These days there are all sorts of examples of people in power taking a ‘do as I say, not as I do’ position when it comes to their influence on policy. When it comes to housing it is a little remarkable to note how that applies to housing and members of parliament during what they themselves have described as an affordability crisis. The best example would be Vancouver-Granville Liberal MP Taleeb Noormohammad flipping 41 homes for profit over the course of a few years, all the while towing the line and stating that the cabal he belonged to would be the one to make housing affordability for Canadians a reality.

Now we’ll steer well clear of making the connection between the Federal Liberal party being of the ‘say one thing, do another’ variety, despite the whole truth of that. Or the equally accurate one of promising what people want to hear despite no intention of following through on any of it. That’s the Liberal way in Canada. However, what we’re going to talk about here is the way that it is the investor class – many who come from these same well-heeled backgrounds – are in fact dominating home ownership to rather staggering percentages in some parts of the country.

This is something that should be of interest and concern for people from all walks of life, and including the realtors who would be selling these homes to the investors who own multiple properties in the cities in which they reside – or don’t. Having home prices out of reach for the average buyer is not beneficial on any level, and that applies to the business of real estate too in that a healthy market means more would-be buyers are qualified ones able to buy a home. Our online real estate lead generation system here at Real Estate leads can help realtors who have fewer new clients all the time because of this.

But enough about that, multiple-property owners are a massive influence in a distorted housing market – and that is certainly what we have in Canada at this time. To what extent is it a problem? Read on.

41% of Housing Stock in Some Regions

There is now data from Stats Can showing that multiple-property owners continue to hold between 29 and 41 percent of the housing stock in Ontario, British Columbia, Nova Scotia, and New Brunswick. Nova Scotia is where it is the highest at 41%, and of course the problem is that these multiple property owners are not daunted by stratospheric high prices for homes when they can simply go the HELOC route to afford whatever they may be based on the all the homes they already own and are – besides from their principal residence – being rented out for high rents.

New Brunswick came in at 39%, 31% for Ontario, and 29% for BC. What is also interesting to note is that in Ontario and BC governments and other entities own in the vicinity of 10% of property stock in those provinces too. And of course all of this comes on the heels of the BoC stating in February of 2021 that investors were making around 20% of all home purchases in the country. There is no changing the reality that investing in housing is safer than investing elsewhere, and as regrettable as that is there is no changing it in the short term.

A healthier and less distorted housing market benefits everyone long term, and the federal Government needs to be much more proactive in making it so that home hoarders aren’t able to do as they wish, even if they can afford to do it.

The numbers offer a pre-pandemic window into some of the country’s most heated markets and quantify some of the influence investors have on housing supplies, but are not a complete picture because many provinces and territories were not studied, the data does not break down how many properties are being rented out or used as a cottage and the figures don’t account for the health crisis.

“In the last couple of years, we have seen millennials deciding that real estate is one of the safest investments and they are taking money, not only to buy their first home, but from other investing sources to buy a second home,” she said.

“I have clients that are retired or semi-retired who have a lot of equity in homes they have owned for 30 years, so they are pulling equity out of that property to buy another property as retirement income.”

Over on the East Coast, Jacqui Rostek said her clients who are choosing to own multiple homes are typically wealthy and “not looking to get rich quick.”

They see Nova Scotia’s shrinking vacancy rates and steady need for rental homes as a way to pad their bank accounts, though many are realizing it will take longer to make back the money they spent on another home.

The demographic Rostek noted shifting toward multi-property ownership is in line with Statistics Canada’s data, which shows that the top 10 per cent of owners in those provinces earn more than the bottom 50 per cent combined, with the top 10 per cent of owners in Ontario and British Columbia each earning yearly incomes above $125,000.

But for many, multi-home ownership remains a difficult feat, especially amid inflation and an environment with rising interest rates.

The national average home price climbed by more than 20 per cent since last year to hit a record $816,720 in February, the Canadian Real Estate Association said.

