Vancouver has long been the most expensive housing market in Canada, and for obvious reasons when you considerate the climate, scenery, and everything else that makes living in the city desirable for people. Naturally owning property becomes desirable too when there is such a level of widespread desire to be there, and one of the things that has always been an increasing factor in Vancouver is the geographical constraints of the area that prevent it from expanding the way other cities in North America do.

For as long back as memory will serve Toronto has been reliably coming in at #2 for expensive housing markets. One of the things that Toronto has had going for it that is better for housing availability and affordability is the ability to expand without those same geographical constraints. In many ways that is what has allowed the Golden Horseshoe to be what it is, but what is true is that the rate of development and the type of development that has been occurring in Toronto in more recent years has Toronto poised to overtake Vancouver as Canada’s most expensive housing market.

There are estimates that there are upwards of 40 000 realtors working in the GTA, and no doubt this news of a possible new #1 will sound just fine if you’re a well-established Toronto realtor. If you’re not that and perhaps new to the business it may be even more daunting to wonder how you’ll start to build you client base and get to that same level of being established in the business locally. That’s challenging for realtors in Toronto and Vancouver, but our online real estate lead generation system here at Real Estate Leads is ideal for giving you a genuine advantage when it comes to meeting prospective new clients.

So the question then is what’s pushing Toronto to potentially overtake Vancouver as the most expensive place to buy a home in Canada? That’s what we’ll focus on here this week.

Fast Narrowing Gap

If the quickly closing gap between average home prices in Canada’s two most expensive cities is any indication then Toronto is becoming very much like Vancouver. At least in relation to their stratospheric home prices if nothing else. As of December 2021, Greater Toronto Area home prices were only lagging behind those of Vancouver by about 4% and that works out to the smallest gap since 1991.

The two cities have gone back and forth being the most expensive cities for rent in Canada, and much of that can be attributed to Toronto being much more of a logical destination for young career professionals as well as the country’s number one destination for new immigrants. But one thing that is fully established now is that home prices in Toronto are rising significantly faster than those for Vancouver’s and there’s plenty of reason to believe that this multi-year trend is going to accelerate.

Contributing Factors

Lack of government restriction is a huge factor in this, as what is happening is home developers are building what is best for profits and not building the type of multi-family housing that Toronto needs. Homebuyers still need homes though, and they buy what is there to be had – in most of the cases, condominiums. Competition for condominium sales is a result of buyers buying what is available to them, but it creates a lot of problems for the housing market and does push up prices higher when the housing that is available doesn’t meet the needs of the buying collective.

Other factors are contributing too; immigration, demand outstripping supply, insufficient numbers of new housing starts, and rates of housing completion and ever-increasing investor interest. All of which has contributed to prices rising up a staggering 40% in the Greater Toronto Area since 2018. Over the same time the rise was just 13% for the same timeframe in Vancouver.

We also know that GVA home prices were dampened by additional policy measures meant to combat affordability challenges, including raising land transfer and school rates on highly expensive homes along with increasing the foreign buying tax rate. These measures have not been seen in Toronto the same extent, but it is reasonable to think they may be implemented eventually if Toronto’s market stays overheated for a long time in the same way Vancouver’s has.

The last thing to be said about this trend with rapidly increasing home prices in Toronto is that inventory levels do not go up even remotely in line with demand then this trend is sure to be even more pronounced in the near and long-term future.

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For many years now there has been a large group of people who claimed that the primary reason Canada’s housing market was overheated was due to investors buying multiple homes to rent out while they occupied a primary residence. The issue of contention for a large portion of that period was the nationality of these investors and whether or not they were living in the country. Turns out there’s not a whole lot of relevance to that, but the numbers of people who are buying homes as an investment is relevant when you look only at the number of transactions they are behind.

19% of transactions being completed by investor buyers is a significantly large number, especially given the shortage of homes in Canada based on the nationwide population. But what is interesting about the report is that it found that similar percentages have been the norm all the way back to 2014. That is long before the cries of an overheated market and protests against investors of all sorts were at the forefront, nor was there a perceived ‘housing crisis’ like there is now.

We know that real estate agents understand the ebb and flow nature of the business, and that certainly applies to big-picture numbers like these ones but also at the micro level where it applies to how much new potential clientele is out there for realtors to get into touch with and ideally make commissions from working with these people. That’s why our online real estate lead generation system here at Real Estate Leads is such a wise choice for new realtors who understand the current working environment and want to leverage what they can to get an advantage.

