With talks of a looming global recession and an overwhelming sense of uncertainty, it’s high time to take a step back and check in with one of Canada’s leading real estate minds. Professor Murtaza Haider joins Adam and Matt this week for a wide-ranging conversation on key investor metrics, opportunities in contrasting market cycles, and why certain cities in Canada will continue to outperform. What are the major trends impacting our markets? Will Hong Kong strife lead to higher prices? And which markets offer the best investment opportunities? We cover all these questions and more. The fall has arrived. Giddy up!
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Murtaza is a Professor of real estate management at Ryerson University in Toronto. He is also a columnist for the Financial Post and a Director of the Urban Analytics Institute, a research institute that examines analytics for housing, transportation, congestion and affordability.
Is Canadian Real Estate Healthy?
A sign of a healthy real estate market is that if you don’t tinker with them, they still continue to be strong and growing. A greater sign is that if the government starts to implement measures to cool the market (mortgage stress test, foreign buyers tax) and the housing market does not collapse, but continues to adjust and grow, this is a sign of a healthy real estate market. This suggests the Canadian housing markets are healthy.
The stress test was introduced in January of 2018, which meant that borrowers that were uninsured (20% of the loan as a down payment) were also subject to the stress test. In the past, this was only on applied to insured mortgages of less than 20% down. There was a slight decline in the real estate market in the first part of 2018 and the market did not recovery as quickly as expected. Prices are sticky and did not decline, but the number of sales transactions declined after the stress test was introduced. More expensive homes stopped selling and less expensive homes became more popular. This resulted in the decline of the average home price in Canada. As of early 2019, markets in Canada are starting to recover from this policy and the market is starting to rebound.
Vancouver is a different story than the rest of Canada. There were a host of restrictions and interventions on the BC real estate market. The foreign buyers tax, restrictions on empty homes and other policies have effected this market and we are waiting to see how quickly the market will recover.
On if prices will remain sticky at the local, entry level market and if you can look to higher priced markets as an indicator of trickle down to more affordable markets:
All real estate markets are inherently local. As local as a neighborhood or even street level. For example, if you have a street where one side of the street has an unobstructed ocean view and the other side does not, the side of the street with the view will command a much higher price. If you look at the city wide impacts, areas of the city that are reasonably priced and stable will continue to hold their value as more expensive areas start to see a price declines. This is especially true for housing that is affordable for young families – this will create demand that will allow these homes to hold their value.
Despite the recently decline in property values in Vancouver, prices are still much higher than they were 5 or 10 years ago. One could argue that there is still room for price declines in the average price of very expensive homes in Vancouver, where prices increased significantly in 2015/2016, but neighborhoods that did not have that rapid escalation during this time should continue to hold their value in the current market climate. Homes at the entry level of the market that are attractive to first time home buyers.
As an outsider looking at the Vancouver market, Vancouver seems like a very good buy. It is one of the most desirable places on the planet. It has amazing health care, education, a stable economy, amazing nature and a lifestyle that is friendly to the environment. These factors make Vancouver attractive to the rest of Canada and the World. This makes it hard to imagine that the Vancouver housing market will not resume a healthy increase in value sooner than later.
On if the current unrest in Hong Kong will have an impact on Canadian real estate:
It may have an impact and we are waiting to see, but if you take a broader look at the Canadian economy, you should consider immigration in Canada. The Government of Canada believes that immigration will remain a solution to Canadian’s economic problems and will account for all of Canada’s net labour force growth. $3.7M workers will entirely be accounted for by immigrants to Canada. As baby boomers continue to retire, there will be a net shortage of workers in the Canadian work force. Immigration will allow Canada to continue to meet its workforce needs and fund the pensions of baby boomers in retirement. Anti-immigrant rhetoric is starting to pick up steam in Canada and is very dangerous. If people look at one issue in their neighbourhood, they may see immigration as problematic, for example, public transit getting more crowded. People need to step back and take a wider view and go beyond one variable and see immigration as a net positive to allow our economy to continue to grow.