Rostek has seen many multi-property holders, especially those who are small-time, relinquish homes during the COVID-19 pandemic.

“A few people decided to reinvest their capital in other ways, like the stock market, businesses, other holdings, and it was a good time because your investment was worth more,” said the broker with Platinum Group Halifax.

“I also definitely had a fair amount of people who said it was very hard to be a landlord. If you have a few bad experiences as a landlord, you lose money, a tenant damages things, you want out.”

As a result, many are sticking to owning one home and are being joined by an influx of first-time buyers.

Statistics Canada’s data shows between 2018 and 2019 the number of first-time homebuyers increased by 17 per cent in New Brunswick, 9 per cent in Nova Scotia and 6 per cent in British Columbia.

Hermary believes the increase is being driven by people earning more and banking on there being stability in real estate investments.

“People are starting to realize they should have confidence in real estate,” she said.

“We are going to start seeing millennials and people up to the 35 or 40 start looking at investment properties as something they can do to build equity.”

The data’s release comes less than a week after the federal government announced a slew of housing measures, including the end of blind bidding, a two-year ban on foreign buyers and a first-time buyers savings account, meant to make homes more affordable and temporarily less accessible for non-residents.

This report by The Canadian Press was first published April 12, 2022.

It’s understood as common knowledge that young people starting their careers these days will not have it as easy as their parents’ generation did, and that certainly applies to being able to afford a home in Canada too. Or at least one that’s not a 600 sq. feet or less and in the sky when they may have already started or a family or are planning to in the near future. We do need to keep in mind that we are living in a time of unprecedented and disruptive change in both the world and our country, but it is somewhat staggering just how disconnected the price of real estate has become from what people earn.

And that’s fair to say even for people who make good money doing whatever it is they do for a living. There are plenty of people under the age of 30 who have already established well-paying careers that cannot afford any type of home in Vancouver, Toronto, Montreal, or even Halifax now. The prices for housing in Canada are being pushed up all over the country now, and many people who would have been working with a realtor if they were at this time of their life a couple of decades earlier (or less even) are now doing nothing of the sort.

This is something that resonates with us here at Real Estate Leads. While our online real estate lead generation system is ideally for helping realtors with that shortfall of would-be clients due to this current global housing unaffordability trend, it is more of a associative thing when it comes to our understanding of the factors that are creating such a gap between house prices and incomes in Canada.

It is something we touch on regularly, but let’s use this week’s entry to really crunch some of the numbers and other very relevant information for anyone who wants a better understanding of why housing has become so staggeringly unaffordable.

18x Higher Over Course of 40 Years

Average house prices in Canada today in 2022 are just over 18 times higher than they were in 1975. While that IS a long time ago, that type of growth is not seen in any other industry or any other consumer commodity AT all across that 40+ years and it highlights how entirely unnatural that is.

Consider as well that Canadian home prices grew 5.7% in Q4 2021, bringing annual growth to 25.1% for 2021. But since Q1 2020 those same prices are up 36%  Annual growth last hit this rate in the early 1980s during the last inflation crisis. Which of course is interesting considering that inflation is taking off in North America and higher interest rates may be poised to put the pinch on over-leveraged homeowners the same way the whole situation did in the 1980s.

Take a look – any look – indexed value of residential real estate prices and household disposable income in Canada and you’ll see exactly what is being laid out here, and it doesn’t look very promising for anyone who hasn’t had the means of buying a home up until now.

Let’s look at it from other angles too. Canadian home prices grew 219.5% from 2005 to the end of 2021. That is a fairly slamming figure much like the one from earlier comparing 1975 to now, and we should also remember that Canadians have 8x less disposable income than they did in 1975.

Wages Nowhere Near Keeping Pace

They certainly haven’t. Disposable income fell 1.2% in Q4 2021, which then brought down annual growth to 2.4% for 2021. And since 2020, disposable income has only climbed 7.4%, with that promising to be swallowed up by inflation here in very short order. Wages are barely keeping up with inflation, and any increased come nowhere close to touching skyrocketing home prices and values for homes that are not supported at all by the quality of the home, its size, or in some cases its location.

