No chance this crushes the 'bubble'. Record immigration, developers have greatly reduced housing starts, and people will do anything to keep their mortgage as asset prices continue to rise.

There's no political will at any level (muni, provincial, federal) to build housing, remove zoning, to reduce immigration to reasonable levels, and it's starting to feel hopeless.

Average rent for a 1br in Vancouver is $2250 - an individual following the 30% rule needs to make 90K/year to justify that. The system is broken and we'll continue to hear platitudes from the government, and that goes for both the Libs and the Cons.

Every time I hear the Canadian government responding to this housing crisis... the only thing they do is pass policies that enable people to buy even "more" expensive houses.

For example, their big move last year was to let people sock another $8000 away to put towards a house tax free while at the same time increasing immigration to eye popping levels. Another thing to note with Canadian immigrant strategies, these numbers often don't include "temporary" students and others which use the program "on mass" to immigrate into Canada if they didn't succeed through other means.

An immigration explosion is typically excellent but it must be matched with housing development growth and Canada is literally doing the opposite... mind boggling.

What should the Canadian federal government do? Housing is a provincial and municipal responsibility. They're the ones that set zoning and housing regulations.

This is only arguably true because Jean Chretien decided to completely disengage and walk away in 1993 to solve his budget problems.

Prior to this the Federal government was deeply, deeply involved in housing in this country, both literally building social housing and also incentivizing both social, coop and market housing through huge amounts of tax expenditure.

Accordingly there was an enormous amount of apartment development through the 60s/70s when the government was most involved in incentivizing housing, and then as investment was cut down, it eroded all the way to nothing.

After the feds walked away it got to the point where nothing was being built at all and the country was just coasting. No one built social housing in Nova Scotia for 30 years for example. https://globalnews.ca/news/9784037/ns-public-housing-stagnan...

There is no single silver bullet to our housing problems, but honestly if we had to look for one, some single thing that had the biggest contribution, it probably would be that 1993 budget.

Canada actually has a national crown corporation that exists solely to improve housing affordability https://www.cmhc-schl.gc.ca . They funded or built significant housing supply for decades up until the 1990s when their funding plummeted. Wikipedia has an excellent history write up of CMHC. https://en.wikipedia.org/wiki/Canada_Mortgage_and_Housing_Co...

Yep. I didn't read the Wikipedia article, but, AFAIK, there used to be more non-market or co-op housing in Canada where the cost of rent, etc. was tied to the actual costs instead of what the market will bear. That acted as a check on runaway greed since it gave people a good comparable (at least for rent) that was based on fair value rather than maximizing profit.

They could at the very least not import 1M a people a year (many of whom come here to study at diploma mills that result in no real career skills and considerable debt) at a 38M population, and limit corporations and non-citizens from buying property.

It's on the provinces to get rid of zoning and speed up development of new housing starts, but the Feds are pouring gasoline onto a house on fire with no regard for the rest of us. We wouldn't have such a significantly declining birthrate if people could afford to have children of their own in Canada.

Is it 1m per year or 1m since COVID began? I dug up stats a few weeks ago and the best I could find was 400k or so in 2022.

It's about a million if you include non-permanent residents: https://www150.statcan.gc.ca/n1/daily-quotidien/230322/dq230...

I think it's relevant to include them here because even if they're not staying permanently, they still need places to live.

AFAICT, that's double counting. IOW, a significant portion of non-permanent residents eventually become permanent residents, and get counted when they become permanent residents.

The Federal government controls immigration policy, and also wields tremendous power through taxation.

They also control inflows of money from outside investment.

Yep it's the taxation folks.

For example one of the biggest costs on apartment builders that dissuades them from building apartments is the HST. Developers are constantly saying this makes their projects unviable and kills them.

The Federal government could waive the HST tomorrow and massively incentivize apartment development.

The Liberals even promised to do this in past campaigns, then reneged on this.

In the past when apartments were being built rapidly it was aided by enormous tax expenditure from the federal government.

Huh? The HST is a consumer end-user tax. Any HST that businesses pay is fully refundable.

If it was a condo development being sold, then yes the end buyer of the condo would pay, but if it's a purpose built rental, then the builder has to pay the tax.

> Residential builders sometimes face unexpected GST/HST liability due to the self-supply rules in Canada's Excise Tax Act. In effect, the self-supply rules deem a builder to have sold to itself a residential property at fair market value if the builder constructed or substantially renovated that property and then either rented it out or personally occupied it.

