*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[blankall]

Originally Posted by CliffFletcher

We are targeting those immigrants. But so are the U.S., Australia, the UK, Germany, etc. There are only so many nurses from the Philippines and house framers from Ukraine to go around.

A sensible policy would be to tie immigration levels to a four-year running average of housing starts. So 300k immigrants at 150-200k average housing starts in the last four years, 400k immigrants at 200-250k housing starts, 500k at 250-300k housing starts, etc.

I doubt it would be politically feasible, though.

Canada needs some kind of link between housing and immigration numbers....Apparently, nothing practical is also politically feasible though.

[blankall]

Originally Posted by GGG

The Canadian immigration points system is designed to target at need professions with fairly significant boosts though it’s been years since I have looked at it so don’t know the current state. It is a merit based system unlike the more random US system.

Canada is definitely bringing in lots of skilled people they need. The problem is the proportion is not enough, and we're already way over housing capacity. Cliff raises a great point that there is a lot of competition for many of these workers. The answer should be to lighten up on immigration, instead of stating we can only get X workers we need but we're letting in 1,000,000 people total no matter what.

[opendoor]

I don't know, when you look at housing starts over the last decade compared to the US, I'm not sure supply really looks like the biggest issue for price disparity:

US: Average of 1.2M/year (about 3.7K per million population)

Canada: Average of 215K/year (about 5.7K per million population)

So per capita, Canada has had about 55% more housing starts than the US over the last decade, yet prices have increased much faster here. Or look at a place like Germany; they've averaged only slightly more housing starts than Canada over the last decade, despite having double the population.

So I don't think the idea that we're going to build our way into affordability is really backed by the evidence. Canada is already well above the OECD average for housing completions relative to existing supply, and the highest countries by that metric are some of the most unaffordable in the world (Australia, New Zealand, etc.) while countries at the bottom of the scale (Italy, Portugal, Spain, Germany, etc.) are generally pretty affordable. Which makes sense, as high prices encourages more construction and more property speculation. But that doesn't really help affordability.

Yeah, people point to the housing units per 1000 people stat where Canada is relatively low, but that has far more to do with demographics than anything else. Older countries with higher amounts of single-person households and higher rural populations will tend to have smaller household sizes than younger countries that have more families and more people living in cities.

[blankall]

Originally Posted by opendoor

I don't know, when you look at housing starts over the last decade compared to the US, I'm not sure supply really looks like the biggest issue for price disparity:

US: Average of 1.2M/year (about 3.7K per million population)

Canada: Average of 215K/year (about 5.7K per million population)

So per capita, Canada has had about 55% more housing starts than the US over the last decade, yet prices have increased much faster here. Or look at a place like Germany; they've averaged only slightly more housing starts than Canada over the last decade, despite having double the population.

So I don't think the idea that we're going to build our way into affordability is really backed by the evidence. Canada is already well above the OECD average for housing completions relative to existing supply, and the highest countries by that metric are some of the most unaffordable in the world (Australia, New Zealand, etc.) while countries at the bottom of the scale (Italy, Portugal, Spain, Germany, etc.) are generally pretty affordable. Which makes sense, as high prices encourages more construction and more property speculation. But that doesn't really help affordability.

Yeah, people point to the housing units per 1000 people stat where Canada is relatively low, but that has far more to do with demographics than anything else. Older countries with higher amounts of single-person households and higher rural populations will tend to have smaller household sizes than younger countries that have more families and more people living in cities.

Housing doesn't correlate 100% with new supply.

Total population isn't really relevant to shortages, as the key factor is population growth. Germany, Italy, Spain, Portugal's population is not growing. US population growth is slowing. Canada's population growth is ramping up to over 2.5%/year, which is massive for a modern industrialized country. You can go on about housing starts, but it's simply not enough and hasn't been enough for years. Canada needs to not only ramp up their housing starts for people coming in this year but deal with the lack of supply for the last decade plus.

[CliffFletcher]

Canada has high rates of 1-2 people households in homes with 3+ bedrooms. Planners assumed empty nesters would downsize and free up detached homes, but it turns out most want to age in place and are reluctant to leave their neighbourhoods. Many say they would be open to downsizing, but only if they could stay in their neighbourhood. So modest densification (ie 4 unit walkups) in mature suburbs is part of the puzzle. In Calgary terms, in communities like Oakridge, Parkland, Silver Springs.

[opendoor]

Originally Posted by blankall

Housing doesn't correlate 100% with new supply.