Long-term wage growth is equally a part of the problem when it comes to fewer and fewer people being legitimately able to afford a home that suits them. And this is very much a recent phenomenon, as is how home prices are greatly outpacing income. Home price growth over the past year has been even greater, rising to 10.5x disposable income growth.

The speed with which this is happening should be more of a concern than the simple fact IT IS happening, and the rapidity with which more and more people are priced out of being homeowners is something that decision-makers at the federal level are really going to have to dig into and try to come up with some sort of solution. One that will put a very essential part of people’s lives and personal / family growth back into the realm of possibility when they are doing just fine with their career and making what should be considered good money.

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It had long been expected that the new Federal budget was going to include some type of ban on foreign ownership as the current Government works to find ways to address a very real problem that needs addressing – the overheated nature of the Canadian housing market and homes that are becomingly increasingly unavoidable for the vast majority of the population in Canada. The population outside Canada? Well that’s an entirely different story as the current prices of homes here are affordable for a great many of them and there’s all sorts of reason why that is.

We won’t get into that here, but we will concur that foreign ownership is a part of the problem as to why homes cost too much for average Canadians. It certainly does factor into the supply end of the equation, and homes purchased for more than they are worth if fueling price appreciations in a very negative way for people who have yet to get into the real estate market. The challenge for these people is very real, as is the entirely different type of challenge for those who work with both home buyers and those selling homes – realtors like you who’ll be reading this.

That challenge is generating new clientele. This is why our online real estate lead generation system here at Real Estate Leads is so highly recommended for those new to the business who want to get more of out their client prospecting efforts, and here in the 21^st century Internet Marketing resources make that possible and that’s why we are able to offer realtors what we do.

But back to our topic for this week; what more can we know about the 2-year foreign buyer’s ban for Real Estate in Canada?

Paired with Explosive Population Growth

This ban will be helpful in cooling the market, but the question is to what extent will it be helpful? Experts tend to think it will only be marginally beneficial, as so much of the forces pushing demand to WAY outstrip supply is based around 2 facts:

• Population growth in Canada and inbound immigration is far beyond what the rate of new home building can even be close to keeping pace with. Some 400, 000 new Canadians are expected to arrive just this year alone, and most will be seeking housing in the same metro areas where the housing crisis is most acute as it is.
• There is a massive shortage in skilled trades that make new home builds difficult to commence, even if the will to build them and funding is in place. Homes need to be quality built, and that takes a certain developer with the right people building the homes to be able to do that.

One thing that is true is that certain bidding processes and new realities around real estate sales favour investors, and as we all know many of those investing in Canadian real estate live outside of the country. To be fair, there’s nothing wrong with that provided the market is health and not skewed one way or the other. But that is not the case in Canada, and that’s why we agree that this 2-year ban on foreign buyers is a good move, although we also agree it will likely make little difference in the big picture.

Primary Residence and Other Exemptions

The Government has explained that permanent residents, foreign students, and TFWs (temporary foreign workers) will be exempted from the ban. But what is most notable about the exemptions is that foreigners who are buying a primary residence – that is, not buying homes as investments with the intention to leave the empty OR rent them out – will not be banned from buying real estate either.

Can we assume that there will be a good amount of homes bought by investors who find one of these individuals to have their name on the deed, or any other of a number of likely loopholes? Absolutely, but this is an issue where progress is probably going to be made incrementally and as such this foreign buyer ban over the next 2 years may help contribute to more normalcy in the housing market. Maybe not as much as hoped, but it will be a positive to at least some extent.

What it does do is allow the Government to appear as if it cares about the everyday Canadian’s ability to afford housing for themselves, and whether or not that’s true it is something that has been expected for some time. Here it is now, and we are already looking forward to 2 years from now when the success of this move can be evaluated.

Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads. These leads are delivered to your exclusively, meaning you will the only realtor to get them and what that does of course is give you first crack at being in touch with these prospective clients, ones that live in the same area of any city or town in Canada where you are working as a real estate agent. It’s telling that every realtor who has signed up for REL already sees it is a great investment in growing their real estate business, and you will almost certainly feel the same way.

It’s no secret that the 2 housing markets most coveted by foreign investors outside of Canada are Toronto and Vancouver. That will have nothing to do with the fact these are nice places to live with plenty of job opportunities. Nice and all, but these investors want to buy here exclusively because the demand outstripping supply reality is so pronounced in these two cities that home prices continue to go up meteorically. Of course that means significant gains on the investment, but the problem is it takes housing stock away from families who are struggling to afford a home.

And furthermore, a home that they would actually live in and in many cases raise children. Governments have a responsibility to cater to the interests of the constituents who vote them into office, and that is why both Vancouver and Toronto have a speculation tax that is attached to homes that are purchased as investments by someone who isn’t a Canadian. It’s an honourable move, although if we are going to be honest there are plenty of ways around it if people know what to do.

But that’s not the point here; these speculation taxes are a good thing and are needed. There’s no debating that, and even the most ruthless realtor will probably agree that a house that sold for $600K 5 years ago shouldn’t be going for quite a ways over $1M in such a short period of time. Ambition is a good thing, but not when it comes at the expense of others too decidedly.

On the topic though, real estate IS as competitive a business as there is and new realtors may struggle to drum up new clientele. Enter our online real estate lead generation system here at Real Estate Leads. It is proven effective and highly recommended. Back to topic though, what can we know for more about why Ontario is joining BC in increasing their speculation tax.

Up to 20%

The Ontario government introduced its NRST (Non-Resident Speculation Tax) 5 years ago in an effort to slow Southern Ontario’s rapidly growing housing market. As the market has continued upwards even faster in recent years, it’s become clear the NRST isn’t the deterrent policy makers had hoped it would be. So now it has gone up an additional 5%.

It is also province wide now. Up until 4 days ago the NRST was applied to only homes purchased in the Golden Horseshoe region, and by buyers – either individuals or corporations – who were not Canadian citizens or permanent residents. Plus the 15% was previously added on top of the purchase of a property. With the new changes that rate is increasing to 20% and will apply to homes sold anywhere in Ontario. According to the Provincial Government, the aim is to ‘strengthen efforts to deter non-resident investors from speculating in Ontario’s housing market, and in doing so making home ownership more realistic for Ontario residents who live and work in this Province.’

The government there has also managed to close loopholes in the tax that previously allowed for tax avoidance with some purchases. Foreign speculation has been highlighted as a primary factor driving prices up in Ontario, but we need to be clear that it is not the only primary factor.

Vacancy Tax Coming Too

Toronto is also following Vancouver’s lead in having both speculation AND vacancy taxes, and they’ve said they will be adding a home vacancy tax to also add funds to building affordable housing across the Province. Ottawa has said that they will do the same thing

In the press release, the province also indicates that they are working with municipalities to instate a vacant home tax as part of a plan in progress to ease affordability issues for Ontario home buyers. A vacancy tax has already been put in place in the City of Toronto and the City of Ottawa is in the process of preparing a similar tax.

In the coming months we should likely expect further measures coming from both provincial and federal authorities in an attempt to counter out-of-control price growth and supply deficiencies. While it is true the current Liberal performers did make it a campaign promise to ban all new foreign ownership for up to two years, they backtracked on that right quick in the face of pushback from many interest groups.

What we can all agree on is that addressing the housing supply crisis needs a long-term strategy featuring similarly long-term commitment and coordination with our partners and between all levels of government. A speculation and vacancy tax may in Ontario isn’t appealing in a basic sense for anyone who has worked hard to own a home, but it is now necessary in the light of years of Government indifference to foreign money – some of it being laundered – being allowed to buy Canadian real estate.

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