In effect this makes purpose built rental (PBR) dramatically less viable than condo development and a core reason why builders basically stopped building PBR entirely.

Setting aside the discussion around whether PBR or condo is better to build etc, the core point here is while yes, housing is a provincial responsibility, the Federal government's taxation policies have a dramatic impact on the sort of housing that is built in this country.

I don't quite get this argument. I can kind of see it, but isn't the total cost of the property the same whether or not it's sold to an end buyer or purpose built as a rental?

For example, if you have 2 condos that worth $100k, an end buyer pays $105k after GST and a corporation building a rental pays $105k. I don't see how that's unfair unless the corporation is looking for a sneaky way to have the government subsidizing their business.

How would that be fair to me if I was the end buyer purchasing a condo as a rental property? Should I get a rebate for the GST to keep it fair?

That said, I think there should be a total ban on corporate owned residential property. Eventually we'll all be renting from private equity firms if we let the current trends continue.

> I don't see how that's unfair unless the corporation is looking for a sneaky way to have the government subsidizing their business.

It isn’t about fairness or not, it is just an explanation as to why everyone is building condos rather than apartments, which really sucks because instead of renting from a large landlord that has actual experience and staff, you end up renting from some dentist turned real estate “investor” who is magically on vacation when there’s a leak in the unit and doesn’t pick up the phone after 8pm. Clearly there is a place in the market for both types of landlords but the HST structure disincentivizes one type of landlord from existing.

> How would that be fair to me if I was the end buyer purchasing a condo as a rental property? Should I get a rebate for the GST to keep it fair?

This might be one solution, or go the other way and disallow condo developers from claiming the ITCs.

Not going to get into the discussion of PBR vs condo and why you'd want to do either, but I'll elaborate more on how the taxation makes PBR unviable.

The difference between these two scenarios is in the financing, and financing is critical in the entire viability of the project.

In the Purpose Built Rental scenario the builder has to pay lets say 12% for each of these 100k condos in a 125 unit building, which ultimately results in the building costing an additional $1.5M to build. They need to find that money or find financing for that money.

In the condo example the building is $1.5M cheaper to build as they do not need to find that money, they simply sell all the condos and the buyer pays.

It's easier to get financing for a smaller amount of money, and so the condo becomes more viable and more likely to be built.

Now 1.5M maybe doesn't sound like a big deal, but from my understanding of the development industry all this really matters and adds up.

We've seen in Canada the entire market for PBR pretty much disappear and be entirely taken over by condos so this is not really any sort of debate. The development industry has talked about this a lot.

The core underlying point is though then that if there is political desire to build more PBR than condos, it's not just a provincial issue, since the fundamental taxation difference is an important part of the underlying incentives that drive people to make different sorts of housing tenure types, and this is a federal issue.

This is just one example. There's all sorts of ability for the federal government to change incentives via taxation.

(in the past one of the biggest reasons why so many apartments were built was all sorts of other capital gains tax benefits around apartment development which no longer exist)

"We will give any municipality that fills out this form $23,800,042 to build affordable housing; each 2 bedroom apartment must be sold for $123,456 and cannot be sold above $234,568 for the next 15 years."

Nationalise homebuilding!

It's silly to pretend that large-scale homebuilding isn't being done with profits that only incentivise restricted volumes of building. Federal or state building could rectify supply and stabilise prices.

That said, it's decades too late. We're at the top of a tall, steep hill. As soon as enough people start walking away from their mortgaged homes because they can't afford repayments —which will happen with base rates so high— the market will crash.

> the market will crash

I think there's a good chance investment firms buy up everything. If people are walking away from their mortgages that means the properties can likely be bought below market rates, especially if they can do bulk or quick deals with banks.

As supply consolidates the market rates will keep going up, so the smart choice for anyone with a huge investment in the market is to just keep buying until they own everything, right? Don't let the market crash. Instead, prop it up until you own so much of it that you effectively make the rules and set the market rates.

Canadians can’t walk away from their mortgages the same way as Americans. Mortgages are recourse to all your assets.

Canadians can file for bankruptcy. That's essentially the at-scale risk of what we're talking about here.

The IMF says Canada is the highest risk market for this collapse right now too. It's going to be a rocky few years.

https://financialpost.com/news/imf-warns-canada-highest-risk...

Investment firms are already facing massive holes in their books as office space around the world goes unlet and devalues.

In my area we're already seeing people trying (and failing) to sell at reasonable prices. The average mortgage repayments are set to rise by £6kpa. It won't be afforded for long.