Total population isn't really relevant to shortages, as the key factor is population growth. Germany, Italy, Spain, Portugal's population is not growing. US population growth is slowing. Canada's population growth is ramping up to over 2.5%/year, which is massive for a modern industrialized country. You can go on about housing starts, but it's simply not enough and hasn't been enough for years. Canada needs to not only ramp up their housing starts for people coming in this year but deal with the lack of supply for the last decade plus.

Sure, but housing prices didn't just start going up since immigration ramped up. From 2000 to 2020, Canada's population went up 23.7%, or about 1.1% a year. In that same time period, we added about 1.3% a year to the housing stock. Despite that, real property prices (i.e. accounting for inflation) went up by 200% in those 20 years.

In the US by comparison, their population grew by 0.9% a year over the time period and their housing stock increased by that same 0.9% a year. Yet their real residential property prices increased by only about 35%.

Now to be fair, Canada's residential prices were at the end of a long stagnant period in 2000 while US prices had already seen some appreciation in the late '90s. But even accounting for that, Canada's prices have increased significantly faster than the US's despite Canada adding much more housing stock relative to population growth than the US.

And a place like Australia shows a similar pattern to Canada. They've had relatively fast population growth (about 1.5% a year over the last 20 years), but their housing stock has increased even faster, at almost 2% a year. Yet prices have followed the same trajectory as Canada, basically tripling from 2000 to 2020 after accounting for inflation.

I don't know, can you name any countries that solved persistent high house prices with a bunch of construction? South Korea has had a pretty stagnant population and has added over 2% to its housing stock per year (#1 in the OECD), yet their house prices have skyrocketed over the last 20 years as well.

[GGG]

https://tradingeconomics.com/canada/price-to-rent-ratio

Price to rent ratios increasing overtime is interesting and I think an element of the problem.

In the past likely due to high barriers to get mortgages you had higher rents relative to housing price. As mortgages became more accessible (and interest rates dropped) that ratio increased.

[Monahammer]

Originally Posted by opendoor

Sure, but housing prices didn't just start going up since immigration ramped up. From 2000 to 2020, Canada's population went up 23.7%, or about 1.1% a year. In that same time period, we added about 1.3% a year to the housing stock. Despite that, real property prices (i.e. accounting for inflation) went up by 200% in those 20 years.

In the US by comparison, their population grew by 0.9% a year over the time period and their housing stock increased by that same 0.9% a year. Yet their real residential property prices increased by only about 35%.

Now to be fair, Canada's residential prices were at the end of a long stagnant period in 2000 while US prices had already seen some appreciation in the late '90s. But even accounting for that, Canada's prices have increased significantly faster than the US's despite Canada adding much more housing stock relative to population growth than the US.

And a place like Australia shows a similar pattern to Canada. They've had relatively fast population growth (about 1.5% a year over the last 20 years), but their housing stock has increased even faster, at almost 2% a year. Yet prices have followed the same trajectory as Canada, basically tripling from 2000 to 2020 after accounting for inflation.

I don't know, can you name any countries that solved persistent high house prices with a bunch of construction? South Korea has had a pretty stagnant population and has added over 2% to its housing stock per year (#1 in the OECD), yet their house prices have skyrocketed over the last 20 years as well.

Part of the upwards price pressure could be directly related to urban sprawl. As cities become larger and more massive, each new parcel of land is further from central infrastructure (i.e. water treatment, pumping stations, road networks, everything). Thus, servicing progressively further and further away pieces of land costs more and more money, raising the base cost of serviced land in the surrounding communities and thus raising the cost of land in developed central communities.

Then there's building code requirements expanding with more expensive materials required.

[opendoor]

Yeah, I think there are a lot of things in Canada driving high house prices that aren't really solved by just more construction (in no particular order):

-large infrastructure costs due to sprawl vs. countries with more compact cities.

-way too much red tape which adds significant costs. Just yesterday, I read someone talking about building a simple detached carport in Vancouver with no electricity or plumbing; after all the permits and required paperwork they needed to provide (engineer, arborist, etc.), they had spent over $20K before even starting construction.

-relatively few population centers where people want to live compared to other countries, which drives up prices in the major cities.

-significantly larger housing units relative to a lot of other countries. There's an EU/OECD metric called "overcrowding rate." Basically it measures how many rooms per person there are and adjusts it based on the average household composition and age demographics. Canada is 3rd lowest in the OECD, while many more affordable countries (Italy, Spain, France, Germany, etc.) have rates that are 3-7x higher. Some European countries having 2-3x as many people per 1,000 sq ft of housing units compared to Canada is obviously going to lead to more affordable housing because it costs so much less to add new units.

