Nov 3, 2023Liked by Generation Squeeze, Andrea Long
The supply argument is so tricky! Most people have the correct sense that vacancy rates have a lot to do with rental prices, which makes it seem like more construction (of anything) should always be better than nothing. But it was harder for me to see the ways that projects all competing for the same 'stuff' (mostly land but maybe labour too) mean that lots of speculative demand can make it harder to get the right kind and amount of supply in the first place.
I was recently surprised to learn (from a CMHC report) that, despite high rents, purpose built rental doesn't pencil out in many cities mostly because of high land costs. Those land costs are supported by alternative uses like condo construction, with a lot of speculation involved. So I was happy to see some measures (like HST rebates and financing initiatives) to make it relatively more attractive to build purpose-built rentals rather than buy up existing supply, but I'm not sure that aspect has totally made it into the rhetoric about investors. Realistically we need private investment to get enough supply fast enough (although non-market housing is also important). It seems tricky politically to balance the message that we need investment to get market supply built with the message that investment has been really bad for bidding up prices on existing housing (including buying up existing PBR) and even distorting the market for getting new stuff built.
You are right. We do want to channel private investment for public good into building more purpose-built rental, especially where there is yet no rental so that those investments don't displace existing tenants. At Gen Squeeze, we have long recommended the HST rebates, for the reasons you identify above.
Another issue we are going to need to tackle is that all of the re-zoning to add "missing middle density" that is being incentivized by the federal government's use of the Accelerator Fund will result in "land value lift" for owners of single-detached and other low-density housing. Since the public is creating that additional land wealth by virtue of the re-zoning, we need to begin a discussion of how the public will capture much of it to re-invest in deeply affordable housing and other public benefits. Otherwise, the land value lift will be paid by developers, and passed on through to the purchase or rent-price of the new units.
Thanks for being part of the Gen Squeeze substack community. Best,
Nov 30, 2023Liked by Kareem Kudus, Generation Squeeze
Great post. Trudeau often says the right things. However there is rarely any depth. Canada gave him a super majority in ‘15 because of 4 commits, one of which was solving the escalating cost of housing. Until very recently, he’s done absolutely nothing to address it. In fact, with poorly planned immigration he exasperated it.
I agree, housing should be a savings account not an investment vehicle. Sadly. Canada’s silly approach to mortgaging has created a FOMO market of ‘amateur ’ real estate investors. It sucks people in to aggressive buying and then is used to haul billions out of the economy.
Just remember, actions speak louder than words. So far, his words are rarely backed up with actions and effective consequence planning.
So, when politically expedient statements are made, we must push for details before falling into the ‘15 trap we found ourselves paying for.
Ha! It's complicated and there are many variables to consider. But, one big one is Canada's short term mortgage financing base line. We can get a fixed rate car loan for longer than most traditional mortgage terms. Residential mortgaging should not be treated like consumer lending. Consumer lending is structured to encourage spending. Homes should not be treated the same way. When we do, as we have done, houses become a commodity for investing with people making buying decisions on long term value escalation, not having a roof over their heads and a long term savings account.
Again, this is just a very high level example and there are other considerations like immigration impact, consumer behavior etc. but the basic fundamental of Canadian residential mortgaging encourages bad behavior.
Jon argues that the impact of limiting investment would be "both immediate and dramatic. It would open up about 75,000 homes next year". Despite this potential, the reason there's been little action to date is "largely political. The biggest investors – by far – in residential real estate are individual Canadians, or so-called “mom-and-pop” investors. According to Statistics Canada, they own 23 per cent of all condos and 11.2 per cent of all houses in Ontario, which is more than both corporate and foreign investors combined. Other provinces have similar rates." The article points to several policy levers available to curtail investor demand - and to polls suggesting that many Canadians want to see more action. Let's hope governments are listening.
You're talking about taking care of <25% of 6 MONTHS' worth of immigration... with a once-only policy. What about the other 75%? What about the next 6 months?
Why are people always looking to the harder supply side issue when the real problem is masking an unfair funding of retirement and OAS through mass immigration?
This is great news for Generation Squeeze! It is also great to read something so positive about our Prime Minister. Trudeau lies low in the polls and there is constantly so much disdain expressed about his government. He will get the youth vote if he backs his words with actions.
The supply argument is so tricky! Most people have the correct sense that vacancy rates have a lot to do with rental prices, which makes it seem like more construction (of anything) should always be better than nothing. But it was harder for me to see the ways that projects all competing for the same 'stuff' (mostly land but maybe labour too) mean that lots of speculative demand can make it harder to get the right kind and amount of supply in the first place.
