This is a pretty uniquely Canadian problem. So much of our GDP is based on non-productive assets (real estate) that we cannot afford to stop the train. The government will fight tooth and nail to keep people in their homes because if that house of cards collapses we are in for a
really rough time.
The US has a highly diversified economy that will keep chugging along if there is a real estate correction. 2008 was a pretty bad case of that but they rode it out in the end.
There's the:
- Renovators/investors/flippers who have fat HELOCs to throw around
- Immigrants that pool their money to buy a house designed for 4/5 people which will have 10 - 15 people living in it
- Foreign investors, sorry "international students"
- Middle/upper class millennials whose parents are giving them $200k for a down payment
The problem is that everyone at every step of the way benefits from this scheme except for young Canadians whose parents aren't giving them $200k to get started. That includes
- The government (GDP/economy growth)
- Mortgage brokers/lenders/banks (why yes sure I'll approve you for a mortgage based on no legit financials and suitcase full of cash)
- Existing home owners (I didn't save for retirement so I need my ****** bungalow from 1970 to increase 30% a year so I can have money when I'm 80)
- Real estate agents
Young Canadians get the shaft because we are importing 500k people a year who will accept lower living standards. The rich get richer and the poorer get poorer, a story as old as time.
What's new here? 30 years ago when the GenX crowd was entering the housing market the same gov't, mortgage crowd, existing homeowners, and real estate pigs were at the trough. Same goes for those middle/upper class millennials - 30 years ago their parents, GenXers, got in easy if their Boomer parents fronted down payments. Somewhat correct about immigrants from cultures where multi-generational families share the same home -- but that really a density issue and that's been around for a while too. In the old days a new family put their 5-7 people in a 1br or basement apartment -- now it's just family instead of strangers living in the basement. Not much new here.
You are correct there are foreign investors in much larger numbers, that's not a Canadian phenomenon, urban real estate in every cosmopolitan city has moved very close to cash and gold on the liquidity scale -- that's not likely to change quickly, I think that is a meaningful change.
To me, the above has some impact on housing prices, but not as much as gov't policy. Here's what I see gov't doing wrong:
1) Immigration. We need immigrants to fuel growth, that's not a question -- just look at the number of unfilled jobs in our labour market. What we do need is better policy and entry criteria. On the policy side, there should be target zones - not the voluntary types they have now. We don't need 95/100 new immigrants piling into the greater Van and TO areas.
2) Too much centralization in the GTA and Vancouver. The feds do little to encourage economic development across the great expanse of Canada. There is no more room or housing for people in Toronto or Vancouver yet the plan is to dump 400,000 people a year into those markets.
3) Restrictive and onerous regulation. Getting building permits to build a factory or a house took a few days 30 years ago. In the GTA there are up to 4 layers of government and countless intergovernmental departments that slow applications and approvals, it can take months to get a building permit for a bathroom, and years for a warehouse. This adds enormous cost and delays the market's ability to react to changing needs. As a result, we have a serious supply issue.
4) Gov't money cannons. As the feds continue to shoot printed money out of firehoses, the price of things will go up. That's exactly what's happening now -- more money available means more people can and will bid. This particularly benefits the wealthy as their assets inflate offsetting the higher cost of goods -- but it kills the less well off as they have fewer assets to inflate, all they see is cost of goods going up.
1,2,3 & 4 are IMHO the problems that need fixing.
