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The dirty secret of the housing crisis? Homeowners like high prices – CBC.ca

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If you listen to Canadian politicians, the solution to our housing crisis seems to be some combination of immigration reform and a herculean countrywide building effort.

But Paul Kershaw, a public policy professor at the University of British Columbia and founder of the affordability advocacy group Generation Squeeze, says the emphasis on increasing housing supply obscures an issue politicians are less likely to address.

Namely, that we, as a country, have become addicted to ever-rising home prices, largely because we’ve been conditioned to see our homes as financial assets.

“There are multiple things we need to do [to reduce prices], and more supply is one of them,” said Kershaw. But funding announcements for building projects are a “way to organize our concern about the housing system so that we don’t have to … look in the mirror — particularly homeowners who have been homeowners for a long time — and say: ‘How are we entangled?'”

He said the current system incentivizes extracting profit from real estate, rather than prioritizing that everyone has access to affordable shelter.

“We need clarity about what we want from housing,” said Kershaw. “And it has to start with: ‘We don’t want these prices to rise any more.'”

WATCH | ‘Get out of the way,’ Trudeau tells provinces opposed to federal housing plan: 

‘Get out of the way,’ Trudeau tells provinces opposed to federal housing plan

3 days ago

Duration 3:05

Asked about an Alberta bill that would block the federal government from directly sending funding to cities, Prime Minister Justin Trudeau said provinces who don’t want to solve the housing crisis should “just get out of the way.”

Speculative effect

The trajectory of home prices is well-known to most Canadians. According to the Canadian Real Estate Association, the average home in January 2005 sold for $241,000. By February 2022, it had more than tripled, before easing somewhat to $719,400 in February 2024.

On Friday, Royal LePage released a forecast that suggested the aggregate price of a home in Canada will increase nine per cent year-over-year in the fourth quarter of this year.

Meanwhile, earnings in Canada have lagged significantly behind housing costs, such that the ownership costs on an average home consume more than 60 per cent of median household income, according to a recent RBC report.

On the face of it, the lack of affordable housing seems like an issue of supply — just build more to meet demand and prices will come down. 

But part of the problem is the source of that demand: it’s increasingly investors. 

The Bank of Canada found that investors were responsible for 30 per cent of home purchases in the first three months of 2023. That’s up from 28 per cent in the same period in 2022 and 22 per cent in the same period in 2020. 

That report also found the percentage of first-time homebuyers dropped to 43 per cent in the first quarter of 2023 from 48 per cent in the same three months in 2020.

“What’s been happening over the last 10 years is that the share of homes bought by first-time buyers has been declining, and their market share has largely been taken over by investors,” said John Pasalis, president of Toronto-based Realosophy Realty.

The Bank of Canada found that investors were responsible for 30 per cent of home purchases in the first three months of 2023. That’s up from 28 per cent in the same period in 2022 and 22 per cent in the same period in 2020. (CBC)

The Bank of Canada’s definition of an investor is a buyer who took out a mortgage to purchase a property while maintaining a mortgage on another home.

The central bank has said that “during housing booms, greater demand from investors can add to bidding pressures and intensify price increases.”

Who’s investing?

Early in the COVID-19 pandemic, we saw an uptick in people buying second properties. 

Robert Hogue, assistant chief economist at RBC, says a combination of low interest rates at the time and many people sitting on large savings “encouraged speculative activity.”

But he doesn’t see current high prices “as only being a problem of speculative activity.”

House-flippers and foreign buyers are often singled out as major drivers of real estate speculation, and various jurisdictions in Canada have introduced legislation to neutralize those kinds of investments.

But Pasalis said those types of buyers aren’t having a major influence on prices. Domestic investors in the low-rise housing market are having a much greater impact.

He said they generally fall into two categories: those who buy directly from developers and those who are moving but decide to hold on to their first residence.

“If they’re upsizing or moving out of the province or country, the first question we get is: ‘Can we keep our current home as a rental?'” said Pasalis. 

“They’re not like active investors. They’re just looking at the market, they’re looking at how quickly home prices are going up. Everyone sees housing as a decent investment, so everyone’s mindset is: Why should I sell it?”

It’s one reason there’s less housing supply for first-timers.

