 7.2% NC
Unemployment Rate Nov 2023: 5.8% NC

All the best,

Oliver