Yes, I'm sure someone will clean up, but it won't buoy prices and it'll only make the long term picture worse.

> to reduce immigration to reasonable levels

Given the current situation, a reasonable level would involve a negative immigration rate.

The "temporary foreign workers" and the foreign "students" could immediately return home, for example.

This would help housing prices but otherwise crush GDP growth. The problem is that there are no good answers now and governments are really bad at choosing from terrible options so they’ll just find a way to kick the can down the road and make it 10x larger, which is why we are in this place to begin with.

Well, Canadian / Anglosphere governments, anyway.

https://www.sightline.org/2021/05/27/yes-other-countries-do-...

Indeed, it's a terrible situation. If it does not crush the bubble, it will be interesting to see how it plays out. At higher interest rates, shelter becomes an ever increasing component of core CPI growth. There's about another year remaining before this feedback loop makes itself impossible to ignore. Otherwise, non-shelter prices will have to drop quite significantly for inflation to moderate with such pressing increases in rents and mortgage interest. But that would be indicative of a recession, which would put many mortgages in jeopardy.

The BC government has started twisting some municipal governments' arms to loosen some of the zoning. The effects may be too little too late though.

> There's no political will at any level (muni, provincial, federal) to build housing, remove zoning, to reduce immigration to reasonable levels, and it's starting to feel hopeless.

Ford seems pretty serious about it in Ontario, freeing up new development land, banning municipalities from holding developers hostage until they pay random art contribution fees and other pet project fees, gutting heritage group powers and other NIMBY bullshit, and granting strong mayor powers. I don’t like the man’s politics generally but I do feel like he is most serious about the housing crisis.

> There's no political will at any level (muni, provincial, federal) to build housing, remove zoning, to reduce immigration

I see at least one level that sure gives the impression they want, and are subsequently demanding, more housing. I'll give you the fact that it's neither Libs nor Cons though.

https://www.nsnews.com/bc-news/bc-prepares-to-remove-some-ho...

https://www.timescolonist.com/local-news/province-reveals-10...

I don't think it's a bubble. There are no places to buy or to rent. Our major cities simply do not have enough housing. We have to build more, and higher interest rates make that even more difficult.

Saying cities are running out of housing is really just saying that jobs in cities still look attractive at current housing prices. Double current prices and suddenly most of those jobs wouldn’t look attractive which instantly reduces demand for housing until you’re back to current prices.

Interest rates do little to discourage home construction, the limitations are from transportation and zoning issues. Ie: The worse the transportation system the fewer areas are viable to build housing, and the more important existing housing and zoning restrictions in those areas are.

As long as people continue to buy up housing as an investment, without even trying to earn rental income, we’re going to see this crisis continue. Higher interest rates put the squeeze on ordinary Canadians with mortgages but investors are just buying housing with cash. It’s brutal!

> investors are just buying housing with cash

That seems unlikely. Investors are, if anything, the most rate-sensitive, both in terms of borrowing costs and opportunity costs (they will move their cash out of housing and into bonds, if the bond yield is higher than what they'll earn on rent and price appreciation). Ordinary residents will buy even at the peak, risking loss, because they need a place to live, but investors don't buy housing because they need it. They can't rely on other investors being the bigger fool, and so in a rising-rate environment they either buy if they can raise rents high enough, or else they will put their cash elsewhere.

It's almost as if outsourcing all jobs that aren't done in cities to China wasn't a great idea.

> Double current prices and suddenly most of those jobs wouldn’t look attractive which instantly reduces demand for housing until you’re back to current prices.

Sure, but we've already done this several times in our major cities, and it hasn't killed demand.

> Interest rates do little to discourage home construction

https://financialpost.com/real-estate/cmhc-housing-starts-dr...

“With interest rates remaining high, it continues to be challenging for developers and homebuilders to get projects started,” he said in a press release.

That article is from April and housing starts dropped further.

In the 1970's Canada had a lot of purpose built rental stock subsidized by the government. You could find a place to live anywhere. I think there has to be some of that, plus some top-down work on zoning (which is happening in some provinces, overriding municipalities) and then we need to just build and build.

> Sure, but we’ve already done this several times in our major cities, and it hasn’t killed demand.

Not over an afternoon. Housing prices haven’t grown in a vacuum, massive increases in productivity and population over time feed back into peoples ability to pay for things. Beachfront vacation homes have also become vastly more expensive for related reasons, but that obviously gets less press than peoples primary residences.

