Tag Archives: housing affordability
Fears of a Canadian housing bubble unfounded: BMO report
Just Vancouver, Toronto and Victoria remain at some risk of price correction, affordability study says
Susan Pigg – Toronto Star
Fears of a Canadian housing bubble are largely unfounded and, in fact, house prices remain affordable in three-quarters of the country, with the exception of Vancouver, Toronto and Victoria, says a new BMO report.
Overall, the Canadian housing market is about 10% overvalued – half what it was in 1989, when prices began a 13% decline, and a third of the height U.S. houses hit before crashing by some 34%, says the Canadian Housing Affordability study released Friday.
Despite significant price hikes the last 10 years, house prices remain affordable across most of the country, with mortgage payments on the average Canadian home eating up a “moderate” 28% of family income, and just 23% when the two costliest cities, Vancouver and Toronto, are factored out, says BMO senior economist Sal Guatieri.
Vancouver, Toronto and Victoria remain somewhat more susceptible to a downturn, largely because escalating prices have significantly reduced the pool of potential buyers who can afford them, a risk that’s minimal as long as interest rates remain low, notes Guatieri.
Comment: I am not sure of that. In Toronto, with the average property costing $505,000 or thereabouts, with 10% down and a 2.99% 5-year mortgage, the payments are just over $2,190 a month. This is about the same, or less, than renting a 2-bedroom condo. The income needed to qualify is $93,750, not that much truly, for a couple these days.
In Toronto, mortgage payments on the average single-family home eat up about 43% of median family income, which Guatieri estimates at about $72,000. That’s up from 40% of median income eight years ago.
Comment: Which I do not understand. If you take $72,000 that is $6,000/month. The mortgage of $2,191 above is only 36.5% of the median income. So… huh?
But that number climbs to more than 50% when you factor in other household costs, such as property taxes, insurance and utilities, he noted.
Comment: Could be. Insurance is around $100 month on a house, utilities are $200 easy. Add in taxes of $250 and your total monthly costs are now $2,741.54 – which is 45.7% of the $6,000 monthly income. A little less, but still a serious amount of money. Especially when you use after-tax income and not gross income.
Homes are considered “affordable” when less than 39% of family income is going to pay the mortgage and housing-related costs.
In Vancouver, mortgage payments on the average single-family consume a stunning 79% of median family income, and well over 80% when you factor in taxes, insurance and utilities.
Comment: So Toronto is twice as affordable as Vancouver – 36.5% compared to 79%.
Even condos in Vancouver are getting close to the affordability limit now, the report notes.
Toronto condos, on the other hand, remaining largely affordable, eating up just 23% of median income, and 31% when housing-related costs are added.
Comment: Which is why 25–28,000 are completed and absorbed every year, bought and paid for. Be they owned or rented, people need an inexpensive place to live.
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Contact the Jeffrey Team for more information – 416−388−1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Where Are All The Places To Grow?
Development regulations a hindrance to housing affordability and choice
Toronto Star
It’s hard not to notice all the condominiums cropping up across the GTA these days.
Condos accounted for 62% of new-home sales in the GTA last year, according to RealNet Canada, a Toronto-based national provider of real estate information services. And it seems that everywhere you look, there are construction cranes and new residential towers dotting the urban horizon. What isn’t as visible, however, is the lack of subdivisions being built and the dwindling availability of new low-rise houses.
A decade ago, 75% of all new homes sold in the region were single-family houses. Last year, low-rise housing comprised just 38% of new-home sales, largely the result of provincial policies aimed at protecting greenbelt lands and promoting intensification.
The GTA housing market has been reshaped fundamentally by provincial policies introduced in 2006 as part of the Growth Plan for the Greater Golden Horseshoe, a region in Southern Ontario whose boundaries extend south to Lake Erie and north to Georgian Bay. With the Greenbelt Plan, the province has aimed to protect 1.8 million acres of green space, and its Places to Grow plan has designated areas best suited for intensification.
Commenting on the dearth of low-rise houses, Paul Golini, chairman of BILD (Building Industry and Land Development Association), says,”People can’t see what doesn’t exist anymore.” BILD represents more than 1,375 member companies in the land development, home-building and professional renovation industries in the GTA. “The homes under construction today were sold to the homeowner a few years ago. The industry is worried about the balance in housing options and the affordability of new homes in the future,” says Golini.