But back to our main topic and the discussion of to what extent investors are having an affect on the housing market in Canada. The 19+% number is one that has rapidly outpaced other types of buyers during the COVID-19 pandemic.

2017 Surge

The report found that it was in 2017 that the share of residential investors surged and that was exactly when home prices in cities like Vancouver were skyrocketing, a surge that has continued year after year right to where we are now at the start of 2022.

These findings came from microdata being collected from various sources and analyzed, including info from the big Canadian banks and credit reporting agencies. What came out of it all was an algorithm to match the datasets with an eye to categorizing mortgaged home purchasers into three distinct groups – 1^st-time buyers, repeat buyers and investors.

Admittedly there were and will always be limitations in the report with capturing correct data on all investors, or those with multiple mortgaged properties. That is because it only examines domestic data, so foreign buyers would only be accounted for if they had obtained a Canadian mortgage. The data also did not take into account home purchases made by corporations or if those properties were purchased with cash. All of this means the number of investors could be underreported.

Resulting New All-Time Price Highs

While it’s true the federal government has been proactive in trying to regulate the housing market, home prices have hit new all-time highs in many markets across the country. This of course means housing affordability moves back to the forefront of what is public interest, and in a very cyclical way the blame on foreigners and investors returns too.

The study is also included in the first official policymaker-backed reports that demonstrate how investors play a significant role in Canada’s housing market. Among other notable finds in it:

• A 2016 BC Provincial Government study found foreign investors accounted for some 10% of Vancouver home sales over the course of 5 consecutive weeks during that year
• With home prices continuously outpacing increases in disposable income, there have been major negative impacts on 1^st-time homebuyers
• A separate BoC report found that since 2015 the share of first-time homebuyers has been declining to new lows each year

All of this is of course along with investors seeing the largest gain in their share of home purchases during the COVID 19 pandemic. To counter this somewhat though we need to keep in mind that investor-purchased homes are a critical source of homes for the country’s rental supply – something else that is very much needed in the same way better housing affordability is.

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It also acknowledged that while investors can be a significant source of instability in the market, they’re also an important factor in adding rental supply.

Having median price gains in excess of $15,000 dollars for homes across the country would be an incredulous possibility to consider for most countries, but here in Canada there is a unique multi-way equation that is pushing up home prices unlike anywhere else on the planet and the stories of housing unaffordability in Canada are as real as they could ever be. Price gains are welcome news for homeowners and realtors working with them, but even these people know there’s a threshold for what can be considered beneficial without being too harmful to citizens of the country as a whole.

This is exactly the reality that’s occurring in Canada. We spent much of last year using this same communication channel to talk about how without addressing the supply / demand gulf all these sort-of measure to attempt to cool the Canadian real estate market are going to go nowhere, and that’s as true as ever based on data recently released that talks about how – based most on demand vastly outpacing supply for decades – the average price of a home in Canada went up $16, 700 in December 2021.

Further, prices overall are now showing the fastest annual growth ever, and economists and industry experts are pretty much all in agreement that this trend isn’t likely to be slowing down anytime in 2022 or the foreseeable future either. This is uncharted territory for realtors working in the industry in many ways, but one thing this always does is remove buyers that would otherwise be qualified from the market. If that make the business tough for new realtors then our online real estate lead generation service

Fastest All-Time Rise of Composite Benchmark Price

And that rather surprising number is not all – the composite benchmark price reached $798,200 in December, and if you compare it to the one for last year (2021) at the same time we are seeing prices now 26.6% higher. In a number value that’s around $167K more on average for a home.

Further the annual rate of growth for a benchmark home across Canada is now at an all-time high too. It went to 26.6% in December, that is a 1.3 point jump from the month before. It is also interesting to note that this all-time record pace of growth came after the Liberals’ vanity election in September and was primarily a function of Q4. Who knows what is to be read into that but the government’s semi-measures to reign in housing prices are what they are.

More short-term growth is expected too, according to analysts who benchmark growth rates with short periods of data. Let’s do that ourselves with the same 3-month annualized period that the Bank of Canada would have used for Q4 2021 and highlighting the most notable points.