-lack of any real kind of social housing to keep rental prices low. When virtually the entire rental market is captured by landlords seeking profit, rental prices will tend to go up faster than if there is robust social housing to compete.

-Other things (food, consumer goods, utilities, etc.) tend to be more affordable than in many peer countries (other than the US), leaving more money to devote to housing.

-strong government backing of mortgages. It's good in that it spurs on a high ownership rate (which I think is generally a good thing), but it also puts more money into the system by allowing banks to relax lending standards a bit.

[blankall]

Originally Posted by opendoor

Sure, but housing prices didn't just start going up since immigration ramped up. From 2000 to 2020, Canada's population went up 23.7%, or about 1.1% a year. In that same time period, we added about 1.3% a year to the housing stock. Despite that, real property prices (i.e. accounting for inflation) went up by 200% in those 20 years.

In the US by comparison, their population grew by 0.9% a year over the time period and their housing stock increased by that same 0.9% a year. Yet their real residential property prices increased by only about 35%.

Now to be fair, Canada's residential prices were at the end of a long stagnant period in 2000 while US prices had already seen some appreciation in the late '90s. But even accounting for that, Canada's prices have increased significantly faster than the US's despite Canada adding much more housing stock relative to population growth than the US.

And a place like Australia shows a similar pattern to Canada. They've had relatively fast population growth (about 1.5% a year over the last 20 years), but their housing stock has increased even faster, at almost 2% a year. Yet prices have followed the same trajectory as Canada, basically tripling from 2000 to 2020 after accounting for inflation.

I don't know, can you name any countries that solved persistent high house prices with a bunch of construction? South Korea has had a pretty stagnant population and has added over 2% to its housing stock per year (#1 in the OECD), yet their house prices have skyrocketed over the last 20 years as well.

The CMHC has stated that Canada needs to build 5.8 million house by 2030:

https://www.cbc.ca/news/canada/toron...2030-1.6498898

The problem is you're just pulling stats in isolation. Yes we have X amount of housing stats, and Australia has X amount of housing starts, and the USA has X amount of housing starts.

However, the main issue is actual shortage. The USA has a shortage too. However, Canada has it far worse than the USA. The USA needs about 6.5 million homes, but obviously their population is much higher, so per capita that far fewer homes:

https://www.cnn.com/2023/03/08/homes...age/index.html

I don't dispute that other issues are a factor. Cheap loans and inflation are certainly an issue. South Korea is actually a great example. Because they don't have shortage issues as bad as ours, their market didn't get as inflated and their market also responded much better to increased interest rates.

As far as inflation goes, that's a huge factor in terms of real pricing. The Canadian dollar is realistically already worth 20-30% of what it was pre-pandemic. So knock off that amount in real value, which actually doesn't put us very far ahead of where we were 7-8 years ago. Obviously, that doesn't actually help affordability until salaries also increase.

So basically, the point is South Korea may be okay regulated the housing market via fiscal policy. But Canada needs to both regulate fiscal policy and vastly increase housing supply.

[CliffFletcher]

Originally Posted by opendoor

I don't know, can you name any countries that solved persistent high house prices with a bunch of construction? South Korea has had a pretty stagnant population and has added over 2% to its housing stock per year (#1 in the OECD), yet their house prices have skyrocketed over the last 20 years as well.

South Korea (and Japan) has historically had very high build rates because their housing is built to last only about 30 years and then be torn down and rebuilt.

[opendoor]

Originally Posted by blankall

The CMHC has stated that Canada needs to build 5.8 million house by 2030:

https://www.cbc.ca/news/canada/toron...2030-1.6498898

The problem is you're just pulling stats in isolation. Yes we have X amount of housing stats, and Australia has X amount of housing starts, and the USA has X amount of housing starts.

However, the main issue is actual shortage. The USA has a shortage too. However, Canada has it far worse than the USA. The USA needs about 6.5 million homes, but obviously their population is much higher, so per capita that far fewer homes:

https://www.cnn.com/2023/03/08/homes...age/index.html

Their modelling is based on economic demand, not actual housing need. Construction has kept up with population growth over the 2000-2020 period they (and I) cover. So effectively they're saying "if 15% of new houses end up as Airbnbs, 15% end up as vacation homes, 10% are used as money laundering schemes, boomers continue to live alone in giant houses, and cities still charge hundreds of thousands of dollars in permitting fees before you even get a shovel in the ground, then we need to build 5.8M new houses by 2030 to return to early '00s affordability metrics". That may be true, but it's a hell of a lot easier to clamp down on those other things to create supply than it is to basically force developers to build unprofitable housing using tradespeople that don't exist.

