Canadian Federal Politics Thread v5

[corporatejay]

Originally Posted by belsarius

No everyone doesn't realize that. Housing prices took off during the pandemic (May/June 2020) when Canada only had 280,000 in permanent immigration. It accelerated in 2021 with even lower immigration. House prices have declined overall in the last 2 years where immigration has doubled.

In May 2020 the average home was $539,000 and started a steep climb peaking at $836,000 in Feb 2022.

https://tradingeconomics.com/canada/...e-house-prices

Annual immigration during that time was under 300,000. Immigration started increasing in 2021/2022 just as the prices peaked and has continued at its high level while housing prices fall.

https://www.statista.com/statistics/...nts-in-canada/

There is no correlation between immigration and housing pricing. Now, I'll say if you are looking at cost of renting, there may be a correlation there, but I was only looked at housing prices.

If you look at when the prices started jumping, (May/June 2020), that coincides with the Feds dropping the overnight rate from 1.75 to 0.25 in March of 2020. When did the rates go up again? March 2022, as housing prices peaked the month before, interest rates cooled them off.

Interest rates plus the excess cash available to many people during the pandemic, coupled with a bear stock market and confidence in the Canadian housing market were much more to blame for what happened. Here is an article from the NP in 2021 calling out the housing affordability crisis without a single mention of immigration.

https://nationalpost.com/news/canada...d-in-one-chart

So it seems like investment in the market, spurred on by excess cash and affordable interest rates drove the problem, not immigration policies.

Immigration is just one of many factors but definitely a big one. Where else would increased housing demand come from? We have a very low birthrate.

[opendoor]

I'm not sure I really see a correlation. Real Residential property price growth vs. population growth in 5 year increments:

2018-2023: 5.7% price growth; 11% population growth

2013-2018: 45% price growth; 5.7% population growth

2008-2013: 9.2% price growth; 5.4% population growth

2003-2008: 43% price growth; 5.4% population growth

1998-2003: 23% price growth; 4.6% population growth

1993-1998: -5% price growth; 5.2% population growth

1988-1993: 0% price growth; 7.1% population growth

1983-1988: 35% price growth; 5.5% population growth


The fastest price growth has been in periods of lower population growth. And for all the attention house prices are getting now, the last 5 years has seen the slowest growth in Real property prices in nearly 3 decades.

[TheIronMaiden]

The challenge isn't only new home prices, it is nearly impossible to find rentals anywhere.

[guzzy]

Originally Posted by Ashartus

I'm still trying to get my head around the implications of the capital gains tax changes, definitely not a tax expert. I work for an employee-owned firm and my shares are a fairly significant part of my retirement savings. I think with this change (presuming it isn't overturned after the next election) rather than selling all my shares at once when I retire I would be better off selling them over time so my capital gain doesn't exceed $250k in any year?

If the company you hold shares in, is a private Canadian company, you will qualify for capital gains exemption which is currently at $1,016,836. Anything above that you will pay capital gains tax on.

[opendoor]

Originally Posted by corporatejay

Immigration is just one of many factors but definitely a big one. Where else would increased housing demand come from? We have a very low birthrate.

The more money chasing the same goods, the higher the prices. So lower interest rates, an increasing number of property investors, and generally more money flowing around can spur demand and drive prices on its own.

Though as I point out above, price growth in the last half decade has been very modest by historical standards. Most of the recent growth happened between 2003-2008 and 2013-2018 which certainly wasn't driven by population growth.

[chemgear]

Originally Posted by belsarius

So it seems like investment in the market, spurred on by excess cash and affordable interest rates drove the problem, not immigration policies.

Immigration policies have absolutely piled onto the problem.

Just back of the envelope musings. We're bring in what, a million people every 9 months to a year? Canada housing starts have historically been 225,000 to 250,000 per year (good luck trying to bump it 10 or 20% nevermind doubling it). So everything else being equal and assuming no Canadians are allowed to move out or get their own new home, you need all these new people we are bringing in to live at least 4-6 people per home. If you want Canadians to be able to afford new homes and displace these new incoming bodies, you probably need them to cram what, 6-10 people per home just as a bare baseline?