• The 3-month (annualized) rate of growth cleared the 12-month trend for the first time in six months
• The 3-month rate hit 27.8% in December, 1.3 points above the 12-month rate
• First time since June 2021 that the 3-month accelerated at a faster pace than the 12-month one

Without sharp downward pressure, annual growth is likely to continue to rise.

Easy Money Continuing to Boost Demand

Yes, the BOC interest rate is expected to go up 6 basis points sometime this year. But that will not make much difference in the here and now, and some economists doubt it will even after that. There are plenty of reasons why that is, but let’s focus more on how low interest rates over the years have factored into this.

Long and short the low cost of borrowing money has lead to a tight market, and there is no tight market in the world with anything that will not promote price increased based primarily on competition for an insufficient supply of product. This is bang-on with where we are in Canada, and countering it is not something that’s going to be easily done.

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Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads that are delivered to only one realtor – YOU. Receiving them exclusively means you have similarly exclusive means of being first to contact these prospective clients and impress them with your knowledge of real estate and how your might be able to help them with their move in the market. It’s a dynamite way to grow your real estate client base.

Housing affordability and the lack of it continues to play into the Real Estate Market in Canada, and now it’s becoming more of a nationwide issue rather than one that is primarily factoring into Toronto and Vancouver’s markets. One thing hampering the federal efforts to get more new homes built is the lack of trades available for the task, and that’s an acute shortage given the influences that are pushing the demand for housing higher all the time.

The reality of course is that higher median home prices mean fewer buyers will be able to qualify for mortgages than would be the case otherwise. This not only adverse for would-be homebuyers but it’s also not good for realtors who may be new to the profession and struggling to establish new clientele given these fewer numbers of buyers able to buy homes in whatever area of the country they are located in. Our online real estate lead generation system here at Real Estate Leads is a way to counter that trend and be put in touch with legitimate potential real estate clients.

But affordability and housing supply remain the issue, and in Vancouver and Toronto there are few if any detached homes that are valued at less than $1 million. So this has lead to the suggestion that putting a tax on home value when it is at or above this mark is being floated now.

$1 Million Baseline

A University of British Columbia Think Tank called Generation Squeeze is suggesting a new 0.2% tax on homes worth $1 million and up, and then progressively larger taxes on homes valued at $3 million and up and so on. The think tank has received some funding from the CMHC, Canada’s federal housing agency. According to the study’s author, Paul McGreesy, the tax would be calculated annually but then payable only when the home is sold.

The idea there is that it would function in the same way a land tax would, and those are taxes that many provinces and municipalities already have in place. McGreesy says more than 90% of homeowners wouldn’t pay any of this tax at all since it would only apply to those who are much higher on the real estate ladder and fortunate to be sitting on massive windfalls of currently non-taxable gains.

The money gained from the tax could then be redirected into affordable housing, something that is very much needed in many Canadian cities.

The counter argument here is of course what about homeowners who have been in their homes for many decades and are looking to use some of the equity in their home to fund their retirement. They have not been any part of the reason why their homes have exploded in value, so why set an arbitrary number to apply to them based on the pre-existing value of their home based on what type of home it is and where it’s located.

Suggested Home Ownership Tax Shelter

Going with this belief is one that there is a home ownership tax shelter in Canada that motivates us to bank on rising home prices to gain wealth, but while that is true it’s important to also understand the extent to which Real Estate contributes to the country’s GDP. The current system that is benefitting some and disadvantaging others is one that was very much put into place by successive governments over the past 3 decades and each one has been quite happy to leave it in place.

However, only the portion of a home’s value above a threshold would be taxed at that 0.2% level, so for example a $1.2 million home would have tax applying to $200,000 of the value.

The belief is that the tax would be similar to what a mid-level salaried employee would pay, but again the premise of this would be that owning a home is a source of income and while that is true in an indirect way it has been that way for generations and one has to wonder if you make a change simply because of current realties and ones that may not be permanent.

Skepticism

Many experts think adding new taxes on existing owners is not the way to do it. We can at least say the most effective way to address the imbalance in the market isn’t to try to suppress demand, but to build more housing to satisfy that need without encouraging bidding wars for what little housing is available.

