Welcome to Canadian Real Estate, Housing & Home.
Allow me to introduce myself! I’m Steve Fudge and I’m celebrating over three decades as a realtor, property consultant, and proud resident of Toronto, Ontario, Canada.
Below is the latest deep dive from my Urbaneer.com website about Toronto real estate, housing and home.
Read on!
A generation ago, it was typical for younger Canadians to purchase their first property at the beginning of their earning years, build equity by paying down their mortgage – climbing the property ladder as required – to eventually downsize years later.
Back then the cost of homeownership was relatively affordable and more commensurate to income. According to the Toronto Star “In 1990, the median income for an individual aged 25 to 54 in Toronto was $54,310, when adjusted to 2023 inflation. More than three decades later, it hasn’t increased by even one percent, now at $54,643, according to 2021 census data adjusted for today’s inflation”.
Real estate, meanwhile, has had its ups and downs, which I experienced personally given I began my real estate career in 1989. In the same Toronto Star article it continues: “In 1990, the average GTA home would have cost a buyer $255,020 — the equivalent of what today would be $514,911 with inflation, according to data from the Toronto Regional Real Estate Board. After steadily decreasing until 2000”, which I discuss in my post: Toronto Real Estate Then & Now: The Lost Decade Of The 1990s “by 2010 it increased to $431,262 — or $586,473 with today’s inflation”.
It should be noted, given the cyclical nature of real estate that typically spans a 10 to 20-year period, the return on real estate investment has historically been modest. But since 2010, when I wrote about a renewed momentum in the market, a sustained and dramatic rise has seen property values double over 13 years, such that by the Autumn of 2023 the average home price in the Greater Toronto Area was $1,134,781. What does this mean? Here’s a not-so-fun fact. The Canadian Household Debt to Income averaged 137.12 percent from 1990 until 2023, reaching an all-time high of 184.52 percent in the third quarter of 2022 and a record low of 86.11 percent in the first quarter of 1990 (Statistics Canada).
For young professionals who would like to have the safety and security of tenure that homeownership provides in the City of Toronto, but who don’t have the privilege of financial support or receiving a large monetary gift from their loved ones, they’ll have to be extremely disciplined to save the down payment and probably have to borrow the maximum mortgage they qualify for. We may covet the castle that exists in Fairy Tales, but the bitter truth is that an unremarkable detached 3-bed Edwardian in the City of Toronto has a price tag that surpasses $1,ooo,ooo, even as the market shifts due to the interest rate shock that began in March 2022.
For over a decade, pricey cities such as Toronto and Vancouver have been slipping into what may become a 30 to 40-year housing crisis. In 2017, I identified 7 Reasons Why Toronto Real Estate Prices Had Skyrocketed Over The Past Decade. So what reasons were fuelling escalating prices? My list included: 1) the rise of speculative investors; 2) the impact of migration, landed immigrants, and foreign buyers; 3) the role of demographics and the Bank Of Mom & Dad; 4) the growth of single and 2-person households; 5) the prevalence of low-interest rates; 6) the acceleration of gentrification & the cost of redevelopment and; 7) declining transit efficiency & the increasing costs of commuting. Many other factors have contributed to rising real estate prices, such as money laundering, mortgage fraud, the rise of Airbnb, and property owners leaving their investments empty. Our real estate market is no longer local, provincial, or Canadian as it was in the 1990s. Today property may be bought and sold by global citizens who never view it in person, and who may have more money than the local population. After all, we live in an era where capital is being generated from multiple economies, including the trade of natural resources, the production of material goods, the exchange of information and services, as well as the systems and technologies that facilitate it.
In October 2023, CMHC’s Housing Supply Report noted Toronto chronically underbuilds housing relative to its population growth. Although housing starts this year in Toronto surpasses levels seen in the previous five years, CMHC warns that increased construction costs and escalating interest rate increases since the Spring of 2022 are problematic. Furthermore, the surge in non-permanent residents has fuelled the demand for rental properties as well, making it cost-prohibitive for many.
This Toronto Star article, “Investors Now Own More Than 50% of Toronto’s New Condos — And Experts Say They’re Driving Up Housing Prices For Everyone”, tells the tale of what many people in Toronto are experiencing who are trying to get onto the property ladder: Would- be Buyers are typically people with good jobs, good income and following the process, trying to accumulate a down payment. All of these aspects in generations past would have led to homeownership pretty logically.