It's such a problem that Trudeau himself explicitly called out immigration an issue that they need to get it "under control", that it's basically out of control right now.

[Doctorfever]

Originally Posted by opendoor

I'm not sure I really see a correlation. Real Residential property price growth vs. population growth in 5 year increments:

2018-2023: 5.7% price growth; 11% population growth

2013-2018: 45% price growth; 5.7% population growth

2008-2013: 9.2% price growth; 5.4% population growth

2003-2008: 43% price growth; 5.4% population growth

1998-2003: 23% price growth; 4.6% population growth

1993-1998: -5% price growth; 5.2% population growth

1988-1993: 0% price growth; 7.1% population growth

1983-1988: 35% price growth; 5.5% population growth


The fastest price growth has been in periods of lower population growth. And for all the attention house prices are getting now, the last 5 years has seen the slowest growth in Real property prices in nearly 3 decades.

That is interesting. Where is the source for your numbers? I am wondering what happens if you shift everything by say… 2 years. Hard to gauge by only looking at this specific 5 year increment.

[Azure]

Is price growth the only metric that can be used to decide whether or not housing is a problem?

Availability?
Housing starts?
Rental availability?
Rental pricing?

Modest by historical standards and yet everyone is up in arms about it. I suppose one can manipulate the data in multiple ways to suggest that the reality on the ground is not actually what people say it is.

[Leondros]

Originally Posted by chemgear

Immigration policies have absolutely piled onto the problem.

Just back of the envelope musings. We're bring in what, a million people every 9 months to a year? Canada housing starts have historically been 225,000 to 250,000 per year (good luck trying to bump it 10 or 20% nevermind doubling it). So everything else being equal and assuming no Canadians are allowed to move out or get their own new home, you need all these new people we are bringing in to live at least 4-6 people per home. If you want Canadians to be able to afford new homes and displace these new incoming bodies, you probably need them to cram what, 6-10 people per home just as a bare baseline?

It's such a problem that Trudeau himself explicitly called out immigration an issue that they need to get it "under control", that it's basically out of control right now.

Where are you seeing a million people every 9 months? 2023 was reported at just under 500,000 permanent residents.

[TheIronMaiden]

Originally Posted by Azure

Is price growth the only metric that can be used to decide whether or not housing is a problem?

Availability?
Housing starts?
Rental availability?
Rental pricing?

Modest by historical standards and yet everyone is up in arms about it. I suppose one can manipulate the data in multiple ways to suggest that the reality on the ground is not actually what people say it is.

yeah price is only 1 factor. Interest rates when amortizing are very prohibitive. I feel blessed that I was able to buy a home in January of 2020 because it would be close to impossible for me to afford it today.

[belsarius]

Originally Posted by Winsor_Pilates

I agree with you on recent immigration. They're not driving the housing market and generally not coming here wealthy.
They effect rental and there's correlated impact on housing pricing, but it's not a main driver.

We did have a wealth class immigration program in Canada until 2014 which allowed a fast track to PR by investing over $800,000 with the government for 5 year IIRC.
There was tons of wealthy immigrants that came over from mostly Hong Kong and China under this program and bought up tons of Vancouver and Toronto.
I think the effects of that program are still heavily impacting our market; what a bad idea that was.
Then came foreign buyer bans which don't even effect these buyers, because they have PR or citizenship and bags of wealth made in different countries.

IMO, that program was the nail in the coffin for housing affordability.

I agree that this program really did "prime the pumps" for our current crisis. The great recession did push prices down temporarily but they went shooting up again afterward and seriously exploded during the pandemic.

Originally Posted by Doctorfever

Do you (and others) think that the price of housing is driven up by the cost to rent, or is the cost to rent driven up by higher housing prices? Sort of a chicken or egg question.