Targeting the demand side of the market will be less effective than addressing supply issues, and the only sustainable way to moderate price growth will be to bring on more supply. If that’s not possible because of available land for development, zoning regulations, or a lack of people qualified to build that number of homes then those are realities that should be taken into account and addressed first.

One thing this may actually do is encourage owners of single family homes to stay where they are and making the supply problem worse as a result. Keep in mind as well that adding a surtax to owners of multiple-unit properties would results in rental charging more rent in order to meet their needs as the owner and maintainer of the rental property.

The problem of housing affordability needs to be addressed, but yet again this proposed measure is off the mark and especially if it is going to punish people for when they bought the type of home they did, and where they bought it.

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Housing affordability and the lack of it continues to play into the Real Estate Market in Canada, and now it’s becoming more of a nationwide issue rather than one that is primarily factoring into Toronto and Vancouver’s markets. One thing hampering the federal efforts to get more new homes built is the lack of trades available for the task, and that’s an acute shortage given the influences that are pushing the demand for housing higher all the time.

The reality of course is that higher median home prices mean fewer buyers will be able to qualify for mortgages than would be the case otherwise. This not only adverse for would-be homebuyers but it’s also not good for realtors who may be new to the profession and struggling to establish new clientele given these fewer numbers of buyers able to buy homes in whatever area of the country they are located in. Our online real estate lead generation system here at Real Estate Leads is a way to counter that trend and be put in touch with legitimate potential real estate clients.

But affordability and housing supply remain the issue, and in Vancouver and Toronto there are few if any detached homes that are valued at less than $1 million. So this has lead to the suggestion that putting a tax on home value when it is at or above this mark is being floated now.

$1 Million Baseline

A University of British Columbia Think Tank called Generation Squeeze is suggesting a new 0.2% tax on homes worth $1 million and up, and then progressively larger taxes on homes valued at $3 million and up and so on. The think tank has received some funding from the CMHC, Canada’s federal housing agency. According to the study’s author, Paul McGreesy, the tax would be calculated annually but then payable only when the home is sold.

The idea there is that it would function in the same way a land tax would, and those are taxes that many provinces and municipalities already have in place. McGreesy says more than 90% of homeowners wouldn’t pay any of this tax at all since it would only apply to those who are much higher on the real estate ladder and fortunate to be sitting on massive windfalls of currently non-taxable gains.

The money gained from the tax could then be redirected into affordable housing, something that is very much needed in many Canadian cities.

The counter argument here is of course what about homeowners who have been in their homes for many decades and are looking to use some of the equity in their home to fund their retirement. They have not been any part of the reason why their homes have exploded in value, so why set an arbitrary number to apply to them based on the pre-existing value of their home based on what type of home it is and where it’s located.

Suggested Home Ownership Tax Shelter

Going with this belief is one that there is a home ownership tax shelter in Canada that motivates us to bank on rising home prices to gain wealth, but while that is true it’s important to also understand the extent to which Real Estate contributes to the country’s GDP. The current system that is benefitting some and disadvantaging others is one that was very much put into place by successive governments over the past 3 decades and each one has been quite happy to leave it in place.

However, only the portion of a home’s value above a threshold would be taxed at that 0.2% level, so for example a $1.2 million home would have tax applying to $200,000 of the value.

The belief is that the tax would be similar to what a mid-level salaried employee would pay, but again the premise of this would be that owning a home is a source of income and while that is true in an indirect way it has been that way for generations and one has to wonder if you make a change simply because of current realties and ones that may not be permanent.

Skepticism

Many experts think adding new taxes on existing owners is not the way to do it. We can at least say the most effective way to address the imbalance in the market isn’t to try to suppress demand, but to build more housing to satisfy that need without encouraging bidding wars for what little housing is available.

Targeting the demand side of the market will be less effective than addressing supply issues, and the only sustainable way to moderate price growth will be to bring on more supply. If that’s not possible because of available land for development, zoning regulations, or a lack of people qualified to build that number of homes then those are realities that should be taken into account and addressed first.

One thing this may actually do is encourage owners of single family homes to stay where they are and making the supply problem worse as a result. Keep in mind as well that adding a surtax to owners of multiple-unit properties would results in rental charging more rent in order to meet their needs as the owner and maintainer of the rental property.

The problem of housing affordability needs to be addressed, but yet again this proposed measure is off the mark and especially if it is going to punish people for when they bought the type of home they did, and where they bought it.

