Oliver Foote

Ontario Housing Is Still Getting Worse, Can Anyone Fix It?

Election Night:

Tonight there is an election in Ontario (at the time of writing this I’m not sure who won, but polls are suggesting the PC’s will win). During the election campaigning the party leaders spoke on a lot of issues. I wanted to do a bit of a review and analysis of the different housing policies that each party is running on and talk about what the PCs have accomplished so far, targets they set and if they were realistic, and what things continue to stand in the way of housing getting built in the province that I think the next government should tackle or implement.

Ontario Has A Supply Problem:

As I spoke about in my last post. The fundamental problem with Ontario real estate is that we do not build enough. Simple supply and demand. Not enough supply for the demand that we have, in rentals and end user homes. The amount of factors that influence housing is quite long, again, see my previous post. But just to name a few major ones that have led to the situation we’re in: exclusionary zoning (i.e. only one housing type allowed per lot, very hard to change zoning), lack of investment in trades for over 30 years, high construction and development costs, uncontrolled migration (importantly, with no housing to meet the new demand, migration itself isn’t generally a negative thing), and lack of purpose built rentals.

Will Our Changes Bear Fruit:

There are about a dozen more factors but these are some of the bigger ones that are keeping prices high. Every level of government appears to be trying to do something about the issue. But are they actually seeing results? When might all of this “investment” actually bear fruit? Or are we all too entrenched in our old ways to make a meaningful change that would actually improve housing supply (read: potentially hurt housing values for incumbents). Sometimes you have to upset people to get things done. But equally, there are ways to make meaningful changes and change attitudes without upsetting too many people, it’s just much more challenging. But lets see what my small set of ideas can do to change perspectives.

The 2022 Housing Affordability Task Force:

There was a report published by the Ontario Housing Affordability Task Force in 2022 which very plainly and simply stated that our housing problem will NOT be solved by measures to “cool” the housing market. Cooling down measures include: higher interest rates (which the governments don’t directly control), more tax advantaged accounts, higher leverage down payments, tax rebates, mortgage stress tests, and other incentives. While these things might be nice, they do not deal with the heart of the problem; a lack of building.

The Core Issue, Building:

We are now well aware that the fundamental problem for real estate in Ontario is that we do not build enough housing, and have not built enough housing, for years on end. This means as our population grew, the number of new housing units did not grow at the same rate. It was especially bad in the last 15 years or so. If we can all agree that our fundamental problem is construction of new homes, the next logical step would be finding ways to make building new housing easier. This includes higher density housing in areas where people may not be used to higher density housing.

Make Building Easy Again:

How do we make building easier? The big elephant in the background, is zoning. Our provincial and municipal land planning legislation is set up in such a way that makes it nearly impossible for anything other than single-family homes or mega skyscrapers condos to be built. You even see this in “new” communities, which arguably have the freedom to start from scratch and design a better suburb or city. If you look to a city like Milton, north of Oakville, they are developing old farmland there like crazy! And they’re putting in… Single family homes, or at best 3 storey townhomes, maybe a few condo apartments here and there on Main st. It kind of drives me crazy to see that a BRAND NEW city is being built the SAME OLD way? Where are the thoughts to transit, or cyclists, or rental apartments next to the new university, or multiplexes on a “quiet residential street.” For some strange reason we have an aversion to building small to medium sized apartment buildings on the same lot that a single-family home would go and Milton does a great job proving how our past failures are continuing to show up in our attitudes and mentalities towards home building.

Builders Aren’t The Problem:

Many people might want to go and blame builders for lack of a variety of housing supply. NIMBYs in our province get upset when a builder proposes putting in a 15 storey condo building on the corner lot off the main road at the entrance of your “pristine” residential neighborhood. Another example I saw was a builder wanting to expand the senior care facility next door by adding more height to help add more beds to our over-extended healthcare system. “These builders! How dare they try to change anything about my neighborhood! Imagine the traffic this will cause!” Don’t blame the builders. The builders are doing exactly what any rational actor would do in their shoes. If the zoning laws say, “sorry, but in 98% of this neighborhood, we won’t allow you to buy up a few houses next to each other and then redevelop it into a 4 storey, 20 unit apartment building, adding 17 units of supply slowly increasing density with time to meet the needs of our growing city.” Builders will do what they are able to accomplish within the law, or they’ll do the math on fighting the law and figure that if they have to spend 5 years fighting for a patch of land to be re-zoned and permitted, the only option that makes financial sense at that point is the 15-20 storey re-development. Same thing goes for builders who subdivide and build single family homes on new farmland in a new city. It’s probably well within the law to do so. It’s an easy win for them. We have to make other types of new developments and re-developments easy wins for builders and seriously cut down the friction.