WATCH | About That: Should I get a 30-year mortgage?

Should I get a 30-year mortgage? | About That

4 days ago

Duration 9:02

The federal government is allowing longer mortgage repayment periods for first-time buyers with insured mortgages on newly built homes. Andrew Chang explores the pros and cons of 30-year amortization vs. the previous 25-year rule for prospective homeowners. CORRECTION: At 1:38 in this video, we miscalculated that 20% of $500,000 is $125,000. It’s $100,000. It has been edited out for clarity.

A historic problem

Purchasing a home has a variety of benefits. It gives many people a sense of accomplishment and the security of knowing they can’t be evicted. It also allows them to build up equity, which can help fund renovations, a move to another residence and even retirement. 

Many families pass properties on to subsequent generations, which also makes home ownership something of an emotional investment.

Higher prices help existing homeowners tap more home equity and reap greater profits if and when they do decide to sell. 

Governments also have an interest in high property values because they translate to larger tax revenue, said Diana Mok, associate professor of real estate at the Lang School of Business and Economics at the University of Guelph in southern Ontario.

Not only that, but real estate is the single-biggest contributor to Canadian GDP, according to Statistics Canada.

“The housing market encompasses a very large variety of sectors — think about realtors, think about lawyers, think about construction,” said Mok. It’s not just “all the buying and selling, but it’s all the labour that contributes to the economy.”

Prime Minister Justin Trudeau and his team have announced a variety of funding measures for housing in recent weeks. (Darren Calabrese/The Canadian Press)

While Prime Minister Justin Trudeau has publicly lamented high prices, Hogue said he can’t imagine “any government that would intervene to lower home prices as an objective. I don’t think that would be a winner from a political point of view.”

Priced out

Naama Blonder, an architect and urban planner with the Toronto-based firm Smart Density, says part of the problem is a societal obsession with home ownership.

“I think many Canadians think that when we are talking about the affordability crisis, we are talking about their ability to own a house with a backyard. 

“For them, ‘We are priced out of owning a house, therefore, we have an affordability crisis that we need to solve.’ I have news for you … what worked for our parents is not going to be the model for us,” said Blonder.

“We don’t have politicians who are bold enough to say: ‘It’s more than OK to rent.'”

The upcoming federal budget on Tuesday will undoubtedly contain a number of measures to address the housing shortage. Recent funding announcements have responded to the desire for more rental housing, but the scale of the need is daunting.

In a 2024 report, the Canada Mortgage and Housing Corporation said despite a record number of projects started between 2021 and 2023, “this increase will not meet the growing demand. As a result, rental markets will remain tight, particularly in the pricier areas of Canada.”

A residential highrise project is seen in Toronto. Real estate is the single biggest contributor to Canadian GDP, encompassing everything from realtors to lawyers to construction workers, says Diana Mok, associate professor of real estate at the Lang School of Business and Economics at the University of Guelph. (Patrick Morrell/CBC)

Pasalis said that for all the hand-wringing over housing prices, he doesn’t see there being any political will to rein in investors. And he’s skeptical of the federal government’s recently announced financial incentives to help first-time buyers get into the market.

Putting young people further in debt “is not a way to make housing more affordable,” he said. 

Kershaw of Generation Squeeze says a broader “tax shift” is required. He advocates an annual tax on “housing wealth” aimed at the owners of the most valuable 10 per cent of homes in Canada as one way to dampen housing prices, while also raising funds to invest in affordable housing.

“What started happening in B.C. and spread throughout the country is that we weren’t just satisfied with paying off our mortgage to build equity. We’re like: ‘You know what? I want this home price to double, triple, quadruple.'”

When existing homeowners want prices to rise faster than earnings in the local economy “is the moment you want a wealth windfall for those who are owners now that will come, by definition mathematically, at the expense of affordability for those who follow,” Kershaw said.

“That’s the trouble we’ve gotten ourselves into. And if we cannot have that conversation, we will never solve the crisis of housing affordability.”

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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B.C. voters face atmospheric river with heavy rain, high winds on election day

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VANCOUVER – Voters along the south coast of British Columbia who have not cast their ballots yet will have to contend with heavy rain and high winds from an incoming atmospheric river weather system on election day.