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Sign up for Real Estate Leads here and receive a quota of qualified, online-generated buyer and / or seller leads that are delivered each month and provided only to you. YOU are the only realtor who will receive them and that creates an exclusive opportunity for you to be in touch with these prospective clients. This is a proven-effective way to get more out of your client prospecting efforts and do so quite quickly.

Many people won’t need to be convinced of the unattractiveness of the housing market in Canada with how so many people who are struggling to get into the market nowadays wouldn’t have had the same problems a decade or so ago. What the market will bear at any given time is out of any one person’s control, and of course it will be different again in the future. Better? Worse? Who’s to know really. But one thing that has been confirmed as we closed out 2021 is that it was the worst year of all time for housing affordability in Canada.

Why that is shouldn’t need a whole lot of explanation, as again the age-old equation of supply and demand had demand leaving supply in the dust. Then there’s the factor of a rapidly expanding population base and the ‘heat’ of certain housing markets being dispersed to other areas of the country where price gains like this on detached homes haven’t been seen ever before 2020. The ‘blame’ for this – if there is any – can’t be laid solely at the feet of the federal government but it is true that successive numbers of them haven’t invested in housing like they should.

Then you have developers who aren’t going to lose money building certain types of housing that need to be built and you have something of a recipe for what we’re seeing now with housing in Canada. Is it going to get better with BOC interest rate hikes sometime later this year? Not likely if you’re to believe the economists who tend to be in the right about this stuff more often than not. Realtors will say the same thing for the most part, and here at Real Estate Leads our online real estate lead generations system is a great way for realtors anywhere in Canada to get more out of client prospecting efforts.

Returning to our topic, what can be seen when looking deeper into why housing affordability was a real problem for Canadians last year? Turns out it’s not even that much of a deeply layered issue and most of what is making homes unaffordable for average Canadian is fairly straightforward.

31 Years Since

It has been a full 3 decades and then some since housing affordability has been this bad in Canada, and the suggestion that it has mostly been because of foreign buyers and / or money laundering has been fully disproven by this point. Are they factors? Yes, they are but they are minor ones compared to the simple fact that there are not enough homes available for the number of people living in Canada who want to buy them and may in fact be qualified to do so if there was a home for them to buy.

The aggregate cost for home ownership in Canada went up to 47.5% of median household income in Q4 of 2021. That works out to a sequential increase of 2 percentage points and is a nearly six point increase compared to the same quarter for 2020 when the COVID pandemic was at its peak. Factors like mortgage payments, property taxes and utilities to measure ownership costs are incorporated into this.

Bidding wars and home selling for obscenely over asking highlights the need for many more new housing starts in Canada, but people need to also be aware that there is nearly no room if any available for detached home builds in a lot of major metro areas now.

Until demand and supply return closer to balance, prices will continue to rise and that’s the way it’s always been.

Vancouver’s #1 Ranking No Surprise

To no one’s surprise Vancouver had the least affordable housing market in the country last year, with the average being that ownership costs were taking up a massive 64.3% of median household income in Q3 2021, and that was up 0.9% from Q2. Toronto was only slightly better, with households there spending 61.9% on average to pay for their housing. But that is up a larger percentage in comparison with Q2 – 2.7%.

The overall outlook is similarly bleak for the cities across the country as a whole. There’s different reasons for that, but none are as pivotal as the Bank of Canada and their near-certain plans for raise rates around some 6 basis points sometime in Q2 or Q3 of this year. Economists estimate the Royal Bank’s national affordability gauge of affordability could go up by another 2 points to 3.5 when the new rates go into effect and they alter the buyer and mortgage qualification landscape.

The Exception

Only a single city managed to not see a Q4 affordability loss in their Q3 for 2021 – St. John’s, NL. Home ownership costs only account for 22% of median household income there, and that’s a shocking departure from the portion of it that folks in Vancouver and Toronto are putting towards housing.

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Sign up for Real Estate Leads here and receive a quota of qualified, online-generated buyer and / or seller leads every month. These leads are only passed to one realtor, and that’s you once you’ve signed up and let us know where you’re currently working as a real estate agent in Canada. The opportunity then becomes yours to reach out to these people who are ready to make a real estate move and convince them you are the qualified and knowledgeable expert they need to buy or sell a house.