An Old Example of What We Did Right:

I recently moved to Toronto and live a few blocks away from a main artery road inside of a residential area. There is a little main street nearby with a few restaurants, businesses, and corner stores. My street, built in the 1930s, adjacent to this area of commerce and a 7 min walk to my nearest subway station, is exclusively 3-4 storey apartment buildings. If you go further into the neighborhood it is almost exclusively streets lined with large single-family homes. On the same lot, these apartment buildings house 20-30 families compared to 1. But, if you look to the City of Toronto zoning bylaws, it would be illegal to build more of these apartments today in the same region. Not because they’re unsafe, we have 2 fully functional staircases and a fire alarm system connected throughout the whole building. But because of zoning lot coverage regulations, parking regulations, and regulations that prevent “changing zoning” even where it would make a ton of sense (i.e. on streets adjacent to shops and restaurants). Case and point someone bought up 4-5 homes on an adjacent street and has been waiting years for the city to approve their project which is quite moderate as far as projects these days go. There is approximately 0.5 parking spots (1 spot that’s blocked during the work day) for all 20 units of my building in an arguably “very residential” area. As far as I can tell, no one seems to mind. The main street provides necessities, transit provides convenience, new bike lanes (just outside the residential area) make that mode of transportation much smoother and safer, and more people get to benefit from all these features.

A Better Model That Seems to Be Working:

If you’ve ever been to a suburb of Montreal (or Montreal itself), you’ll notice that they do a lot of what I’m preaching here. They build a large variety of different housing types in a residential neighborhood where in Ontario you’d only see single family homes. This provides a variety of options for people who want to live in that area and reduces pressures on housing supply. I also mentioned in my last post that the way the legislation is designed in Montreal allows builders to be flexible with what they build on a lot, depending on what makes most sense at that moment in time (or what they think will make sense when the project is complete). This flexibility within the law allows them to do a much better job at meeting demand, and yes it means that things will change. We can’t continue to be immovable rocks that aren’t open to a modicum of change. We almost need to completely tear down and rebuild the way that we plan our land uses and housing in Ontario. The layers and layers of rules and regulations that have been stacked on top of each other just aren’t working anymore. Some people will get freaked out at the idea of tearing down rules and laws and think it will result in anarchy, that may be true. But, I’m suggesting replacing our current laws with ones that are proven to work, such as those found in Quebec, which aren’t perfect, but seem to be working a bit better. This line from the executive summary of the Provincial Housing Task Force sums it up pretty well: “The way housing is approved and built was designed for a different era when the province was less constrained by space and had fewer people. But it no longer meets the needs of Ontarians.” Honestly, if you haven’t read it, go read it, it’s very “based” (as the kids these days say). https://files.ontario.ca/mmah-housing-affordability-task-force-report-en-2022-02-07-v2.pdf

More Homes Built Slower Act, 2022:

Now that I’ve outlined what I think needs to happen, opening up zoning bylaws, adding more variety of housing, making building easier in general. Let’s chat a bit about what changes the provincial government has made and how housing is going so far. In 2022 we saw Bill 23 the “More Homes Built Faster Act” which aimed to reduce red tape for housing construction. This was passed in direct response to the housing task force recommendations of building 1.5 million homes by 2031, we’ll get back to that in a moment. One key change was allowing up to 3 residential units on land zoned single family residential, without requiring a zoning change, this includes construction of laneway or garden suites (ADU’s). Sources vary on what the actual numbers are on this new law. But in Toronto, where there are about 420,000 lots that may qualify for an ADU. A grand total of 126 have been built since this change (according to ADUsearch.ca). Even if we assumed a generous pipeline of 1000 units per year in say 2-3 years once more people get wind of building laneway houses. This “update” will mostly likely work out to a rounding error.