I was recently surprised to learn (from a CMHC report) that, despite high rents, purpose built rental doesn't pencil out in many cities mostly because of high land costs. Those land costs are supported by alternative uses like condo construction, with a lot of speculation involved. So I was happy to see some measures (like HST rebates and financing initiatives) to make it relatively more attractive to build purpose-built rentals rather than buy up existing supply, but I'm not sure that aspect has totally made it into the rhetoric about investors. Realistically we need private investment to get enough supply fast enough (although non-market housing is also important). It seems tricky politically to balance the message that we need investment to get market supply built with the message that investment has been really bad for bidding up prices on existing housing (including buying up existing PBR) and even distorting the market for getting new stuff built.
Valerie, what a clever comment you share. Thanks.
You are right. We do want to channel private investment for public good into building more purpose-built rental, especially where there is yet no rental so that those investments don't displace existing tenants. At Gen Squeeze, we have long recommended the HST rebates, for the reasons you identify above.
Another issue we are going to need to tackle is that all of the re-zoning to add "missing middle density" that is being incentivized by the federal government's use of the Accelerator Fund will result in "land value lift" for owners of single-detached and other low-density housing. Since the public is creating that additional land wealth by virtue of the re-zoning, we need to begin a discussion of how the public will capture much of it to re-invest in deeply affordable housing and other public benefits. Otherwise, the land value lift will be paid by developers, and passed on through to the purchase or rent-price of the new units.
Thanks for being part of the Gen Squeeze substack community. Best,
Paul
Great post. Trudeau often says the right things. However there is rarely any depth. Canada gave him a super majority in ‘15 because of 4 commits, one of which was solving the escalating cost of housing. Until very recently, he’s done absolutely nothing to address it. In fact, with poorly planned immigration he exasperated it.
I agree, housing should be a savings account not an investment vehicle. Sadly. Canada’s silly approach to mortgaging has created a FOMO market of ‘amateur ’ real estate investors. It sucks people in to aggressive buying and then is used to haul billions out of the economy.
Just remember, actions speak louder than words. So far, his words are rarely backed up with actions and effective consequence planning.
So, when politically expedient statements are made, we must push for details before falling into the ‘15 trap we found ourselves paying for.
Agree with you Steve, also, I'm curious, which aspect of the mortgage market are you thinking about here?
Ha! It's complicated and there are many variables to consider. But, one big one is Canada's short term mortgage financing base line. We can get a fixed rate car loan for longer than most traditional mortgage terms. Residential mortgaging should not be treated like consumer lending. Consumer lending is structured to encourage spending. Homes should not be treated the same way. When we do, as we have done, houses become a commodity for investing with people making buying decisions on long term value escalation, not having a roof over their heads and a long term savings account.
Again, this is just a very high level example and there are other considerations like immigration impact, consumer behavior etc. but the basic fundamental of Canadian residential mortgaging encourages bad behavior.
Couldn't agree more with you Steve - great insights, thanks for sharing!
Check out this great new op ed on the topic of housing investors by Jon Shell from Social Capital Partners: https://www.theglobeandmail.com/business/commentary/article-housing-crisis-residential-home-sales-investors/
Jon argues that the impact of limiting investment would be "both immediate and dramatic. It would open up about 75,000 homes next year". Despite this potential, the reason there's been little action to date is "largely political. The biggest investors – by far – in residential real estate are individual Canadians, or so-called “mom-and-pop” investors. According to Statistics Canada, they own 23 per cent of all condos and 11.2 per cent of all houses in Ontario, which is more than both corporate and foreign investors combined. Other provinces have similar rates." The article points to several policy levers available to curtail investor demand - and to polls suggesting that many Canadians want to see more action. Let's hope governments are listening.
Does that 75K matter when >430K people entered the country sine July 2023? (source: https://www.ctvnews.ca/canada/statistics-canada-reports-record-population-growth-in-q3-population-grows-by-430-000-1.6693405)
You're talking about taking care of <25% of 6 MONTHS' worth of immigration... with a once-only policy. What about the other 75%? What about the next 6 months?
Why are people always looking to the harder supply side issue when the real problem is masking an unfair funding of retirement and OAS through mass immigration?
This is great news for Generation Squeeze! It is also great to read something so positive about our Prime Minister. Trudeau lies low in the polls and there is constantly so much disdain expressed about his government. He will get the youth vote if he backs his words with actions.
Agreed Glen - it's a hopeful development! Language around housing does seem to be shifting of late, and in a positive direction. The Greens have also been saying some good things about not using homes primarily as investment vehicles, as well as pointing out that broader structural changes are needed to fix the housing system. Here's a recent article about BC Greens: https://www.timescolonist.com/local-news/les-leyne-greens-views-on-decommodifying-housing-may-have-quiet-ndp-support-7716972. And check out this speech by Elizabeth May on Bill C-56: https://www.youtube.com/watch?v=Zrv4aGu-Yuo