The guy who runs Generation Squeeze says building more homes isn’t enough to lower prices, because most people buying houses are already property owners. Property owners can either sell their current house to get a load of cash, or borrow against it to get a load of cash. Either way, they can pay a lot for their next property.
As evidence, he mentions that Alberta has less supply per capita than the rest of the country, but house prices are half those of Ontario and BC.
Here are the good bits:
While building more supply is absolutely important, setting ambitious targets does little good if property values continue to rise. Unless they are deeply subsidized by tax dollars, new market units will price in today’s high land values – which have soared well beyond what most can afford with local earnings whether the new homes are intended for renters or owners.
Plus all the focus on “Build! Build! Build” ignores that lack of supply isn’t the only, or even primary, factor influencing the price of rent and ownership. You could be forgiven for thinking otherwise, since undersupply has become the dominant narrative shared by Canada Mortgage and Housing Corp. and a variety of financial institutions.
The Bank of Nova Scotia, for instance, published reports lamenting that Canada has a smaller number of private dwellings per capita than the G7 average, blaming this ranking for much of our unaffordability problem. This leap in logic begs questions, since the same Scotiabank data also show that Alberta has lower levels of housing supply per capita than most other provinces, yet home prices in Alberta are about half as expensive as those in Ontario and B.C.
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Mr. Pomeroy [who published a study about this stuff] encourages us all to widen our focus to include the vicious cycle by which rising home prices drive rising home prices.
First-time homebuyers are a minority of purchasers. They compete with many Canadian buyers who have already owned in the market. Bolstered by the equity they’ve gained from surging home values, existing homeowners bid up the price of housing to levels that are disconnected from earnings paid by local jobs. This was especially true prior to recent interest-rate hikes, because historically low interest rates made it cheap for homeowners to liquefy wealth windfalls created by skyrocketing home values.
Some homeowners bid up the price of housing simply to relocate. Others do so to purchase an investment property in search of additional wealth windfalls.
The latter are among the one in six Canadian homeowners who own multiple properties. Most are over the age of 55. To pay the mortgages on their investment properties, they increasingly collect rent from younger residents with dashed dreams that a good home should be in reach for what hard work can earn.
This reveals that the vicious cycle by which those enriched by high home values bid housing costs ever higher isn’t just ruining the market for aspiring owners. It is also breaking the rental market, as confirmed by the record-high rents reported this summer.
To disrupt this vicious cycle, political leaders must help break Canada’s cultural addiction to rising home prices by endorsing the plan that governments will use all available policy tools to stall home prices for the foreseeable future.
I was looking at the numbers, and while I agree to a certain point (if prices are going down, it’s better to rent and hope that prices will continue going down so you can buy at the best price possible) but prices have shot back up since the last year and are almost at the 2021 prices in the span of a single year. We had a temporary dip in prices, not any form of a drop.
And as for incentive, there’s a massive amount. With prices as high as they are, it’s entirely a seller’s market, and if you can make more homes, you basically have as much cash to take as you have homes to sell. The issue is that builders aren’t able to build new homes due to legislation, zoning regulations, and plenty of other hurdles placed. I keep seeing so many properties that have “we are planning to build this skyscraper condo here once we have our permit” and the old building just sits there for 3-5 years before they get their approval.
They did shoot up, but then started to fall again. A class, textbook perfect, dead cat bounce. The surest sign of all that the market has crashed.
It’s not. Because people are reluctant to buy into a crashed market, there aren’t many to sell to. High prices does not mean a seller’s market, that just means that sellers want a high price. Housing is notoriously sticky. People can sit on properties for years at a time in hopes of getting a high price. Generally speaking, people buy houses for the long term, so they don’t need to sell them any time soon.
That might change as more and more mortgages start to get renewed. If you can’t afford a property anymore, that becomes a good reason to get a deal done as fast as possible. But a lot of people are still enjoying low interest mortgages, and the rest were stress tested into a mortgage they can still afford even with high rates. Again, there isn’t much pressure to sell for a low price right now. One can just keep the house on the market indefinitely to see what happens. If nobody buys, oh well?
Eventually a reckoning will occur when people start to realize the high price they want isn’t going to happen, and will eventually start to settle for low offers, but that can take years to play out.
An even bigger problem was that there weren’t enough builders. Anyone building houses was booked up for years at a time. Even if there were no hurdles, there wasn’t the people to get the job done. Higher wages would have been needed to get more people interested in construction work, but that would mean an even higher cost of housing.
That isn’t the case anymore, though. Many home builders are now looking for work. New home starts have cratered. Nobody wants to get involved in a crashed market – hence why rent has skyrocketed.
Hmm…looking closer at the stats, I suppose you have a point. The number of sales are definitely down, even if only marginally. Though the prices of property is going up, it’s not by as much as the drop in total sales.
While I refute that this is definite proof that the bubble is deflating (hopefully not bursting) I’ll admit that it is evidence pointing towards that as long as the trend holds in the grander scheme of things.
I’ll refrain from saying more until we see how the numbers move once interest rates drop back down, as I believe this is one of the biggest causes for the drop in home sales at the moment. Home prices were out of control back when interest was only 0.5%, so it’s a given that the market would cool off when it’s ten times that.
Honestly, I hope you’re right and this’ll mean that housing will cool off and slowly reach a decent level, but I doubt we’ll get it that easy and we’ll be dealing with a crash with the economic fallout going with it while still having a massive housing shortage a decade from now.