Condo’s Aren’t the Solution:

So that didn’t work, what else was included? In Bill 23 for rental developments of 4 or more units development charges will be reduced by 15-25 depending on unit size. According to the CMHC, “Among Canada’s three largest cities, Montreal posted a 112% year-over-year increase in actual housing starts in January while Vancouver recorded a 37% increase, both driven by higher multi-unit starts. Starts in Toronto fell 41% from January 2024, driven by decreases in multi-unit starts.” Alright, so that’s not going to well either. Multi-family starts have been falling in Ontario, which is a problem since those tend to supply a lot of housing. Again, wonder what Montreal is doing? A 112% increase in housing starts?! More than double from last year? Can we get some of that over here? There is a really big WHY in the room. Why is Toronto slowing down while Montreal is doubling? What on earth are we still doing wrong? The answer mostly lies in the fact that investors aren’t finding condos an appealing investment anymore, and builders aren’t able to sell enough units, and we have NO OTHER OPTIONS as far as supply goes. Which again shows that we haven’t managed to legislate a housing type into existence that varies from either single family or 50 storey condo tower. We also haven’t provided the right type of funding, or development charge cuts for smaller apartment buildings or multiplexes.

Ontario Land Tribunal, More of the Same:

Another change in Bill 23 was trying to speed up the processes in the OLT. They wanted to, “expand the Tribunal’s authority to dismiss appeals without a hearing, notably on the basis that the party who brought a proceeding has contributed to undue delay or if the Tribunal is of the opinion that a party has failed to comply with a Tribunal order.” Basically, they want to stop NIMBYs from causing delay in the development process. Fundamentally, I think this should be a good change. There is proven data that NIMBYs delaying the development process contributes to mountains of cost that ultimately get passed on to the end renters or owners of the units, and also makes building less appealing overall due to this risk. This still doesn’t address the fundamental change that is needed in our zoning bylaws, say it with me, VARIETY OF HOUSING TYPES.

The Middle is Still Missing:

What this effectively has accomplished is speeding up these mega projects. To be fair to residents of existing areas, often these projects seem a bit unwieldy and unnecessary when there could be a lot of smaller projects in the area that achieve the same amount of housing in a more graduated and “gentle” way. Inevitably you will hear people complaining about “greedy builders” who want to ruin the neighborhoods, when it’s our own legislation that’s handcuffing us. Again, builders are simply acting rationally, within the laws they’ve been given. A side effect of introducing this “Missing Middle” housing into legislation would likely also enable a greater number of smaller builders to take on these projects. The barrier to construction is quite high for very-high density projects. They require special, often custom engineering, massive re-bar concrete beams, and other construction materials that are very hard and expensive to ship or have to be custom built on site. This increases complication which increases costs. I’ll give this OLT thing a 1/2 point since the idea behind it is generally positive, but the foundation upon which it’s built sucks. It is still a drop in the bucket since there are so many other delays that continue to plague building and it’s not really a “solution”, just a band-aid on an existing problem.

What are the Results Saying and What Are the Projections:

According to this table from Statistics Canada. Ontario housing starts have gone down every single year since the Provincial governments Housing Task Force report in 2022 and their proclamation to build 150,000 homes per year. I’m not going to turn a blind eye to the fact that the overall economic environment is pretty bad as far as construction costs and labour costs go. People’s appetite for investment with high interest rates is down, and a slew of other problems we are dealing with related to the economy. I also think it’s a bit unreasonable to use an above average year of 2021, with almost 100,000 starts, then project out and say “I think we can do 150,000.” Yeah, right, how exactly are you planning to do that overnight? We can’t expect changes to happen that quickly, but we also really can’t afford to go backwards. We’ve had 3 years since Bill 23 to see results. The data clearly shows that our changes have not been bold enough. We also can’t use the economy as an excuse when BOTH Vancouver and Montreal are improving. This data isn’t housing completions, this is simply “starts” which is getting shovels in the ground. We need more shovels in the ground and more people who are able to dig (read: trades workers). Ontario is still failing Ontarians. We need bolder changes.

Chart design: Oliver Foote
*technically housing starts, not new homes.
Data from Stats. Canada.

The Best Platform – Green Party?

I’m not going to get too much more into Ontario politics, but the one party that surprised me with their housing platform was the Green Party. Regardless of your political affiliation, I believe that good ideas are worth sharing. They are taking the approach of shooting for the stars on housing and aiming for 2 million new homes rather than 1.5 million. I think that is a good approach, because if we overshoot, we may still land on the moon.

They are also proposing a bunch of changes that coincidentally align with a lot of what I wrote about in this article. I like their bold thinking and we need more of this from all of the other parties to help solve our housing problems. So what are some things I like that they are proposing?

