Johnny & Janey Canuk Simply Can’t Compete

Glover Zeroes In On Who Is Responsible For High Home Prices

Opinion by Dave Glover

Back in the late 90s, when my wife and I were hoping to buy our 1st home, we had to rely on the kindness of the vendor. 

We had a sufficient down payment, but banks were risk-averse, especially after the wild ride interest rates took in the ’80s. A time when interest rates reached 16 or 17%.

Back then, banks wanted more than 10% down.

We managed to use our RRSP contributions and saved money to get together enough for a down payment on a home in Scarborough. We were lucky. The vendor was gracious enough to hold the mortgage for us.

The history of home ownership in Canada is a wild ride and I am not going to take you on it, but it’s worth looking at because it explains how we got to the present state of excessively high home prices and a market that does not encourage 1st home buyers.

Back when we bought home in Scarborough, the only people we were competing against were people like us, young families looking for a place to live and raise a family.

Even then, prices had begun their steady march to the dizzying heights of the present day. Essentially, the Canadian housing market has been a bull market for over 25 years.

But it was manageable, and many bought their first home without any financial trauma.

Along came he global financial meltdown in late 2008 and on into 2009 and that changed the game when the commodity purchasing of homes in the USA & in Canada started happening. Buying homes with cash for investment purposes.

For the first time, 1st time home buyers had to compete against people with deep pockets.

Then, Real Estate Investment Trusts (REITs) and hedge funds jumped into the market buying homes as investment properties.

Before the meltdown, REITs were only interested in commercial properties like plazas and malls. During the financial meltdown, when many could no longer pay for their mortgages and declared bankruptcy or simply walked away from their homes, fund managers switched their investment strategy. They aggressively bought up thousands of homes and turned them into investment properties.

While the housing market in the US was decimated by “sub-prime mortgages” the Canadian Market, thanks to our tighter regulations, was barely touched.

However, the game was in Canada as mutual funds and investment trusts began to compete in the housing market and pay cash for family homes.

In Canada, this has created a two-fold problem in Canada.

1) Johnny & Janey Canuck simply can’t compete.

Cash buyers drive up prices with bidding wars. 1st time home buyers and young families have little room to maneuver financially. Their offer on a house is generally the best they can do. If they are lucky, they have a family member who can help them out but, as a rule, they have no deep pockets

2) As housing has become more expensive, so have rents.

Early on, before prices started skyrocketing, there was a healthy market in buying properties as the source of a secondary income.

A person with a some savings could put the money down on a second home and get their tenants to cover the cost of the mortgage with their rental payments.

They could do this with no out-of-pocket expenses. to them. At this time, rents were still affordable. It was during a period from the mid-to-late ’90s until around 2010.

However, after the 2009/2010 financial upheaval, rents went up. Many renters who had been saving money for a down payment now had to pony up more money. And the dream of owning home became more challenging.

As housing prices continued to climb, there was a rumble in the financial markets about the ever-growing housing bubble, but the government of the day saw no reason to panic. 

After all, Canada weathered the financial meltdown and Canada didn’t have to bail out our banks to the same level the US had had to.

In fact, Canadian leaders were kind of smug about how Canada weathered the financial crisis even saying that we hadn’t bailed our banks out with public dollars even though the Harper Government did spend billions of Canadian tax dollars shoring up our struggling banking sector.

All the while, Canada’s housing bubble  kept on growing.

In 2014, just before the federal election, Mr. Harper ignored a report that indicated that Canada was headed for a massive “Correction” in housing market, and put aside the claims that the Canadian housing market would become unaffordable unless new regulations were introduced or the government intervened.

The government of Stephen Harper chose to not only ignore this report, it shelved the report.

https://www.cbc.ca/news/business/harper-dismisses-reports-of-a-canadian-housing-bubble-1.2776802

The Liberal government that followed only found the report when doing research on the housing market.

 This brings us to the present day.

Currently, Canada has a federal opposition leader that seems to no longer believe in the free market.

Even as he screams about eliminating gate keepers from the housing market, and getting more homes and apartments built, he blames the current Prime Minister. 

Mr. Poilievre claims we haven’t been building enough apartments while ignoring the crop of condos and townhouses that have popped up like dandelions across Canada’s urban landscape.

Because they are not affordable rental units, to his mind, they don’t count.

He is conveniently ignoring the fact that Ottawa doesn’t determine when, where or how many news homes are to be built.

The responsibility falls to provincial premiers and municipalities. They are in charge of when, where and how many.

And right now, there is a lot of confusion as local governments struggle to step up.

Developers love to claim, municipal governments are the problem.

Locally, in Northumberland, our municipal governments have been very accommodating.

Until now, when they have realized how the provincial government loves to the power of Municipal Zoning Orders (MZO) to help out a developer who has hit a zoning or planning issue snag.

What is driving excessive home prices, higher rents, and newly imposed development fees?

Greed.

Developers aren’t willing to develop or build infill projects because the return on investment isn’t as great as they would like and they can be complicated, especially in well-established neighbourhoods.

Developers love to build on virgin land because they can demand bigger margins.

Municipalities then have to provide basic infrastructure for those developments for which they must charge development fees in order to cover the cost of sewers, roads, water and the infrastructure that supports them.

Thanks to the latest Ford government regulatory changes, municipal government i.e. local ratepayers — you and me — will be paying to provide that infrastructure for those developers.

We’re subsidizing these builds.

So, what’s the bottom line?

Banks and fund managers have essentially taken hold of the housing market from supply to demand.

Banks decide which builds get financed and when.

Developers determine where and how a municipality will house its population.

Banks, developers, the politicians that dance to the tune of developers, are the gatekeepers.

We don’t have a housing crisis, we have a greed crisis.

As long as the market is treated like any other commodity exchange, the prices will remain out of reach for the average 1st time home buyer. This is by design, because a person who can’t buy has to rent and these same market forces also control the rental markets.

And thanks to Mr. Ford, rent controls are no longer in place to ensure a fair market value.

You might know somebody who has lost their apartment because of the skyrocketing cost of rent or due to the scourge of renoviction. When long-term renters are essentially kicked out so the landlord can renovate which allows him to jack up the rent.

We need a reinstatement of rent controls on rental properties and tighter regulation on the purchase of properties by REITS and hedge funds. We need to regulate the retail market for homes and not allow them to become commercial properties. It is time to get commercial investors out of the residential housing market. Johnny & Janey Canuck should be able to afford to buy a home on a medium income.

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Dave Glover is a well known cultural and political commentator in Northumberland. Thousands of listeners, both locally and worldwide, know Dave because of his “Drive Time” radio broadcast that ran for more than 8 years and his 15 years hosting political programs on a local cable channel.
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