But without the support of the bank of Mom and Dad for down payment assistance, and having to pay high rent in our current market, accumulating a down payment is challenging.
The price of admission in buying a home for many means maxing out mortgages and directing a substantial amount of household income towards debt. Although I do think there is merit in purchasing a primary residence because it’s a tax-free benefit and you’re better served to pay off your mortgage debt than paying a similar rent for shelter, homeownership does shackle people to a lifetime of debt-serfdom. As I wrote in Why Does Homeownership Remain A Priority For Canadians, Despite The High Costs?, shelter debt plays a socio-economic role that figures into Government policy, and is a revenue stream that feeds the money merchants of our capitalist machine including Municipal, Federal, and Provincial coffers alike.
In terms of offering solutions and support from governing bodies, there have been numerous policies directed at the housing demand side, including modifications to mortgage qualification criteria called ‘the stress test’, extending amortizations, and introducing taxation and penalties intended to curb speculation, stop investors from purchasing properties intended exclusively for use as Airbnb’s, or from leaving a dwelling vacant for periods longer than 6 months. The government has also offered new savings tools over the last couple of years to help homeowners with down payments, in a bid to help with affordability, including a tax-free First Home Savings Account (up to $40,000 per Buyer), the RRSP Home Buyers’ Plan (where one can borrow funds from their RRSP interest-free), a First Time Home Buyers’ Tax Credit, and the First-Time Home Buyer Incentive (FTHBI), which is an interest-free loan for eligible first-time home buyers to help reduce their regular mortgage payments.
Manipulating the forces of the demand side of the equation does help, but the effects are often smaller and/or temporary. But fueling or dampening shelter demand only works if there are enough homes for everyone. This is why increasing the supply side of the equation is necessary, especially given Canada’s population is growing at a rate not seen since 1957. If Canada doesn’t increase its supply it won’t improve affordability or create more opportunities for Buyers to get on the property ladder. And, to be clear, for the real estate market to work effectively it requires new Buyers to enter the market so that the Buyers and Sellers can filter up and down the housing stock to sustain sufficient momentum so it doesn’t go into gridlock.
Different Types Of Housing Are Necessary
Manipulating demand does not offer a long or lasting solution if there is no place to live.
As I’ve written in the past, for an urban housing market to truly be balanced it requires having more housing typologies available than there are occupant profiles in need. In the 1990s Toronto had many kinds of shelter options available, including rooming houses, student dormitories, SRO Hotels, the YMCA, basement apartments, a floor of a ramshackle or renovated multi-unit Victorian or Edwardian 3-storey dwelling in any number of ethnic neighbourhoods, coach houses, artist studios in former warehouses, purpose-built rental apartments in low-rises, mid-rises or high-rises constructed anytime over the past 70 years, co-ops, co-ownerships, cohousing collectives, budget condos and luxury ‘houses in the sky’ condos. Rents started at $350. And no, truth be told they were not all meeting building and fire code requirements. Most weren’t.
Now the moment these types of shelter options diminish, or the costs to rent these exceed the income of the population, the best only way to resolve this is for the government to create a supply of the lacking shelter types and ensure the rents are geared to the incomes of the end-users requiring them indefinitely through rent control.
Furthermore, while creating the required supply the government needs to reexamine its policies around demand. If the bank regulators are allowing lenders to extend amortizations to keep homeowners in their dwellings and prevent (or stall) the collapse of the housing market, they’re not truly committed to ensuring shelter is affordable to those homebuyers who are currently priced out of the market. If they were, they’d let the market collapse, right? I’m not suggesting this is the appropriate course of action. Rather, from my lens I’m seeing every attempt being made to keep real estate values high because Canada has become an asset-based economy.
This is why the government invests so much money into creating demand-side incentives to entice Buyers into the market. The Government of Canada’s First-Time Home Buyer Incentive allows Buyers to put a down payment of as little as 5% of the purchase price providing the purchase price does not exceed $999,999 and the Buyer agrees to incur the cost of mortgage loan insurance from CMHC, Genworth, or Canada Guaranty. The government’s First Home Savings Account (FHSA) permits a Buyer to use up to $40,000 in their tax-free savings account towards their first-time property purchase. These measures are presented as a means to reduce housing inequality and help Buyers get onto the property ladder, but what they do is ensure a steady supply of Buyers are competing for the least expensive properties. This pushes prices up further, elevating the affordability crisis and indebting more of the population into debt-serfdom and political complacency.