The shift from low-density to high-density housing has been directed by provincial intensification policies encouraging a more sustainable approach to urban development. Homebuyers want to choose the type of home that suits their lifestyle through the various stages of life — and choice in the low-rise market is diminishing.
“There just hasn’t been the availability of land when it comes to low-rise product,” Golini explains. “Not only is the low-rise price index the highest it’s ever been — $609,369 [this past] August — it’s also driven the market toward high-rise. And if you’re a first-time buyer, that seems to be your only option.”
There has also been plenty of resistance to the intensification policy in the GTA at the municipal level, delaying approvals of condo projects and pitting developers against community groups opposed to the introduction of denser forms of housing in their neighbourhoods.
“Local interests are not always aligned with the province’s goals when it comes to growth and intensification,” Golini notes. “Not everyone is ready to accept this new form of living.”
The development industry has been operating in accordance with the provincial growth plan, says Golini. But six years in, it has become clear that the policies have had an adverse impact on homebuyers, he says, creating severe constraints on land availability and resulting in limited housing options and ever-increasing prices.
“Places to Grow was designed to put tension in the system to promote higher-density development, and that tension is there,” says BILD president and CEO Bryan Tuckey. “But you wonder if the balance has been shifted too far.”
With an estimated 100,000 people moving to the GTA each year, Tuckey notes that the industry recognizes that the lack of affordable housing options for new and first-time homebuyers is a serious issue in the GTA, and wants to be part of the solution. “Our industry plans and builds about 40,000 homes every year to meet the demand from first-time homebuyers, the aging demographic, immigration and the changing family formation.”
The challenge is getting political and community support to build them.
Many municipalities have outdated zoning bylaws that don’t conform to Places to Grow and don’t include intensification targets, says Tuckey, resulting in further delays, as rezoning is required before construction can begin on higher-density projects.
“I interact with many of the best developers in the city and they all feel that the approval process gets bogged down at the city level,”says Barbara Lawlor, president of Baker Real Estate, a leading brokerage firm in the GTA.
“We need to see more streamlining when it comes to the red tape and the layers of regulation,” Golini agrees, noting too that excessive development charges and parkland requirements create hindrances that contribute to higher home prices.
BILD is determined to ensure the 68,000 hectares of whitebelt lands — the area between the GTA and the greenbelt — are preserved for growth past 2031.
Though the whitebelt was intended to function as an urban reserve that would accommodate future growth in the region — whose population is projected to spike from 6.3 million to 8 million by 2031 — many municipalities have been restricting development of these lands.
“If the province was able to give a clear statement regarding the whitebelt and its long-term future,” says Tuckey, “it would go a long way to helping the implementation of Places to Grow in the GTA.”
Suburban Option – What did you buy and why?
Elaine Viterbo — 40, manager, North 44° restaurant
Where did you buy? Upper Unionville, a 1,700-home community at Kennedy Rd. and 16th Ave.
Tell us about your place. It’s a 2,300-sq.-ft. detached home on a 34-foot lot.
What appealed to you? For six years my husband and I have been living in a townhouse in Richmond Hill, but the pricing there for a detached home is ridiculous. We paid $720,000 for the home at Upper Unionville, so the price was appealing. So is the location — it’s easier to commute to work. Plus, it’s near my aunt’s house and she can take care of my two-year-old. And Unionville is a nice community that’s still growing.
Why a low-rise home, not a condo? My husband really likes having a backyard, even though you have to mow it, and there’s the maintenance of the home itself. But it’s also just the freedom; you don’t have to use an elevator. And we look at condos as a whole bunch of people living in one space.
Why did you buy new, not resale? I like the thought of being the first person using the bedroom and bathroom; being able to create something we want, not having to say, “We like the house except for this, but maybe we can renovate it to be that way”; being able to pick our own finishes — the builder had its own décor centre, so we chose the decor ourselves, and it suited our tastes; also, the smell of a new home (it’s like buying a new car).
When do you move in? August 2013. We visit the site weekly to see what stage it’s at. But it’s still just dirt at the moment.
City Centre Option – What did you buy and why?