In fact the latter option is effectively an impossible pipe dream, which makes it not even worth considering. If the whole point is to lower house prices, why would all this investment money flow into the residential construction sector at a level needed to build that many units? Someone's going to have to explain to me how we could build units at the fastest rate in the OECD (about 2.5-3x the average and nearly 50% higher than the current #1) while house prices are falling. That's completely divorced from reality. It'd be like saying "if we tripled food production in the next 5 years and paid farmers half as much as they get now, we could have more affordable food prices." Sure, that's probably true, but why would anyone be a farmer to begin with (never mind tripling the amount of them) if they're going to lose money?

People seem to take it as a given that if we opened up a bunch of new land for development that investment money would flow into it to produce housing units, while simultaneously driving down house prices. How does that make any sense? Falling prices would kill the industry. There's a reason why Canada's housing starts over the last 40 years have been highest during periods when prices increase quickly (late '80s, '00s, and the last 5-7 years) while they've been at their lowest during the periods where prices have dropped or stagnated (early '80s, most of the '90s, and '09-11).

[opendoor]

Originally Posted by CliffFletcher

South Korea (and Japan) has historically had very high build rates because their housing is built to last only about 30 years and then be torn down and rebuilt.

I think that stat might account for that already (i.e. it's the % added to the housing stock). Looking at South Korea's total housing units over a slightly different 20-year period (1995-2015), and the numbers are basically the same (a little over 2.5% increase to housing supply per year). But obviously South Korea has a weird demographic makeup, so they're not the best comparison to Canada.

[bizaro86]

Originally Posted by opendoor

People seem to take it as a given that if we opened up a bunch of new land for development that investment money would flow into it to produce housing units, while simultaneously driving down house prices. How does that make any sense? .

I mean, the cost of a housing unit is comprised of land and building. Adding a bunch of new land would definitely lower the cost of land. It wouldn't directly change the cost of building on the land.

If we started building way more maybe the demand for construction labour would push up wages until the savings on land was eaten up by excess wages, but that would take a lot of additional construction. So if we had more jobs with higher wages, higher housing supply, while keeping the cost of that new supply the same I think we'd be better off.

[Yoho]

The problem simply is prices in real estate.

As these interest rates continue to go up price will go down.

Unfortunately it doesn’t mean people will qualify for loans or not be laid off by then themselves to take advantage of it.

https://twitter.com/user/status/1677018467046678575

[Jason14h]

Don’t worry they will just remove/ alter the stress test at some point since interests rates can’t go much higher

[Monahammer]

"the problem is simply prices in real estate"

Can you more clearly state that you have no ####ing idea what you're talking about here? I am not sure that is possible.

[opendoor]

Originally Posted by bizaro86

I mean, the cost of a housing unit is comprised of land and building. Adding a bunch of new land would definitely lower the cost of land. It wouldn't directly change the cost of building on the land.

If we started building way more maybe the demand for construction labour would push up wages until the savings on land was eaten up by excess wages, but that would take a lot of additional construction. So if we had more jobs with higher wages, higher housing supply, while keeping the cost of that new supply the same I think we'd be better off.

To some extent, but it can take several years to get from purchasing land to selling a finished unit. I doubt developers will be clamouring to pay today's prices for land that might be worth less several years from now. It's basically just an indisputable historical fact that when property prices are declining (or even stagnant), there's less investment activity in building new units.

Maybe over a long enough period of time those kinds of things might have a positive effect. But based on the CMHC data, the scale of construction required to achieve significant effect in the near-to-mid-term isn't viable. There's much lower hanging fruit IMO.

[Yoho]

Originally Posted by Monahammer

"the problem is simply prices in real estate"

Can you more clearly state that you have no ####ing idea what you're talking about here? I am not sure that is possible.

It means some day you won’t have to rent a bedroom in a basement suite.

[iggy_oi]

Originally Posted by Yoho

It means some day you won’t have to rent a bedroom in a basement suite.

On a scale from 1-10 how much better do you think you are than people who rent rooms in basement suites Yoho?