Most things are priced based on what it costs to create them, other stuff is based on how much people can afford. Urban housing has entered the second category and it’s going to take a lot more than minor interest rate changes to reverse this trend.

Your point about transportation is key. Many of our cities are un-walk-able, un-transit-able, and sometimes even un-drive-able. If we can't easily provide multiple options for getting from A to B in a city, there is little hope of providing viable housing options.

We already have the "must own a car" requirement for most of Canada, but even that's becoming not enough thanks to the fact our roadways are under-developed and the price of gas (and owning a vehicle) is rising rapidly.

Those are some pretty massive road blocks in the way of home ownership for an average person, I can't imagine developers are keen to keep adding to the problem.

The problem with this theory is that almost nobody who lives in these cities is paying current prices for a home. A person in Vancouver or Toronto needs a top 1% income to buy a detached house. Almost everyone with a home can only afford it because they bought a long time ago. Almost every city is like this so “just move” isn’t a realistic option. People will continue living here because they either don’t have to care about the price (bought long ago, inheritance, love with family, etc) or because they’re a poor immigrant that’s happy to share a 1 bedroom apartment with 5 strangers for $600 a month

The average Vancouver house dweller makes 44k which is way lower than people in any other home type. People are buying houses with wealth, not income. It doesn’t matter what jobs pay.

Homeowners don’t as a rule directly set prices just as people holding stocks indefinitely don’t set stock prices. However there’s a constant stream of people dying etc which brings such homes onto the market and needs to be offset by people buying in.

Renters are different because they regularly sign a new lease and so very much do care about changes to the prices. Renters leave cities for many reasons, but high rent is a common one especially at retirement.

The shortage of housing is even worse outside of the major cities.

BoC policy is making creating new housing to become increasingly unviable at the same time that we need to accelerate housing construction the most.

I'm sure it'll turn out fine!

It’s necessary for long term economic growth.

It isn't working so far. Prices continue to go up, housing starts are down.

And permits are way higher than houses being built, it's more like market failure.

I don't know much about this area so maybe you can unpack this for me. Are you saying people are getting building permits, but not actually building? Why would that be happening? And what about the market is causing it?

They’re not building because they believe they can earn more profit by waiting for property values to go up.

… and a permit is required to hold the property? (I'm curious why people are having permits issued if they have no plan to build)

Is this like domain names?

Parent comment is incorrect. No one goes through the costs of design and permitting and planning approvals to do nothing and hope prices go up. You’d wait and land bank and then do it when you were ready to develop.

Developments have been put on hold because interest rates skyrocketed and inflation in construction costs has as well. So original business plans are no longer viable.

Developers are getting permits but then the interest rates have gone up so much, or other market conditions have shifted, such that it is no longer viable to build the building.

The problem is that the system is too rigid and the conditions of project viability are extremely narrow.

You'd think the cost on the largest piece of debt a family hasdoubling would have a negative effect, but not in Canada to date, extend and pretend is the name of the game. The government seems set to prevent any reckoning by instructing and monitoring the banks to lessen the impact via the body that regulates them. A week ago the Financial Consumer Agency instructed banks to take steps to assist mortgage holders "The guideline sets out how FCAC expects federally regulated financial institutions to provide tailored support to consumers with mortgages on their principal residence who are experiencing severe financial difficulty."

- negative amortization - not charging interest on any interest not being covered - not charging too high of rates on fixed term renewals (not sure how this one works given the cost of capital on a 5yr terms is ~ 5-5.5% -> force the banks to loose money on renewals I guess?)

So maybe the strain will slow and it will shift to non regulated debt like credit cards. It will be harder to borrow for first time buyers as banks pull back. Lots of unintended consequences I'm sure.

I imagine the hope is you can pretend rates are actually not at a 20yr high by forcing the banks to not pass on the costs, and hope they go back down again the old "money is free" days. Problem is the cost of housing staying artificially high and not letting property values comes down is just forcing the housing input to inflation to be high giving the BOC tough choices. The market is seriously fucked up, a reasonable family home in a 2nd tier city is 1M which is a cost (opportunity or real) of 130k / yr (after tax) - so better hope your family income is 200-250k. If you're 20-30 forget about it, borrow money from the bank of mom and dad.

On the plus side making 5% on a savings account is now real money -> the risk free return hasn't been this high for a long time (20 yrs?). Either rates need to come down or asset prices do, but I agree that eventually something has to give.