I think the price of purchasing a home was caused by a variety of factors

- Low interest rates in March 2020
- White collar workers, staying at home with full salaries having lots of excess cash (I also believe this is the main cause of our post covid inflation)
- Poor stock market performance during the pandemic leading people to invest more safely (also flipping)
- Confidence in Canada's housing compared to the USA market
- Movement of people outside of the main areas leading to higher volume of transactions
- Period of time during covid where no new construction took place
- Loss of workers during covid as they found new jobs
- Temporary (PP and his 2x4) and permanent increases in input costs.
- Immigration is mostly likely the main culprit for the surge in prices from Feb 2023 to Aug 2023 after prices had been falling due to interest rates.


I think the rental market is much more affected by the immigration, but also we just had a poster say they were considering raising rents to cover the extra cash from the capital gains changes. I expect rent would also be going up as rates increased and people wanted to keep their investments cash positive or at least neutral.

I'm not saying immigration is playing no role at all. I think without the increased immigration (and I focus on permanent immigration for housing prices, but all immigration for rentals) we would have seen a higher decrease in prices as interest rates went up. As I write this I see Chemgear posting how immigration has piled on the problem, I don't disagree, it is part of the issue simply from a supply and demand issue.

What I disagree with is that immigration is the primary driver of increased housing costs and completely to blame for the housing situation which is something "everyone knows". If you look at the NP article I posted we can see the separation of housing prices start to separate from disposal income back in the early 2000s.

Its a huge issue and I'm glad some things are being addressed. Reducing it's attractiveness as an investment, restricting short term rentals, increased housing focus, cutting of red tape, and even the "War Time Homes" are all solutions being implemented across the country.

It is very complex, and it is a disservice to the complexity to try and boil the housing crisis down to "its just immigration".

[chemgear]

Originally Posted by Leondros

Where are you seeing a million people every 9 months? 2023 was reported at just under 500,000 permanent residents.

Stats Can updates earlier in the year. Roughly 1.3 million added over 2023.

https://globalnews.ca/news/10386750/...on-population/

Canada’s population hits 41M months after breaking 40M threshold

Nine months after reaching a population of 40 million, Canada has cracked a new threshold.

As of Wednesday morning, it’s estimated 41 million people now call the country home, according to Statistics Canada’s live population tracker.

The speed at which Canada’s population is growing was also reflected in new data released Wednesday by the federal agency: between Jan. 1 2023 and Jan. 1 2024, Canada added 1,271,872 inhabitants, a 3.2 per cent growth rate — the highest since 1957.

[Leondros]

Originally Posted by chemgear

Stats Can updates earlier in the year. Roughly 1.3 million added over 2023.

https://globalnews.ca/news/10386750/...on-population/

Canada’s population hits 41M months after breaking 40M threshold

Nine months after reaching a population of 40 million, Canada has cracked a new threshold.

As of Wednesday morning, it’s estimated 41 million people now call the country home, according to Statistics Canada’s live population tracker.

The speed at which Canada’s population is growing was also reflected in new data released Wednesday by the federal agency: between Jan. 1 2023 and Jan. 1 2024, Canada added 1,271,872 inhabitants, a 3.2 per cent growth rate — the highest since 1957.

Ah, that's a population increase - birth rates, permanent immigration, temporary immigration (student visas, temporary work programs, etc.). Its disingenuous to blame that all on immigration and most of those people would be not in homeownership market (rental for sure).

[chemgear]

Originally Posted by Leondros

Ah, that's a population increase - birth rates, permanent immigration, temporary immigration (student visas, temporary work programs, etc.). Its disingenuous to blame that all on immigration and most of those people would be not in homeownership market (rental for sure).

I don't think anybody is solely blaming immigration for the housing situation. But all these extra people are going to have to live somewhere and significantly drive up demand for housing.

Housing supply for rental and ownership are not independent numbers. It's the same thing, just different buckets. If you allocate more of the new housing supply for rentals then you're going to cut down the supply for ownership and drive up costs. If you bring in out of control immigration as Trudeau describes, you're going to put sustained upward pressure on home ownership costs for those people trying to buy.

[Doctorfever]

Originally Posted by chemgear

I don't think anybody is solely blaming immigration for the housing situation. But all these extra people are going to have to live somewhere and significantly drive up demand for housing.