Allowing single family homes to be divided into multiple condo units
Pre-approved building designs for municipalities to instantly approve for construction
Plan for mixed housing types based on demographic and immigration projections

Allow fourplexes on existing lots, and sixplexes on existing lots in cities over 500,000 residents
Remove onerous zoning rules around floor space index, set backs, planes etc.
Pre-zone missing middle housing ranging from 6-11 stories on transit corridors and major streets in large urban areas with over 100,000 people

Increase financial and legal support for small builders of missing middle housing
End minimum parking requirements
Change planning laws to allow various buildings to be built on main streets, transit stations, corridors, etc.

Real Changes Are Needed:

I do really like the ideas listed above and I think if they were implemented it would be a serious improvement to our zoning laws and these changes could actually get housing moving again in the province. Whatever the results of the election are, I hope that who ever is running the ship makes some real impactful changes.

Conclusion:

This was a bit of a long one, but I felt with the provincial election happening tonight that I needed to write out some of my thoughts on housing. What the current government has accomplished related to housing with their time in office isn’t particularly impressive. I believe if they continue along this path they won’t ever be able to accomplish their ambitious targets. But focusing more on pure data and the change that is required, I just don’t they’ll accomplish their targets on their current trajectory, on this particular issue I can’t say they have my confidence. I also don’t know which government WOULD be able to accomplish these targets since our system is so deeply broken. Whoever wins, they’ll have to make some very unpopular decisions. I just hope that the unpopular decisions are backed by data and proven success from other provinces or countries, not focused on personal affiliations or gains. This problem is not personal, it’s needs to be a unifying crisis. Thanks for reading, as always.

Keep Investing,

-Oliver Foote

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 So Many Realtors Broke?

Newsletter 30– Jan 29, 2025

Who’s Making All the Money?

This idea came back to my mind because I heard in the news that the Toronto Real Estate Board saw a decrease in membership for the first time in 20 years. The real estate business was becoming a lot harder for a lot more people. The number of sales from the peak crazy year 2021 has been cut in half, which means literally half as much to go around. So this post is going to be a bit of an analysis about this problem, as well as talking about which realtors are able to continue doing this over the long term compared to those who are leaving the business. I also want to throw in a bit of my own story here, because I’m learning that being a Realtor is much harder than the successful people make it look.

The Famous # of Sales Chart:

This is a topic that if you’ve ever looked into the real estate industry you’ll know comes up time and time again. I’m going to use the area I work in, Toronto, as the case study, but I’m almost certain if you look anywhere else in Canada or the US you’ll find the exact same thing. Here’s a chart talking about the number of home sales each Realtor made in the Greater Toronto Area in 2021.

In 2021 it was a record year for home sales in Toronto with the Covid vaccine being distributed and the interest rates so low to stimulate the economy. 121,000 sales were recorded, which we can assume for simplicity that each had 2 agents on either side. This means a total of 242,000 transactions were completed.

As the chart helpfully points out 32.5% of realtors made ZERO sales. Which is a TON of Realtors. I’ll get into the numbers a bit later, but doing ZERO sales means that the decision to be a realtor is costing people. From my own lived experience, I’ve averaged around $7,000 in random licensing fees, desk fees at my brokerage, and misc fees, just to stay licensed and run my business. Which quite honestly I do very cheaply compared to the marketing spend of some other Realtors. I know there are cheaper ways to stay licensed than what I’m doing, for example going with discount brokerages. But it would still run me probably around $3,000 a year bare minimum to stay licensed. Which isn’t an insignificant amount of money.

Looking at some more stats. The average home price in the GTA at the time was around 1.2 million dollars. Assuming an average commission of 2% after brokerage splits, fees, and expenses for listing a home and sharing a commission with another agent. The net income on a sale per side would have been around $24,000. In my opinion, this means that you’d need to be making around 3+ sales per year in order to survive in the business, considering all the other fees and targeting the median income of around $60,000. Doing 3 sales and having a net income of $60,000, is a pretty nice deal, but I’ve also learned that it’s not something everyone is capable of doing. As evidenced by the chart, the competition is stiff, and the few winners really take the lions share in this business. The top 10% of realtors do almost all of the business while the other 90% are picking up scraps by comparison. So what makes these top 10% or top 1% so special?

Visibility Trumps Ability:

Going back to the chart for a second, you’ll see that based on my rough math on 3 sales, about 50% of realtors are making barely enough to get by or not getting by at all. So what are they doing? Are half of realtors working part-time? Are they delusional? What’s going on? I think it’s a bit of everything above. Many people who are doing less than 3 sales per year are probably doing it part time, maybe they only sell their own properties, or they just aren’t cut out for the competition. They my also just be unwilling to spend money to market themselves, which as you’ll see below. Is quite an important thing to do.

