Housing Market Concerns
April 15, 2022
Ontario has been slowly wading deeper into a housing crisis since the 1990’s. The rise in house prices has been outpacing income increases across Canada in leaps and bounds, with most young Canadians viewing homeownership as a pipedream at this point. The median household income before taxes in Ontario (as of the 2016 census) was $74,260. In the same year, the average Ontario house price was nearly $550,000. Assuming a household could save a generous 10% of their income (pre-tax) each year to go toward purchasing a house, it would take just over 74 years for them to buy a house outright. The disparity between household income and house prices has only deepened since then, with the average Ontario house price currently at roughly $750,000. The COVID-19 pandemic has further exacerbated the demand for housing across the province, and there is little indication that the market will cool in the short term.
A survey was commissioned by the Ontario Real Estate Association, conducted by Abacus Data, in June 2021 on Housing Affordability in Ontario, with responses from 2,000 Ontarians. Of those respondents that do not currently own homes, 56% are pessimistic about the possibility of buying a home in the community they want to live in, and nearly 80% of all respondents find it has become more difficult to purchase a residential property in the past year. 55% of the respondents believed that housing prices in their area would be less affordable over the next year, and similarly 54% believed that housing prices in their area would be less affordable over the next five years. Altogether, the Ontario Real Estate Association’s survey demonstrates that while there is a demonstrable desire for homeownership in Ontario, most Ontarians feel that it isn’t a realistic possibility due to increasing unaffordability.
The impact of millennials entering middle age has been underestimated with respect to the housing market. Millions of millennials have been living at home with their parents and putting away savings, and many now have enough for a down payment and are looking for their own properties.
Foreign speculation in Ontario’s housing market has been a significant issue of discussion for both the provincial and federal governments. Non-Canadians investing in Ontario real estate have taken many homes out of circulation without providing homes to individuals and families in need.
And while it would seem intuitive to assume that the COVID-19 pandemic would have had a cooling effect on Ontario house prices as countless Ontarians saw significant or complete losses in income, it actually had the opposite effect. While in the early months of the pandemic the real estate market contracted sharply as a sizeable proportion of Canadians were on income support and were deferring mortgage payments, the economic impacts of the pandemic over time drove interest rates to historic lows, spurring a surge of homebuying in 2020. Further, the pandemic caused many to desire less dense housing, as social distancing became engrained in the way we interact, so homebuying interest has increased as an indirect effect of individuals living through pandemic restrictions.
The Non-Resident Speculation Tax (NRST) was introduced in 2017 as a 15% tax on the purchase of (or the acquisition of an interest in) residential property in the Greater Golden Horseshoe Region (GGH) by anyone who is not a citizen or permanent resident of Canada, or by a foreign corporation or taxable trustee. To date, the NRST has had relatively little impact on Ontario’s increasing hot real estate market, and the current provincial government has indicated that they are prepared to increase the NRST to 20% and expand the impacted area beyond the GGH Region. The federal government is also looking into a temporary ban on foreign buyers.
Across Canada, the potential for putting an end to blind bidding has also been discussed as an option to address soaring house prices. Blind bidding is the process of potential home buyers submitting offers without knowing what other potential buyers have offered. Ending blind bids would ensure that offers are submitted in reasonable increments rather than bidders submitting the highest offers they can afford just to ensure they beat out other unknown offers.
The province has also recently convened the Ontario Housing Affordability Task Force, which has so far published a report putting forward 55 recommendations for addressing the housing crisis in Ontario. The Task Force will continue to work toward building an adequate supply of affordable housing in the province.