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The BoC seems to me to have now locked themselves onto a path of finally crushing the Canadian housing bubble. Which comes at an awkward time as Canada is sudde

The BoC seems to me to have now locked themselves onto a path of finally crushing the Canadian housing bubble. Which comes at an awkward time as Canada is suddenly increasing its population at a record pace. No matter how this plays out, it's not likely going to be a smooth ride.

bparsons 3y ago
It isn't working so far. Prices continue to go up, housing starts are down.
- rogerkirkness 3y ago
  And permits are way higher than houses being built, it's more like market failure.
  - seti0Cha 3y ago
    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?
    - chongli 3y ago
      They’re not building because they believe they can earn more profit by waiting for property values to go up.
      - gffrd 3y ago
        … 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?
        voisin 3y ago
        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.
    - Tiktaalik 3y ago
      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.
bushbaba 3y ago
It’s necessary for long term economic growth.
AlimJaffer 3y ago
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.
- arecurrence 3y ago
  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.
  - bryanlarsen 3y ago
    What should the Canadian federal government do? Housing is a provincial and municipal responsibility. They're the ones that set zoning and housing regulations.
    - AlimJaffer 3y ago
      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.
stubybubs 3y ago
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.
- Retric 3y ago
  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.
  - onlyrealcuzzo 3y ago
    It's almost as if outsourcing all jobs that aren't done in cities to China wasn't a great idea.
  - chongli 3y ago
    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!
    - mitthrowaway2 3y ago
      > 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.
Tiktaalik 3y ago
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!
sailplease 3y ago
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.

bparsons 3y ago

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

rogerkirkness 3y ago
And permits are way higher than houses being built, it's more like market failure.
- seti0Cha 3y ago
  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?
  - chongli 3y ago
    They’re not building because they believe they can earn more profit by waiting for property values to go up.
    - gffrd 3y ago
      … 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?
      - voisin 3y ago
        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.
  - Tiktaalik 3y ago
    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.

bushbaba 3y ago

It’s necessary for long term economic growth.

AlimJaffer 3y ago

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.

arecurrence 3y ago
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.
- bryanlarsen 3y ago
  What should the Canadian federal government do? Housing is a provincial and municipal responsibility. They're the ones that set zoning and housing regulations.
  - AlimJaffer 3y ago
    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.

stubybubs 3y ago

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.

Retric 3y ago
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.
- onlyrealcuzzo 3y ago
  It's almost as if outsourcing all jobs that aren't done in cities to China wasn't a great idea.
- chongli 3y ago
  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!
  - mitthrowaway2 3y ago
    > 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.

Tiktaalik 3y ago

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!

sailplease 3y ago

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.