Instead of manipulating the demand side of the market, the sustainable long-term solution is to increase the supply of affordable housing.
Government Announces A Throwback To ‘War Time’ Housing
At face value, I applaud the Rapid Housing Initiative and the $4-billion Housing Accelerator Fund that offer local governments financial incentives to increase the supply of housing quickly, with bonusing for affordable housing. However, we’re not seeing a lot of shelter getting built quickly. CMHC needs to get back in the business of directly building housing as they did pre-1992, with an Urgent As-Of-Right Mechanism developed that allows new housing meeting certain ‘needs criteria’ to be fast-tracked instead of winding its way through three levels of bureaucracy getting reviewed, revised, and rejected.
Last week Housing Minister Sean Fraser acknowledged the severity of the housing crisis and announced a throwback to “war-time” measures in housing when the federal government formed the Wartime Housing Corporation (WHC) — a crown corporation established in early 1941 that served as a predecessor to the Canadian Mortgage and Housing Corporation (CMHC) that exists today — and many dwellings were built quickly. Many still exist across Canada today and were called Victory houses (or Strawberry Boxes because they resembled a strawberry box).
Back in the day, the government released a catalogue of simple, inexpensive, and efficient designs from which to build. And between 1940s and 1960s many of these dwellings were constructed. Here’s a past post that offers insight into the post-war bungalow: Dear Urbaneer: What Do I Do With My Dated Bungalow? (Plus A Brief History On This Housing Type) and my piece: Dear Urbaneer: Does Canada Have A History Of Building Affordable Economical Housing?.
In response to our current housing crisis, the federal government is planning a similar initiative. They are releasing a catalogue of cost, labour, and energy-efficient home designs, with a focus on housing density.
What will differ from the post-WWII catalogue is that the government intends to split the home designs into categories, including multi-plexes, mid-rise apartments, laneway homes as well as housing that could be suitable for student and/or senior residences. They are also looking at cost-effective construction technologies, which will help many homes be built quickly, including 3D printing, modular construction, mass timber, and paneling. Consultations for this will begin early in the new year with stakeholders in the housing sector with low-rise construction designs as a first step. The intention is to have the catalogue ready in Autumn 2024. For background read this CTV article, “‘We Are Living In A Housing Crisis’: Canada Consulting On Reviving ‘Wartime Housing’ Design Catalogue”.
Although CMHC and the federal government will not build the homes, this initiative is intended to help developers cut through red tape and fast-track new construction as-of-right. It’s well-known that navigating processes at various levels of government has traditionally been a significant obstacle to the swift building of much-needed housing supply. For more insight on this, check out my post: How Canada’s 3 Levels Of Government Shape Housing Policy & Programs.
Several potential obstacles may prevent this from being as effective as one might hope. Across Canada, there are unique environmental factors, climate conditions, and municipal regulatory requirements that don’t allow for a one-size-fits-all approach. We don’t bulldoze sites like we once did, with more attention paid to existing ecosystems including the tree canopy. Height and setback requirements can vary by block in Toronto, and respecting the historic character of an existing neighbourhood is important to many urbanites. In other words, all sites have their unique opportunities and limitations that may be ignored.
Housing Is A Right, Not A Privilege
The Canadian housing crisis has occurred because a roof over one’s head has been treated as a commodity, as opposed to fulfilling its most basic and intended purpose: shelter. It’s also been decades in the making. And it’s complex – impacting us politically, economically, socially, technologically, environmentally, and legally. Even for someone actively engaged in the shelter economy, unpacking all of the mitigating factors for more clarity is challenging.
This is why I’d like to see CMHC become more proactive in creating a housing supply. Tens of thousands of non-market homes were built from the 1950s through the 1970s under their direction until recessionary activity in the decades that followed caused the government to change tack by directing funds rather than building homes.
So What Happened?
As the government withdrew from actively creating new housing in the 1980s, condominiums were the first private developments to gain traction because they were cheap to build, thanks to economies of scale.
