Housing Hell in Canada 🇨🇦
Table of Contents :
Affordability a key.
Expensive Housing.
Who is buying.
Rate hikes.
Raised immigration.
Will take time.
My Perspective.
Disclaimer.
Finding affordable housing in today's market is hard, if not impossible.
Many contributing factors that have brought a housing hell in Canada are, elevated bank rates, accelerated levels of immigration, lack of building new spaces to just name a few.
Let’s explore this topic which impacts all Canadians.
Affordability a key
Housing affordability is a leading contributor to housing hell, we all face in Canada.
According to Canadian Real Estate Association, average house prices in Canada in July is up over 6% from last year.
I believe, this is un-affordable for an average Canadian household.
Cost of building new housing has gone up, which includes building material, and different government taxes to be paid on it.
Therefore, whether you are a citizen or a newcomer into the country, you will face a housing hell in the form of, higher cost to rent or own.
Consequently, it is a burning topic amongst Canadians these days.
Expensive Housing
By all metrics, housing in Canada is way expensive than the United states.
I know, there are multiple valid reasons like concentration of population in hand full of cities.
But many foreign and domestic investors, started scooping up houses and apartments to rent out, when bank rates were ultra low.
It made sense, as price to rent ratio allowed them to have positive cash flow, refinance it to get their money out to buy even more.
Consequently, this artificial demand propped up valuations into almost bubble territory.
In all this buying frenzy, an average Canadian is left out, as he can neither afford a mortgage nor sky rocketing rent.
Who is buying
House prices are un-affordable, but then who is buying at these inflated prices.
Real estate investors account for about 20% of all home purchases in this country.
But how come they can afford, where majority of us can’t.
Broadly there are four groups.
First, those who are buying as a second rental property.
Second, who are buying to live while renting basements as a mortgage helper.
Third are foreign investors, but their numbers have diminished, ever since foreign buyer tax was introduced.
And last are first time home flippers, who are stuck as they have bought during FOMO buying.
Hope you get the idea.
Rate hikes
Historically, rate fluctuations directly affect real estate alongside people’s affordability.
Recent pause in rates by Bank of Canada, came as a pleasant surprise to the real estate market.
But I don’t think that will make houses affordable, because if prices have softened a bit, higher rates have increased mortgage payments beyond affordability.
I believe, this monetary tightening by Bank of Canada is going to last, until inflation is below their target 2%.
So does that mean housing Hell in Canada is going to come to an end soon, I don't think so.
Because, effect of rates according to many experts takes unto an year, to trickle down in the economy.
Raised immigration
Sudden increase in immigration in the last few years, no doubt has an effect on housing and it's availability.
I know, Canada is land of immigrants, but when we have lot more coming in than we can afford to build houses for, there is bound to be scarcity of residential spaces.
There is nothing wrong with immigration, but uncapped inflow is putting strain on infrastructure, which can’t cope up.
As a matter for fact, there's no point bringing in somebody, when you can't have enough housing or even hospitals.
All this is putting extra pressure on housing especially renting, which leads to some resentment in society.
Will take time
House prices have gone beyond affordability for a while now.
Amongst G7 countries, Canada has the highest house price to income ratio, which I believe is not sustainable.
A young Canadians aspriation of buying a home, has practically became a distant dream.
I believe, it will take many years before home prices might come back into affordable territory, even if we act right now.
Surely, house price correction is required, so that income levels can catch up.
And by building more rapidly, hopefully in few years time we can increase residential supply, and see light at the end of the tunnel.
My Perspective
I believe there is no magic wand, that can quickly solve this housing problem in Canada, which has taken many years to reach where we are now.
Having a responsible rate of immigration, reducing bottlenecks and cost for new construction at municipal level, incentivizing new low cost rental spaces, higher tax when you flip a property etc., are some of the things I believe could help alleviate this problem.
But don't get me wrong, it might take years to get results.
We all have to do our bit including our government, so that there is a hope for the next generation, to at least have their own roof over their head.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.