As of right now, Canada is grappling with a pretty bad housing crisis that has left many individuals and families struggling to find affordable and suitable housing options. Let’s look at the factors that have contributed to this crisis, including rising demand, limited supply, and rising housing costs.
Why is Canada having a housing crisis?
One of the primary drivers of the housing crisis is the growing population in Canada, we are set to hit 40 million very soon. This significant population growth over the last few years (especially in urban areas) has led to increased demand for housing, putting pressure on the already limited supply of affordable homes, particularly in metropolitan regions.
This naturally leads to rising housing costs, which play a significant role in the affordability crisis. In cities like Vancouver and Toronto, housing prices have skyrocketed, significantly above the normal inflation rate and far outpacing income growth. This has, unfortunately made it difficult for prospective homebuyers to enter the market. Similarly, with affordable rental options. The gap between housing costs and wages has widened, leading to a lack of affordable housing opportunities for many Canadians.
Another contributing factor is the increase in foreign demand, from investors outside the country. The influx of foreign capital has increased competition for properties, leading to bidding wars and price escalation. This has further reduced the availability of affordable homes for local residents, intensifying the housing crisis.
What about the housing crisis in Toronto specifically?
Toronto, as one of Canada’s largest and most vibrant cities, unfortunately, bears witness to the profound impact of the affordable housing crisis. Several factors have weaved together to form the intricate challenges faced by individuals seeking affordable housing options in this bustling metropolis.
First and foremost, the booming population growth in the city has placed immense pressure on the housing market. Toronto has experienced a relentless surge in immigration, many people decide to move to the city for employment and educational opportunities. This population growth has outpaced the construction of new housing units, creating a substantial demand-supply gap.
Rising housing costs and stagnant wages have further compounded the affordability crisis in Toronto. As property prices continue to climb, wages have not kept pace, making it increasingly difficult for individuals and families to afford rent or homeownership. An Ontario Housing Affordability Task Force report states that house prices grew 180% over a decade while incomes grew about 38% over the same period.
The lack of government investment in affordable housing is also a direct contributor to the crisis in Toronto. Insufficient funding and support for affordable housing initiatives have made it challenging to create an adequate supply of affordable homes. The demand for affordable housing far exceeds the availability, exacerbating the affordability crisis.
And as mentioned earlier, foreign investment, particularly in Toronto’s housing market, has also played a significant role in driving up prices and reducing affordability. Non-resident buyers, particularly those from foreign countries have driven up competition and increased housing prices by heavily investing in Toronto’s real estate market. This has made it even more challenging for local residents to access affordable housing options.
Another factor to consider would be the prevalence of short-term rentals, such as Airbnb. This has reduced the availability of long-term rental units in Toronto. Property owners often choose to list their units on short-term rental platforms to capitalise on tourism demand, further reducing the supply of affordable rental housing. All of these factors have pushed the average price of a house in Toronto above $1 million.
Does a housing recession mean there will be affordable houses on the market?
The impact of a housing recession on the availability of affordable houses in Ontario or across Canada is quite the puzzle, defying any easy explanation. Unravelling the web of factors in a recession can shed light on the potential effects on housing affordability, so let’s take a look at this.
When a housing recession strikes, the economic landscape weathers the storm and morphs into a gloomier realm. Consumer confidence wanes, and the real estate market grinds to a sluggish pace. This presents a scenario where sellers, noticing the dwindling demand, may have to drop their lofty prices. This would open the door to buyers looking for more accessible prices.
Yet, we should not underestimate the influence of other factors that walk alongside the diminished demand. The supply of housing, a key piece of this puzzle, shouldn’t be ignored. Even during a recession, if housing remains scarce, the anticipated plunge in prices might not show up as expected. Take Toronto, for instance, as a city facing a severe shortage of affordable housing, a recession might not lower prices here as the supply/demand ratio is still way too skewed.
Also, it’s important to consider that while reduced housing prices might seem like a silver lining, a housing recession casts a dark cloud over the broader economy and individuals’ financial well-being. Amid a severe recession, the spectre of job losses and dwindling incomes may ultimately cause it to be even more difficult for the average buyer to purchase a house in the end. Even if housing prices experience some sort of downward trajectory, the financial strains during such an economic downturn can diminish individuals’ and families’ capacity to afford housing. Any gains in affordability stemming from lower prices may be offset by the recession itself.
In conclusion, a housing recession possesses the power to shape the landscape of affordable housing options. While the descent in demand during such an economic period may pave the way for price reductions, we can’t overlook the interplay of a still apparent housing supply shortage and of course the overall economy. When contemplating the impact on housing affordability, a holistic perspective that considers all of these elements is very important.