I think there should be a big disclaimer before people enter the real estate industry that they need to budget around $10,000-20,000/year or more just to dedicate towards a marketing campaign. This might seem like a lot of money to someone just starting out. But I can tell you from what I’ve seen working on a team the amount of time, money, and effort it takes to really take this career seriously. If you aren’t willing to invest either an enormous amount of time or money in marketing, you will likely die a slow painful death in this industry along with the 90% of agents who do less than 10 sales a year.

Most Sellers Sell With The First Agent They Call:

Real estate is an industry of visibility. There have been stats and datapoints showing that most people only know the names of 2 or 3 realtors off the top of their head. When they go to sell their home, most homeowners only interview 1 realtor (per National Association of Realtors in the US). What this means is that you have to be the first Realtor who comes to mind for a homeowner. But most homeowners only sell once per 7 years. So if you want to be doing lots of business, you need to be the first that comes to mind in hundreds, if not thousands of people’s minds. If you are able to accomplish this you’ll likely be one of, if not the only one potential sellers will call to list their house. You can be a complete dunce, an arsehole, rude, etc. BUT, as long as people know your name, and you’re the first one they call. You’ll likely do more than ok in the real estate business.

Selling Agents Rule The Business:

Another important thing to note is that most if not all of the Realtors who are in the top 1% bubble, are primarily selling agents. Listing homes also happens to be one of the only ways that this business is sustainable long-term. The reason is simple to see. In most markets, but especially hot markets, being a listing agent trumps being a buying agent any day of the week. In a market where there is a ton of competition, and say for example there are 15 offers on a property and the sale numbers are going insane. Only 1 of the buyer agents will earn a commission, and the other 14 agents will have to continue to show their clients properties. It may take them 10-20 or more listings until they earn a commission. If the buyers agent is really unlucky or the buyers aren’t very motivated, they might have spent months or years with clients and never make a sale. However, as the selling agent, you’re almost guaranteed to earn a commission from your listing in a hot market. Obviously, some sellers have unrealistic expectations, may be unmotivated, or the house might not sell for various other reasons.

Even in a cold market, as the selling agent, you still have the advantage. You aren’t worried about scheduling appointments, or doing x number of showings per week in order to try and find something your clients like. You make sure to present the property well, take good photos, set a good price, work with your sellers, and wait for other agents to bring you offers and you negotiate for your clients. As a listing agent it’s feasible to have 20 listings up at a time. Buyers agents will show your listings to their buyers, that’s like having an army of people working for you to get the house sold. But once you’ve staged, listed, and marketed the property on all the usual channels, as a Listing Agent it becomes a waiting game, rather than a chasing game, and you can spend your time seeking other listings. Meanwhile, as a buying agent it is almost impossible to show 20 properties in a day and even if your clients do find one that they like, you may get beat out by other buyers or the seller may be unwilling to sell, and you have to keep on keeping on. Being a buying agent simply does not scale beyond a certain point.

What’s holding Agents back?

I’m sure you’ve heard stories of people who enter the business and immediately are making tons of money and tons of sales. How are they doing it? The simple answer is that they are probably much more willing to spend money and take risks than your average realtor. They probably have a pre-existing network of people that already know and trust them and have good relationships with. They’re also probably a competitive person. Lastly, they understand that the name of the game in real estate is selling and put their time and energy into becoming a selling agent not a buying agent. Which is why almost every single real estate billboard you see talks about how “I’ll sell your home in x days!”, or “Our listings sell x% above market average”, or one I really like, “top 10 things to do when selling your home. 1. Call me. I’ll handle the other 9.” All of these Realtors with these big marketing campaigns know that selling is the way to go. Side benefit, you might get a few buyers calling you as well. No reason to turn down business.

Concluding Thoughts:

I think we can surmise that the 50% of agents who aren’t surviving are likely missing one of the key components I mentioned. Likely, they aren’t willing to put in the time or the money that is required to become the top agent that people will think to call when they sell their homes. They probably aren’t thinking long term about the business model and what is sustainable. I think a lot of agents may also be scared of trying to list a home. From experience I know that it can seem like a daunting task to get a home picture ready and staged properly, you’ll likely have to put in some money up front to do it the right way as well, with the possibility you don’t see a penny of that money ever again. But it’s important to realize that if you’re unwilling to learn how to be a listing agent, you should probably exit stage left before you go broke. You’re competing for peanuts with the 90%, not the big prizes with the top 10%.

That’s going to do it for now, this post is a bit more brief than usual. I originally wanted to discuss a bit more about my own finances. TL;DR: I’ve discovered that between owning a car and being a realtor I’m burning around $14,500 per year. I’m not sure how relevant the discussion about my personal life goals and finances would be to this blog. But I’ll just leave you with this thought. Owning a car is not a good financial decision, unless it makes you much more money than it costs you. Being a realtor who does less than 3 sales a year and doesn’t have a business plan that leads to being a listing agent is also not a good financial decision. In order to be a Realtor you almost certainly need a car. Meaning that owning a car solely to be a Realtor, can be a VERY bad financial decision if you’re not serious. Thanks for reading, hope you found it interesting or useful. As always.

Keep Investing,

Oliver Foote

Subheading: The blog this week is discussing: “Why are most Realtors broke?” You may have heard about why some Realtors perform better than others. There are some fundamental reasons, and I discuss what those are in the post. Also BoC cut rates by 0.25bps! Will this help buyers? Certainly should.

This Weeks Blog Post:

Why Are Most Realtors Broke?:

The question, should you list homes or should you help buyers?
Why some Realtors do better and outcompete others.
The crazy cost of Realtor fees, just for the privilege of being an agent.
And more…

Read the full article here: https://oliverfoote.ca/why-are-so-many-realtors-broke/

Market News:

The Bank of Canada cut interest rates on Wednesday Jan 29th. This means that the overnight lending rate now sits at 3%. For us normies, that means that the prime lending rate at banks is now at 5.2%. With some banks offering prime – 0.3% on 5 year variable rate mortgages. That puts the mortgage at 4.9%. The 5 year bond yield, which determines fixed rate mortgages, is sitting at 2.8%, which is nearing a 52-week low. You’ll likely start to see 5-year fixed rate mortgage below 4.5%, with some as low as 4.2%. If yields drop enough to the point where we start to see a leading 3 on mortgage interest rates, I believe this will be a psychological breaking point and people will return to the market in droves. Potentially just in time for the seasonally hotter Spring market. If yields continue to fluctuate the way they have been, or the tariff war heats up with the US. It is possible that yields go up, the BoC has suggested they may even have to raise rates again. This would mean that the market would be unlikely to see a significant rebound this year.
A new AI model just hit the Interweb, DeepSeek AI. This AI large language model (LLM) came out of nowhere from a Chinese company. They were able to train the model for a fraction of the cost of ChatGPT, while delivering comparable performance, and also being Open Source (free). This news caused the market to fall somewhat on Monday. NVIDIA, the leading chip maker supplying OpenAI (and all the other big tech firms) with very expensive AI hardware to run their learning models on, saw a dip that caused NVIDIA to lose $600 Billion dollars in market valuation in one day. The following day it recovered around half that loss. Another model built by this firm was able to compete and outperform with one of the best image generation models currently available.

Stock Market Performance as of Wednesday Jan 29, 2025:

S&P 500: 6,039.31 (+2.91% YTD)

NASDAQ: 19,632.32 (+1.82% YTD)

S&P/TSX Composite: 25,473.30 (+2.31% YTD)

Macroeconomics Statistics:

Canada’s CPI Inflation Dec 2024: 1.8% (0.1% Decrease from Nov 2024)

Current BoC Benchmark Interest Rate: 3.00% (0.25% Decrease on Jan 29, 2025)

Unemployment Rate Dec 2024: 6.7% (0.1% Decrease from Nov 2024)

Greater Toronto Area (GTA) Real Estate Stats – December 2024:

November 2024 Average Selling Price All Home Types: $1,067,186

Y-o-Y (comparing Decembers) % Change in Average Selling Price: -1.6%

YTD Number of MLS Sales: 67,610

YTD % Change in MLS Sales (compared to this time last year): +2.5%

Y-o-Y (comparing Decembers) % Change in MLS Sales: -1.8%

Number of MLS Sales in December: 3,359

Y-o-Y (comparing Decembers) % Change in Active Listings: +48.5%

Number of Active Listings in December: 15,393

Inventory Available: 4.58 Months (Increase from 3.71 Months in November 2024)

Market Type: Buyers Market