There will be affordability challenges in housing that will need to be addressed in Canada. Every city needs the necessary workers – people that work in hotels, serve tables, emergency services, teachers. Home ownership and rental needs to be affordable for these people in the areas they are working in as well. The best solution for housing demand and rising home prices is increased supply. Cities that fail to provide supply, see problems with affordability.
On the BC real estate policies (foreign buyers tax, speculation and vacancy tax, empty homes tax) and if they help to aid an anti-immigration sentiment in BC:
The primary interest of the Government is to look after the interests of the citizens of British Columbia and to ensure housing and shelter. Anti-immigration sentiments are gaining ground, especially south of the boarder, but this is not related to the housing policies of the Government. Housing interventions were taken to help residents, rather than with the intention of creating any discord. People are pointing fingers in Vancouver at who is buying, looking for a root cause to the affordability crises. What about the supply side? If the supply has not kept pace with demand, who has kept people from building more? Vancouver also has unique challenges. There are physical constraints on land due to mountains and water, which creates challenges for supply.
The other thing that cities need to focus on, which Vancouver has done quite well, is public transit that allows people to commute to work in a reasonable amount of time. This allows a city to expand the affordable land as populations are able to commute within a reasonable time. Transit needs to be accessible and frequent. This is one way to increase the supply of affordable housing. Generally, we need to figure out why and how to supply housing better to meet demand. People should not compromise on their housing and shelter needs because we have not been able to adequately manage supply.
On the major cities in Canada and where they are at in their current market cycles and if there are one-size fits all policies that could address housing challenges in Canada:
Federal policies related to housing are not a good idea. For example, the stress test was applied uniformly across Canada to address price escalation in Toronto and Vancouver. This created adverse effects in smaller markets where there was no price escalation. Housing policy from a federal level is difficult because one size never fits in real estate markets. If you look at the real estate market in Canada, you can start to see different pictures emerging. Major cities like Vancouver and Toronto have prices that are depressed from levels we saw in 2016, but still higher than they were 5 years ago. On the prairies, some prices are lower today than they were 5 years ago. Calgary and Edmonton have done a good job responding to demands on supply in their markets, but are seeing adverse effects of Government policies. A city like Winnipeg is not seeing considerable price appreciation, since there are not a lot of people moving to Winnipeg compared to other cities. A city like Montreal is different still, since it has a large number of renters. Montreal is starting to see increased demand, but it has a lower number of immigrants than other cities, like Toronto. This creates a different housing markets that require different housing policies.
On attractive real estate markets in Canada for investors:
Investors should do their own homework, but places that are attractive to immigrants and also see a lot of interprovincial migration should be the best places to invest. This is a good indicator of housing demand and price appreciation. Don’t get too sophisticated, but just look to the places you see people moving to and invest there.
There are smaller markets in Ontario that are attractive. People should focus on areas that are along the go-transit lines. These are the areas that are less than 60 minutes from downtown Toronto and allow people to commute on a comfortable train with a seat. Look to the areas that have not seen a significant price appreciation on these lines for investment.
Places like London and Windsor are also attractive. University towns are good for investment because they will attract both Canadians and international students. Canada has a good reputation for Universities, so you will continue to see demand and Universities will continue to grow. If one believes there is going to be more demand, than these are good places to look.
On National and International trends that might affect Canadian real estate:
Nationally, the Canadian election coming up in October that will shift markets depending on who is in power. Internationally, there are some disturbing developments. The current unrest in Hong Kong is uncertain and a number of Canadians have close ties to this area. This might have a direct impact on Canada if this doesn’t improve. We can also look at India and the state of Kashmir. India, Pakistan and China all have claims to this region and this is concerning as all are nuclear states. There are also concerns about oil coming out of Iran and Saudi Arabia and proxy wars being waged in these regions. Any escalation could affect the global supply of oil, which would affect markets. Finally, Canada is negotiating trade agreements with the USA and this will affect markets. These are just some of the factors.
To learn more about Murtaza Haider: