Chasing The Canadian Dream
The mayor of Caledon, a town of about 60,000 northwest of Toronto, says government can try all it wants, but the dream of owning a home will persevere.
Allan Thompson should know. His town, like many others that ring around Ontario’s capital, has become a launching site for new communities as people priced out of the core look to the suburbs (or what was once rural) for slightly cheaper housing.
An average new single-family detached home in the Greater Toronto Area (GTA) was $1,264,604 in 2016, according to the Building Industry and Land Development Association. But housing prices range from an average of $666,220 for a semi-detached home in Durham, northeast of Toronto, to $1.8 million for a detached home just north of the city.
“I remember I had this neighbour who was Portuguese,” said Thompson, who was a Caledon councillor for 11 years before becoming mayor two years ago. “He said to me, ‘For 20 generations back in Portugal, we all lived and rented houses in town. We had our sheep and our goats and our cattle.’ He said to me, ‘I was the first one ever to have a home.’”
That dream of home ownership is central to the escalating prices in Canada’s housing market, especially in larger cities such as Toronto where immigrants tend to settle.
Even though worries about so-called foreign buyers inflating prices dominate some discussions about runaway housing prices, the housing boom is more likely being driven by new immigrants looking to get a piece of that Canadian dream. It’s a mentality that says home ownership is a sign you have made it.
Canada has a home ownership rate of about 70 per cent, one of the highest in the world, and immigrants are buying in. A report from real estate consulting firm Altus Group Ltd. in January found that immigrants — defined as someone whose country of origin is not Canada — are purchasing one out of every two new homes in the GTA.
Matthew Boukall, senior director, Residential Products, Data Solutions, at Altus Group, said demand could get even stronger as the federal Liberals boost immigration totals from the annual base target of 260,000 that existed from 2011 to 2016.
“The Liberal government has announced their immigration targets will increase to 300,000 per year. The fact that half of our new home market is going to new immigrants and we are going to get (more) immigrants to Canada bodes well for the new housing market,” said Boukall, noting Toronto gets about 30 per cent of those immigrants every year.
Sales of existing Canadian homes continue to be hot and set another record in 2016. Numbers released Wednesday from the Canadian Real Estate Association show that sales activity in January 2017 was 1.9 per cent better than a year earlier.
The key problem in some markets is that there is simply not enough homes hitting the market to satisfy demand. This past week, Douglas Porter, chief economist at Bank of Montreal, said Toronto was in a housing bubble driven by foreign wealth, coupled with record-high demand and a shortage of detached properties.
In its take, U.S.-based FitchRatings said current price gains in Canada are not sustainable and predicted an increased likelihood of a correction, noting household debt had exceeded the size of the Canadian economy.
Others say the bubble is less likely to pop anytime soon.
“The shortage of homes available for sale has become more severe in some cities, particularly in and around Toronto and in parts of BC,” said Gregory Klump, chief economist at the Canadian Real Estate Association. “Unless sales activity drops dramatically, the outlook for home prices remains strong in places that face a continuing supply shortage.”
Royal Bank of Canada economist Robert Hogue said immigration has been a driving force in the Canadian housing market for some time in the major markets where immigration has been the strongest.
“Those markets tend to get the major share of recent immigrants,” he said.
Hogue points to a Statistics Canada study released in December that showed how the earning power of immigrants begins to rise over time and, while it didn’t address housing, it’s easy to see how increased income could translate into home ownership.
The median employment income of immigrant tax filers who landed in 2004 was estimated at $16,800 in 2005 (one year after landing). The same cohort’s median income increased to $26,000 in 2009 and $33,000 in 2014.
“It takes time for immigrants for earn the same income as those born in Canada,” Hogue said. “I suspect immigrants buying today are not as much those that came in the last year, but those who got established financially.”
Hogue said it’s unclear to him whether immigrants arriving to Canada today have more wealth and are entering the market more quickly. But the Altus survey found that 19 per cent of people buying new homes in the GTA do not take on a mortgage.
“Lucky them,” Boukall said with a laugh. “Are they foreign investors? If you’re asking me that, we don’t collect that information.”
How much foreign buyers — often really just speculators — have entered the Canadian market is a hot topic for both prospective homebuyers and governments.
The B.C. government clearly believes that foreign buyers are having an impact on the Vancouver market and slapped a 15-per-cent additional property transfer tax on them in August 2016. Prices there have since slightly declined while sales, already in decline, are off about 40 per cent from a year earlier.
The Toronto Real Estate Board (TREB) surveyed its members in December about foreign transactions and concluded only 4.9 per cent of the market came from that segment.
All of which raises the question of whether foreign buyers are being confused with immigrant buyers.
“People are having the conversation in Toronto and it’s been much more intense in Vancouver,” Hogue said. “Don’t confuse the two. I’d like to comment on Toronto statistics, but other than the survey done by TREB, we don’t have much (data). In B.C., we’ve had data since June and I would say the percentage of buyers from out of the country has not been trivial.”
But Dianne Usher, senior vice-president of Royal LePage’s high-end division Johnson & Daniel, said the real growth in the market has come from immigrants she calls “end users,” those who come to the country and plan to live in their homes.
“I’d say it’s happening in Toronto and Vancouver and then I would say Montreal,” she said, adding more immigrants are coming in with money, or are trying to get it out of their country of origin for good. “Canada as a whole is a safe haven because of the stable government, the education system, the health-care system. We’re a destination and it’s going to continue.”
She adds immigrant buyers will continue to purchase properties in and around large cities partly because of work and educational opportunities, but also because large urban centres are what many are accustomed to.
The biggest problem might be meeting all the demand, especially if immigration quotas are increased.
Tim Hudak, chief executive of the Ontario Real Estate Association, said it’s a good problem to have.
“We just have so many more people chasing fewer houses that prices are going to go up,” he said, adding the solution is increased supply. “Government policies have created artificial barriers.”
He thinks policy needs to focus on what he calls the “missing middle,” or townhouses, stacked homes and semi-detached housing. These are the kind of starter homes that can get people into the housing market.
“The single family home is almost becoming an extinct animal in the marketplace,” Hudak said.
Brian Johnston, chief operating officer of Mattamy Homes, which has development projects in Caledon and throughout the GTA, agrees the supply side continues to drive prices. He figures he’s selling more than 50 per cent of his homes to immigrants.
With immigration only increasing, he said the only solution is for government to create more low-rise housing to accommodate what is a growing segment of the population.
“Coming to Canada, part of the process is buying housing,” Johnston said. “You’ve got people coming from countries like China where they may own the house, but not the land. Owning a house is very powerful thing for some people.”
In Caledon, the mayor doesn’t think the push into his city is going to ebb any time soon.
“From here on in, as we know it, our population is just going to keep compounding,” Thompson said. “A lot of people are coming here from other parts of the world to live, quite of few of them don’t have mortgages. It tells you people are coming here by choice.”
Source: Garry Marr With The Financial Post