Fast forward to the 1990s, when Mike Harris removed rent control, making the Return On Investment more attractive for investors. Ontario Premier Wynn tried to re-introduce rent control in 2017, and then Premier Ford reversed it, promising a policy to help spur supply, but that has been problematic and mired in bureaucracy. Furthermore, from the early 2000s until recently, the Bank Of Canada proactively ensured there were ultra-low interest rates to keep the economy stimulated, which also created more attractive Returns On Investments for property investors. Here’s my post The Number Of Owners With Multiple Properties Is Increasing In Toronto. Here’s Why!.
There was also the growth of private equity firms, Real Estate Investment Trusts (REITs), asset management firms, and public pension funds to claim a greater stake in the sector that I wrote about in The Growing Trend Of Financial Landlords In Toronto Real Estate.
How Policy Has Driven The Commodification Of Housing
Over the years, as housing became privatized, it’s not a reach to consider that it soon afterward became commodified. Real estate (and its value and access) have ultimately been driven by investors, not end users. And the numbers are staggering.
According to this Toronto article that I referenced at the beginning of this piece “Investors Now Own More Than 50% of Toronto’s New Condos —And Experts Say They’re Driving Up Housing Prices For Everyone”, 50 percent of the new condominium supply is owned by investors.
And before we start pointing fingers at the “greed” of these investors (it comes down to removing shelter as a right, and replacing it with investment opportunity), they didn’t get there themselves. Indeed, it is a policy that has created much of this perfect storm.
First, the government systematically removed themselves from the creation of housing – which they had done mightily post-war, eventually divesting from housing creation and offering the housing market up for privatization.
And more recently, spurring a buying environment with a decade-plus of historically low interest rates, letting people pay high prices, and making ROI attractive for property investors, as property values swell.
According to the Toronto Star article, investors corner 20 percent of the total market in Ontario, with a substantial portion of the condominium market, 80 percent of pre-construction condo sales, and 57 percent of built condos in Toronto. What does all this math equal? 40 percent of new homes are owned by investors.
What’s more, is that these deep-pocketed investors have a say in what gets built because they’re driving demand. Build small units with higher-end finishes to garner the maximum rent.
While there is a cry for rent control and other measures to curb multiple property ownership, it doesn’t address the supply side. First, there are challenges with how rent control works in Ontario. For example, the annual rent increases as of late do not account for inflation, or rising interest rates, so the annual return is shrinking or becoming untenable. This means the landlord may be forced to sell and the tenant may see themselves evicted so the Buyer can occupy it as a personal residence. Here are some other challenges in my post –> The Other Side Of Rent Control And Toronto Real Estate.
The government, in short, needs to get back into the business of building homes and work towards de-privatizing housing. Whereas corporations answer to shareholders and are focused on growing wealth, the government is intended to be in the service of the people. And the people exercise their decision-making with their vote.
I would like to see CMHC introduce a program geared specifically toward the creation of cooperative housing. In Canada, most housing co-ops are rental co-ops developed during the 1970s and ’80s under government social housing programs targeted to people with low to moderate incomes. We are now moving into an era where there will be many different types of housing co-ops, including equity. It’s a great model that should have been actively promoted for years. Learn more about it at the Cooperative Housing Federation Of Canada website.
This is an intelligent shelter typology to help many people get the security of permanent tenure. A program like this should be operated by CMHC from start to finish, whereby a group in need could approach CMHC with their circumstance and be gently guided through all the red tape to find themselves unlocking the doors to their own homes. It should be done with whatever tools are possible – including interest-free loans, corporate sponsors to offset costs, extended amortization periods, and matching of funds that are perhaps paid back decades later.
The introduction of a wartime-inspired housing catalogue is a meaningful step in the right direction. However, this isn’t going to cure the housing crisis. But I like that it will exist, because it may in turn fuel other solutions that aren’t on our radar. After all, we’re so mired in the complexity of this crisis that no amount of policy or action could fix this in under a decade. I lament that there’s no handy 5 Ways To Fix The Housing Crisis buzz feed piece out there.
We are simply living in a different reality now.
Thank you for reading this.
If you have questions or concerns about the real estate market, please know my team and I welcome being of assistance to the best of our abilities. Send me an email at steve@urbaneer.com to start, ok?
Having a deep knowledge of the history of housing helps us to act strategically to anticipate the future. With decades of experience in the real estate trenches, and a multi-disciplinary education in housing that lets me offer unique, solid advice, I’m here to help!
~ Steven