Agreed. Simple supply and demand. As Belsarius pointed out, the cost of construction materials has also climbed significantly, making new builds way more expensive.

You can kinda compare it to vehicles. When the price of new vehicles is so high, people look to used vehicles instead, driving up the price. And of course the shortage of new vehicle supply for a period also contributed (same as housing).

[timun]

Originally Posted by TKB

Couldn’t agree more, the thing people fail to realize is the capital that gets tied up and the risk associated with it. They just think you’re evil and make nothing but money on these poor people renting your house. If it’s so easy to buy investment property’s and make nothing but money, then why don’t these tools crying about them get one of their own?

I don't have a problem with Sylvanfan, or anyone else, making money off of a rental property: I have a problem with the manner in which he blames a change in capital gains taxation policy for causing him to evict a good tenant and arbitrarily "jack the eff out of the rent". It's dishonest ###hole-ery. If he wants to kick out his tenants and jack up the rent that's his prerogative, but it's his choice. No one else "made him do it".

You charge whatever rent the market can bear, and you hope that that's going to cover your costs. If you're charging less than market rates because you like your tenants that's your prerogative and choice, no one else's. And let's not forget if your rent is a loss you get to offset your taxable income with those losses.

At the end of the day when you sell that property and realize a capital gain on it: sure, you've had to put some work in to be a landlord. You may have had some ####ty tenants that were a lot of work to deal with. You'd have had to put money into maintaining the place, fixing it up; no different than any other house really.

So now the government is saying "we're going to up the taxable capital gains calculation to 66.67% on anything over $250,000". How much more than $250,000 does Sylvanfan plan to realize as a capital gain? How much money is he now "losing" because of higher capital gains taxes?

Depends on what his taxable income is in the first place, but I did some back-of-an-Excel-napkin calculations and if we assume for the sake of argument:

• $125,000 taxable income to begin with, and
• $370,000 capital gain (~$400,000 difference between sale price and adjusted cost base of the property, minus ~$30,000 in outlays & expenses to sell the place),

Then under the proposed "two-thirds-on-gains-over-$250k" plan the taxable capital gain would go from $185,000 (1/2 of $370,000) to $205,000 (1/2 of $250,000 + 2/3 of $120,000 [$370,000-$250,000]), and the net difference in taxes (ignoring other tax credits that would reduce his tax obligations) is about...


$9,400

Or about 2.5% of that $370,000 capital gain. Net proceeds from the sale would be about $281,100 instead of $290,500.

I don't feel sorry for Sylvanfan, or you, or anyone else for paying a little more tax in that situation. I don't feel sorry for anyone "losing a portion of your expected gain" to income taxes on hundreds of thousands of profit; I definitely feel a lot more sorry for the renter who pays higher rents because their landlord "has to extract their pound of flesh".




All this said, I don't think you're "evil" for being a landlord. Not at all. But you're no saint either. Let us never forget: you're not a landlord because you're an altruist, you're a landlord because you want to make money. That's the only reason you're in it.

[opendoor]

Originally Posted by Doctorfever

Agreed. Simple supply and demand. As Belsarius pointed out, the cost of construction materials has also climbed significantly, making new builds way more expensive.

You can kinda compare it to vehicles. When the price of new vehicles is so high, people look to used vehicles instead, driving up the price. And of course the shortage of new vehicle supply for a period also contributed (same as housing).

People don't really invest in vehicles though, so people buying cars to drive don't have to compete with people buying them as investments. For the most part, their price represents their utility as a consumer good.

Housing is different. As interest rates have dropped over the last 40 years, the risk-free rate of return has also dropped. So in the '80s, you could get GICs that paid 10%, which was 5-6% above inflation. In that context, there was far less incentive to invest in real estate, which meant less money chasing it.

Once interest rates dropped significantly and the risk-free rate of return dropped close to zero, there was no real way to grow your money without investing it. So people who didn't want to invest in the stock market (which is a pretty significant number of people) turned towards real estate and they were willing to accept poorer than normal returns because there weren't a lot of other options.

