Canada is a Western developed country. It does not receive nearly as much attention in the international media as it should. This is why the housing market of Canada is not being covered in the mainstream media. The market is now on an unbelievable bull run. In several locations, prices have risen by up exponentially in a single year! When compared to the comparatively humdrum housing markets around the world, it is easy to see why this is an issue. The majority of home buyers are not paying cash. They are taking out mortgages, and as a result, the Canadian economy has $2.2 trillion in outstanding mortgages, despite the fact that the total GDP is only $1.6 trillion. A mortgage debt worth 150% of the GDP is not a sign of prosperity. Instead, it is a sign of crippling debt that can cause the entire economy of the nation to collapse.
A rapid increase in interest rates has made housing affordability crisis of Canada worse than ever.
The price of Canadian homes has increased faster than those of any other member of the OECD. Rising interest rates now threaten to bring the market crashing down, destroying the lives of millions in the process.
Households in the third quarter needed 62.7 per cent of their income to cover the costs that go into owning a home — the worst level on record, RBC said in its latest report on housing affordability in Canada. That’s a loss of 14.5 percentage points for affordability over the past 12 months, something author Robert Hogue called “astounding.”
The news is even more grim if you live in Vancouver or Toronto, where it takes 95.8 per cent and 85.2 per cent of income, respectively, to pay to keep a roof over your head. While income amounts needed for housing are less shocking in cities such as Edmonton or Calgary, at 41.6 per cent and 31.2 per cent, respectively, no housing market has been spared by rising costs.
The affordability crunch comes after home prices soared to new heights earlier in the pandemic. Then, a series of unexpected interest rate hikes to tame a fast-rising inflation rate made things worse for those seeking a mortgage. For example, to buy a home in Vancouver at the benchmark price in the third quarter of 2021, households needed an income of $200,000 to qualify for a mortgage. Fast forward a year later, and households need an income of $268,000 — 34 per cent more. It’s a similar story in Toronto, where households need to earn 29 per cent more to get a mortgage.
Smaller markets are also feeling the pain. In Halifax, income needed to get a mortgage is up 44 per cent in the third quarter from the same time last year. In Saint John, N.B., the minimum qualifying income is up 41 per cent — though it’s still the lowest in the country at $74,000.
Household incomes aren’t keeping pace with rising rates. In 2020, the median income across Canada was $84,000, data from Statistics Canada’s 2021 census shows. That means homeownership has been pushed out of reach for many, leaving only the wealthy able to afford to jump into the market.
Reasons behind the Canada housing crisis
So, what led to such a calamity in the first place?
The onset of the COVID-19 pandemic led to upheavals in the housing market and also on the housing needs of many Canadians. But housing stock of Canada has been built over time through long-term construction trends, shifting housing preferences, population growth, an aging society, housing policy, and investment. The resulting difference in housing supply and demand, coupled with modified expectations for the future, has led to large changes in home prices.
Immigration is most likely the primary cause of the Canadian home market bubble. Every year, the Canadian government allows 3.6 million immigrants to enter the country. Many of these are coming in under the funded immigration scheme, in which anyone can invest $1.6 million in Canadian bonds and receive Canadian citizenship. As a result, Canada is welcoming very wealthy immigrants. Furthermore, many of these immigrants are coming from China. China’s corruption is projected to cost $86 billion every year. The issue with retaining this money in China is that it will almost certainly be confiscated by the authorities. As a result, a large number of corrupt officials are just injecting money into the Canadian economy. They have no regards to the fundamentals of the local housing market. Instead, they are driven by the need to simply send their money to a safe haven. The problem is that local Canadians are not able to compete with them and are getting displaced as a result. Even the immigrants who are not wealthy are adding to the housing market woes. This is because they are renting in large numbers which are indirectly driving up the prices of real estate.
Moreover, there are not enough skilled workers to build the new apartments and homes needed to meet increasing housing demand in Canada’s most populated provinces. The Canada Mortgage and Housing Corporation (CMHC) said a shortfall of skilled construction workers is a major challenge to addressing housing supply gaps that exist mainly in Ontario, British Columbia and Quebec.
Besides, the Canadian government also has agencies that buy mortgage debt from banks. This is very similar to Freddie Mac and Fannie Mae in the United States. These companies guarantee the debt on behalf of the borrowers. They provide these assurances with the backing of the taxpayer money. The problem here is that a lot of these loans are given to unstable borrowers who have put down very little in the form of down payments. Hence there is a chance that these borrowers might simply walk away from the deal if the prices go south. This has already happened in the United States, and it is appalling that Canada has not learned from its neighbours’ mistakes.