David Porter — 39, condo-garden designer, Toronto Condo Garden
Where did you buy? River City, Phase One, King St. E. and River St. (the first residential project in the new West Don Lands precinct)
Tell us about your place. It’s a one-bedroom, 762-sq.-ft. corner unit on the 12th floor, with north- and west-facing views.
What appealed to you? The amazing and unobstructed view of downtown. The second reason was value — it was $437,000, including one parking spot and a locker. This worked out to $525 per square foot, compared to the downtown core, which is five minutes away by streetcar, where condos are going for about $700 per square foot. I thought it was a cool little pocket of the city.
Why a condo, not a low-rise home? I travel quite a bit and I like walking out the door and not worrying about it, so it fits my lifestyle. Although a backyard garden can be nice, I do love gardening on a balcony or a terrace. So easy to maintain and change up.
Why did you buy new, not resale? I’m not big into resale. That’s part of the fun of buying new construction — actually watching it, being able to pick all your finishes and then seeing it go from nothing into something.
When do you move in? Next summer. They’ve just topped off my building and I can see there are windows being installed, so they seem on schedule.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Housing affordability sensationalism–enough already!
Wendy Waters – AllAboutCities.ca
It has come to this. Every time some bank or other organization releases a new study about housing affordability in various cities I want to scream. Usually, the press release and all media stories have some sensational headline like “Vancouver 2nd most unaffordable city in the world.” As if. Those of you living in San Francisco, New York or London feel free to post in the comments.
What virtually all of these studies do is look at median or average prices of detached bungalows (moderate houses on their own lots) compared to the median or average income. This metric worked okay in the 20th century in most cities when bungalows on modest lots were the first homes of young families. It is becoming increasingly meaningless in the 21st century. Here’s why.
1. Average and median home prices are being driven up by the larger, mature demographic (think those over 50) who have equity and are now trading homes. Some are buying a nicer location, some are downsizing to a penthouse condo. Everyone has their own reason. Regardless, they are not taking out a $1 million mortgage on their $80,000 salary.
Average prices are also being driven up in some cities, like Vancouver, by an increase in “Luxury Market” sales. Over 700 homes priced at over $3 Million sold in Vancouver in 2011, nearly doubling the previous record of 375.
This luxury product is not about homes for younger families. Therefore, we should stop including it in analysis of housing market affordability for young families. Bob Rennie argued this in a talk last year. With help from Urban Futures, he noted that if you removed the top 20% of sales from analysis, pricing and affordability had not changed much in Metro Vancouver in recent years. Suburban developers tell me pricing has been quite flat for some time.
2. With number one said, we can still see that demand today is strong and growing in walkable, mature cities and neighbourhoods; the detached houses are often in highest demand (even when more modest price strata-homes exist). Because you can’t make more detached homes on lots in these mature areas, demand exceeds supply for this type of product. This drives up the average and median price of even fixer-uper, non-luxury product; increasingly only those trading an existing home or coming in with cash can purchase them. Families are buying in these neighbourhoods, but they are typically not first-time buyers; they have above average incomes and often equity from a condo or suburban home.
3. Points one and two above illustrate that detached bungalows are no longer typical first-time buyer product. When individuals, couples or families buy their first home in larger Canadian cities (and many cities around the world), increasingly it is more likely to be a townhouse or a condo. According to Realnet, In the Greater Toronto Area, 62% of homes sold in 2011 were high rise condos. And from watching House Hunters on HGTV this is also happening in many US cities as well.
Therefore a statement like “Vancouver 2nd most unaffordable city” is not that helpful if we are concerned about the “affordability” of buying a decent home for young families. Measuring something that is not first time buyer product against the incomes of first time buyers is comparing apples to Yugos.
If we are truly interested in understanding the ability of individuals with average incomes to buy a home in the higher priced metro areas, then at minimum look at condo homes (rowhouses and condos) instead of detached homes. Ideally you also remove the product coveted by the multi-millionaire club from the analysis. Suddenly the income needed to get into the market looks more familiar to most of us — $50,000 for Metro Vancouver, $38,000 in Greater Toronto according to this study.
Flashy headlines about real estate being unaffordable get the publisher of the reports and newspaper articles attention – this is why they publish them. Also it’s much easier to calculate median price and median income, and harder to do real housing market analysis.
What worries me is that politicians, policy makers and lobby groups are using this mis-information. I fear for the results. So banks and others, please move your thinking into the 21st century!
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–
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