And as with bonds, when investors accept lower returns (or yields in the case of bonds) because the risk-free rate is low, the underlying value of the asset goes up. So cap rates declined significantly, pushing prices up. For instance, if you needed gross rent to be 15% of the value of a property to be viable in the '80s in order to compete with GICs, you might have only needed it to be 6-7% in a near-zero rate environment. That alone nearly increases the asset by 2.5x. And anyone who wanted to buy a house just to live in had to compete with that influx of capital from investors.

And that's not really related at all to population growth, housing starts, what % of housing is owned by investors, or supply/demand in terms of units. Sure, you could maybe overcome that effect by cutting population growth to zero and subsidizing builders to build a ridiculous number of units, but both of those things have significant downsides. It would be much simpler to make housing (other than purpose-built rental units) less attractive as an investment which would mean fewer dollars chasing the housing units.

[opendoor]

Originally Posted by Doctorfever

That is interesting. Where is the source for your numbers? I am wondering what happens if you shift everything by say… 2 years. Hard to gauge by only looking at this specific 5 year increment.

No, looking at 5-year increments isn't perfect; it was just a quick way to illustrate it without making a chart. But the data is here (Real Residential Property Prices) and here (Population).

If you overlay population growth over residential price growth you can sort of see the lack of real correlation. The axes don't really line up in a meaningful way, but you can get the idea:

Spoiler!

The biggest growth in property prices was in the 2nd half of the '80s (which preceded the population boom then), from the late '90s to the late '00s (which had lower than average population growth preceding and during it), and 2009 to 2017 (which also had relatively low population growth until the very end, which then preceded a stagnant period pre-COVID).

Conversely, the fastest population growth was from 1988-1991 (which preceded the slowest growth in prices during the '90s) and 2018 to now (which has seen relatively flat prices after the COVID gains were erased).

As others have said, population growth can impact rental prices to a degree. And over the last 5 years, the growth in housing stock has lagged population growth by a bit, putting some pressure on that. But in terms of purchase prices, there's so much more going on that immigration or population growth doesn't really have a huge impact on its own. And even for rent, the mismatch we're talking about (i.e. reducing vacancy rates by under a percentage point) isn't going to make rents go up 30% on its own or anything. It just puts additional pressure onto the market.

[Doctorfever]

Originally Posted by opendoor

And that's not really related at all to population growth, housing starts, what % of housing is owned by investors, or supply/demand in terms of units. Sure, you could maybe overcome that effect by cutting population growth to zero and subsidizing builders to build a ridiculous number of units, but both of those things have significant downsides. It would be much simpler to make housing (other than purpose-built rental units) less attractive as an investment which would mean fewer dollars chasing the housing units.

While I don’t disagree with what your saying here, but if there were far less houses available on the rental market because they were a less attractive investment, that might drive up rental prices due to less supply. There will always be people who “choose” to rent rather than buy, or who are not in a position to purchase a house. Less houses available to rent won’t necessarily translate into more people owning a home. Since we can’t turn back the clock.

[opendoor]

Originally Posted by Doctorfever

While I don’t disagree with what your saying here, but if there were far less houses available on the rental market because they were a less attractive investment, that might drive up rental prices due to less supply. There will always be people who “choose” to rent rather than buy, or who are not in a position to purchase a house. Less houses available to rent won’t necessarily translate into more people owning a home. Since we can’t turn back the clock.

But if you get the balance right, you don't reduce rental supply. For instance, if there are 150K willing investors chasing 100K properties, prices go up. But if you discourage some of them and/or make it more attractive to invest elsewhere, prices can soften to the point where you'll still have enough rental supply.

And as I said, purpose-built rentals, units within someone's house, etc. are totally different. Those should be encouraged because they add to the rental stock without warping the market. But the heavy commodification of housing and investors' expectations of continued price appreciation has simply introduced way more money into the housing market and has made it unaffordable.

Granted there are drawbacks to that. Lower investment in housing can lead to lower housing starts. But so can lower prices. And unless the government is going to get more directly involved, there really isn't going to be a scenario where developers are going to kill their own margins by overbuilding and creating a supply glut.