This Week’s Top Stories: BoC Says Canada Needs Real Estate Growth, While New Zealand Says Put People First - Better Dwelling | Canada News Media
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This Week’s Top Stories: BoC Says Canada Needs Real Estate Growth, While New Zealand Says Put People First – Better Dwelling

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Time for your cheat sheet on this week’s most important stories. 

Canadian Real Estate

BOC Governor Says Canada Will Lean On Real Estate Because “We Need The Growth”

Canada’s central bank didn’t just dismiss concerns about the hot real estate market, but welcomed them. Bank of Canada governor Tiff Macklem dismissed the need for cooling measures during a media Q&A . Macklem said, “I think right now the economy is weak… I think we need the support.”

The governor repeated, “we need the growth we can get [from real estate].” In other words, Canada’s economy has become so dependent on real estate, it has no choice but to embrace the issue.

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Canadian Bond Yields Soar, And It May Be A Drag On The Spring Real Estate Market

Bonds are normally boring, but a big swing makes this an exception – especially for real estate. The Bank of Canada’s 5-year benchmark  bond influences 5-year fixed mortgage rates. The yield of that bond reached 0.94% on Thursday, increasing a whole 20 bps from a day before. Yields are now up 59.15% from a week before, and double a month before. They’re also about 3x from last year’s lows in August.

How does that influence mortgage rates? The 5-year fixed mortgage competes for the same capital. If the 5-year benchmark rises, mortgage rates are likely to rise as well. Rising bond rates also tend to reflect increased inflation risk. This could send other types of mortgage rates higher as well. Just in time to provide a cooling measure for the spring market.

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Canada Completed 18 Homes Per Person Added To The Population Last Quarter

The pandemic is slowing Canada’s population growth, but builders are still on time with deliveries. Builders delivered an unprecedented 18.41 homes per  person the population grew by in Q4 2020. This is up from a record quarter of 2.26 homes per person in the previous quarters.

Over the past year, there was a new home completed for 95% of the population growth. Considering homes on average are occupied by 2.9 people on average, it’s a lot of supply. Pressure on home prices to rise should be released, but it’s not. It’s actually accelerating. That would be because once prices are no longer based on fundamentals, they no longer respond to them.

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Removing Mortgage Interest From Canada’s CPI Makes Inflation 30% Higher

Canada’s consumer price index (CPI) is much higher when mortgage interest is excluded. CPI increased 0.58% in January, up 1.02% from a year before. When excluding mortgage interest, it rises 0.72% for the month, and is 1.30% higher. CPI has been extremely volatile during the pandemic, and this is just another example. If you didn’t refinance your home in the past year, your cost of living is 30% higher than the government thinks it is.

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Canadian HELOC Balances Made The Biggest December Drop Since 1992

Canadian home equity lines of credit (HELOC) balances saw minor growth. The outstanding balance reached $2.59 billion in December, up 1.58% from a year before. The monthly drop was the biggest for the segment since 1992, and annual growth was the slowest since 2015. Great for households to minimize credit growth during a period of uncertainty. Bad for the economy, since it’s become so heavily dependent on credit growth to operate.

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Canadian Mortgage Debt Grows At Fastest Pace Since 2010, Adding Over 6% Of GDP

Canadian mortgage debt is growing at the fastest pace in over a decade. The balance of mortgage credit reached $1.66 trillion in December, up 7.67% from a year before. This marks the 22nd consecutive month of annual growth accelerating. This is also the highest rate of growth since 2010, over a decade ago. To put that number in context, mortgage debt over the past 12 months grew by over 6% of GDP.

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Canadian Mortgage Rates Most Likely To Climb, Despite Low Overnight Rate

A few days before our above column on soaring yields, we noticed yields were positioning to climb. The 5-year GOC benchmark bond yield reached 0.59% on February 18, 2021 – an increase of 17 bps from a month before. This was enough to watch the bump. A couple days after this article was written, yields bumped 20 bps higher in a single day. Some mortgage lenders have already announced higher 5-year fixed rates. The rest are likely to follow over the next few days.

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Canadian Retail Rents Are Dropping, But The Cost Of Office Space Hits A High

Data from Canada’s national statistics agency shows commercial real estate isn’t uniformly impacted. Commercial retail rents have fallen 3.96% in Q4 2020, bringing them 6.14% lower than a year before. Office rents climbed 0.49% in the same quarter, and are now up 1.29% from a year before though. Retail rents are at a multi-year low, while office rents just printed an all-time high. An unusual dynamic, considering office rents are bucking the work-from-home trend, while retail is feeling the full brunt.

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RBC Adds Two “Severe” Risk Scenarios, Including Canadian Real Estate

Canada’s largest bank widened the spread of their best and worst case scenario. RBC’s best case for real estate is the benchmark price rising 8% over the next 12 months. This is an increase of 2 points compared to the previous quarterly forecast. The downside remained the same though, with a worst case of 29.6% in this scenario. A positive revision across the board would have been a good thing. However, the worst case staying the same means a wider range of outcomes. This means more uncertainty is being considered.

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Toronto Real Estate 

Toronto New Home Sales Drop, As People Fleeing Turn Durham Into A Bigger Market

Greater Toronto new home sales are ripping higher, but the city is being left behind. There are 2,171 new home sales in January, up 4.43% from the same year before. The modest increase was despite a 40% drop in new home sales for Toronto. The suburb of Durham more than picked up the slack, with sales in the region rising 301% from last year, and 876% from a year before. The flight from the city has spread to new homes.

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Global Real Estate

New Zealand’s Central Bank Is Adding Housing Affordability To Its Mandate

New Zealand’s government will require the central bank to consider affordability in policy. The government stated housing is a “critical component of a sustainable and inclusive economy, and promotes the maintenance of a sound and efficient financial system.”

To ensure they can accomplish this, the Reserve Bank of New Zealand has requested new tools. One of those tools is the ability to utilize debt-to-income ratio limits. Both the government and central bank didn’t mince words, openly stating these measures are to target investors. The government is expected to announce further measures in the coming weeks.

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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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