Environment Canada says the weather system will bring prolonged heavy rain to Metro Vancouver, the Sunshine Coast, Fraser Valley, Howe Sound, Whistler and Vancouver Island starting Friday.

The agency says strong winds with gusts up to 80 kilometres an hour will also develop on Saturday — the day thousands are expected to go to the polls across B.C. — in parts of Vancouver Island and Metro Vancouver.

Wednesday was the last day for advance voting, which started on Oct. 10.

More than 180,000 voters cast their votes Wednesday — the most ever on an advance voting day in B.C., beating the record set just days earlier on Oct. 10 of more than 170,000 votes.

Environment Canada says voters in the area of the atmospheric river can expect around 70 millimetres of precipitation generally and up to 100 millimetres along the coastal mountains, while parts of Vancouver Island could see as much as 200 millimetres of rainfall for the weekend.

An atmospheric river system in November 2021 created severe flooding and landslides that at one point severed most rail links between Vancouver’s port and the rest of Canada while inundating communities in the Fraser Valley and B.C. Interior.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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No shortage when it comes to B.C. housing policies, as Eby, Rustad offer clear choice

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British Columbia voters face no shortage of policies when it comes to tackling the province’s housing woes in the run-up to Saturday’s election, with a clear choice for the next government’s approach.

David Eby’s New Democrats say the housing market on its own will not deliver the homes people need, while B.C. Conservative Leader John Rustad saysgovernment is part of the problem and B.C. needs to “unleash” the potential of the private sector.

But Andy Yan, director of the City Program at Simon Fraser University, said the “punchline” was that neither would have a hand in regulating interest rates, the “giant X-factor” in housing affordability.

“The one policy that controls it all just happens to be a policy that the province, whoever wins, has absolutely no control over,” said Yan, who made a name for himself scrutinizing B.C.’s chronic affordability problems.

Some metrics have shown those problems easing, with Eby pointing to what he said was a seven per cent drop in rent prices in Vancouver.

But Statistics Canada says 2021 census data shows that 25.5 per cent of B.C. households were paying at least 30 per cent of their income on shelter costs, the worst for any province or territory.

Yan said government had “access to a few levers” aimed at boosting housing affordability, and Eby has been pulling several.

Yet a host of other factors are at play, rates in particular, Yan said.

“This is what makes housing so frustrating, right? It takes time. It takes decades through which solutions and policies play out,” Yan said.

Rustad, meanwhile, is running on a “deregulation” platform.

He has pledged to scrap key NDP housing initiatives, including the speculation and vacancy tax, restrictions on short-term rentals,and legislation aimed at boosting small-scale density in single-family neighbourhoods.

Green Leader Sonia Furstenau, meanwhile, says “commodification” of housing by large investors is a major factor driving up costs, and her party would prioritize people most vulnerable in the housing market.

Yan said it was too soon to fully assess the impact of the NDP government’s housing measures, but there was a risk housing challenges could get worse if certain safeguards were removed, such as policies that preserve existing rental homes.

If interest rates were to drop, spurring a surge of redevelopment, Yan said the new homes with higher rents could wipe the older, cheaper units off the map.

“There is this element of change and redevelopment that needs to occur as a city grows, yet the loss of that stock is part of really, the ongoing challenges,” Yan said.

Given the external forces buffeting the housing market, Yan said the question before voters this month was more about “narrative” than numbers.

“Who do you believe will deliver a better tomorrow?”

Yan said the market has limits, and governments play an important role in providing safeguards for those most vulnerable.

The market “won’t by itself deal with their housing needs,” Yan said, especially given what he described as B.C.’s “30-year deficit of non-market housing.”

IS HOUSING THE ‘GOVERNMENT’S JOB’?

Craig Jones, associate director of the Housing Research Collaborative at the University of British Columbia, echoed Yan, saying people are in “housing distress” and in urgent need of help in the form of social or non-market housing.

“The amount of housing that it’s going to take through straight-up supply to arrive at affordability, it’s more than the system can actually produce,” he said.

Among the three leaders, Yan said it was Furstenau who had focused on the role of the “financialization” of housing, or large investors using housing for profit.