25-year-old crisis prediction:
What if I told you that this disaster was foreseen more than 25 years ago? Yes, I’m not exaggerating. An internal Canada Revenue Agency audit concluded in 1996 that wealthy new immigrants were buying up most of the priciest houses taken from a sample in and around Vancouver while declaring poverty on their tax returns. But the report was not made public until a five-year access-to-information battle concluded in 2021.
Housing and immigration academics say that the study could have warned the public about the scale of foreign money being parked in Metro Vancouver’s residential real estate – decades before the provincial government began taking meaningful action to slow this trend.
The CRA’s analysis from October, 1996. The audit focused on 328 higher-end sales in the suburbs Burnaby and Coquitlam, but the study also analyzed a random sample of 6,060 sales from Vancouver and neighbouring Richmond and discovered “similar demographic results.”
Of the 46 houses bought in Burnaby, staff found 72 per cent were purchased by new arrivals to Vancouver who reported an average total family income of just $16,000. In contrast, the CRA’s chart from the audit showed four buyers who were long-term residents reported average family incomes that were tens of thousands of dollars higher.
This income gap between new immigrants and neighbours who had lived there longer was also observed in Coquitlam, according to the CRA’s chart released in the package of documents.
But large parts of the internal communications around the release of this document were redacted because the agency said federal access-to-information law allows consultations or deliberations between government employees, a minister of the Crown or their staff to remain confidential. Democracy surely died a painful death.
The study was finally made public in 2021. Two years have passed, and the Trudeau government has made no significant steps to address the situation. Trudeau, on the other hand, did everything the report suggested not to do. As the report correctly identified, one of the key causes of the housing crisis is immigration. But guess what clever Trudeau did? He proposed welcoming nearly 500,000 immigrants to Canada each year. The policy’s rationale was to address a severe labour shortage. However, a rookie in policymaking would recognise how naive the proposal is.
The announcement signals a significant increase from the 405,000 immigrants that came to Canada last year and the 465,000 expected to arrive next year. The announcement also signals the growing pains that will come with the booming population. But this is what the federal government ignored while drafting the plan.
This information follows the release of updated census data that showed a record-high, 23% of the population is now made up of immigrants and permanent residents.
Four out of every five increases in Canada’s labour force between 2016 and 2021 were due to immigrants. Recent immigrants were largely chosen for their capacity to boost the country’s economy.
In other words, the Liberal administration intends to harm Canadian households in order to address the country’s employment crisis. As previously established, as the population grows, so will the cost of living, putting a strain on Canadians’ wallets. “Don’t address the problem, rather create more problems to make Canadians neglect about the prior ones,” the Trudean credo goes.
A solution with many flaws?
After being hammered up and down for years, Trudeau has finally decided to address the problem. The country’s government has introduced a ban which does not allow immigrants to buy property. The move is aimed at making more homes available to Canadian locals. Refugees and permanent residents have been allowed to purchase land as exceptions to the ban. In December the state of Ottawa clarified that the ban would apply only to city dwellings and not to recreational properties such as summer cottages a report by the Agence France Presse said.
Highlighting the vision behind the move the Liberal Party said “This is leading to a real problem of underused and vacant housing, rampant speculation, and skyrocketing prices. Homes are for people, not investors.”
But has Trudeau ever done anything close to flawless? The recent solution is less of a solution and more of a catalyst for the issue to worsen.
You see, the exception to refugee would merely motivate immigrants to choose the unlawful way and seek for Canadian resident-ship under the banner of “refugee”. Make no mistake: the number of persons seeking asylum in Canada as refugees will increase dramatically in the coming years.
Besides, there has been no talk about increase in housing construction to meet demand. The Canada Mortgage and Housing Corporation — the national housing agency — said in a June report that close to 19 million housing units will be needed by 2030.
That means 5.8 million new homes must be built, or 3.5 million more than are currently anticipated to be built to meet that demand.
Unlike a strong leader who responds and solves his country’s woes, Justin Trudeau is skilled at compounding them. Consumers in Canada are cutting back on their spending as inflation erodes their purchasing power. The country’s GDP is contracting; in fact, the economy of Canada may enter into a recession. Housing is becoming increasingly unaffordable. Rent is burning a hole in Canadians’ pockets. However, Trudeau’s incompetence has caused each of these crises to only mushroom in scale.