“It really squeezes renters,” he said of the trend. “It captures those units that would ordinarily become affordable and moves (them) into an investment product.”

The Greens’ platform includes a pledge to advocate for federal legislation banning the sale of residential units toreal estate investment trusts, known as REITs.

The party has also proposed a two per cent tax on homes valued at $3 million or higher, while committing $1.5 billion to build 26,000 non-market units each year.

Eby’s NDP government has enacted a suite of policies aimed at speeding up the development and availability of middle-income housing and affordable rentals.

They include the Rental Protection Fund, which Jones described as a “cutting-edge” policy. The $500-million fund enables non-profit organizations to purchase and manage existing rental buildings with the goal of preserving their affordability.

Another flagship NDP housing initiative, dubbed BC Builds, uses $2 billion in government financingto offer low-interest loans for the development of rental buildings on low-cost, underutilized land. Under the program, operators must offer at least 20 per cent of their units at 20 per cent below the market value.

Ravi Kahlon, the NDP candidate for Delta North who serves as Eby’s housing minister,said BC Builds was designed to navigate “huge headwinds” in housing development, including high interest rates, global inflation and the cost of land.

Boosting supply is one piece of the larger housing puzzle, Kahlon said in an interview before the start of the election campaign.

“We also need governments to invest and … come up with innovative programs to be able to get more affordability than the market can deliver,” he said.

The NDP is also pledging to help more middle-class, first-time buyers into the housing market with a plan to finance 40 per cent of the price on certain projects, with the money repayable as a loan and carrying an interest rate of 1.5 per cent. The government’s contribution would have to be repaid upon resale, plus 40 per cent of any increase in value.

The Canadian Press reached out several times requesting a housing-focused interview with Rustad or another Conservative representative, but received no followup.

At a press conference officially launching the Conservatives’ campaign, Rustad said Eby “seems to think that (housing) is government’s job.”

A key element of the Conservatives’ housing plans is a provincial tax exemption dubbed the “Rustad Rebate.” It would start in 2026 with residents able to deduct up to $1,500 per month for rent and mortgage costs, increasing to $3,000 in 2029.

Rustad also wants Ottawa to reintroduce a 1970s federal program that offered tax incentives to spur multi-unit residential building construction.

“It’s critical to bring that back and get the rental stock that we need built,” Rustad said of the so-called MURB program during the recent televised leaders’ debate.

Rustad also wants to axe B.C.’s speculation and vacancy tax, which Eby says has added 20,000 units to the long-term rental market, and repeal rules restricting short-term rentals on platforms such as Airbnb and Vrbo to an operator’s principal residence or one secondary suite.

“(First) of all it was foreigners, and then it was speculators, and then it was vacant properties, and then it was Airbnbs, instead of pointing at the real problem, which is government, and government is getting in the way,” Rustad said during the televised leaders’ debate.

Rustad has also promised to speed up approvals for rezoning and development applications, and to step in if a city fails to meet the six-month target.

Eby’s approach to clearing zoning and regulatory hurdles includes legislation passed last fall that requires municipalities with more than 5,000 residents to allow small-scale, multi-unit housing on lots previously zoned for single family homes.

The New Democrats have also recently announced a series of free, standardized building designs and a plan to fast-track prefabricated homes in the province.

A statement from B.C.’s Housing Ministry said more than 90 per cent of 188 local governments had adopted the New Democrats’ small-scale, multi-unit housing legislation as of last month, while 21 had received extensions allowing more time.

Rustad has pledged to repeal that law too, describing Eby’s approach as “authoritarian.”

The Greens are meanwhile pledging to spend $650 million in annual infrastructure funding for communities, increase subsidies for elderly renters, and bring in vacancy control measures to prevent landlords from drastically raising rents for new tenants.

Yan likened the Oct. 19 election to a “referendum about the course that David Eby has set” for housing, with Rustad “offering a completely different direction.”

Regardless of which party and leader emerges victorious, Yan said B.C.’s next government will be working against the clock, as well as cost pressures.

Yan said failing to deliver affordable homes for everyone, particularly people living on B.C. streets and young, working families, came at a cost to the whole province.

“It diminishes us as a society, but then also as an economy.”

This report by The Canadian Press was first published Oct. 17, 2024.

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