As the population of Canada experiences growth and immigration remains steady, many communities and neighbourhoods across the nation have felt the sweeping changes that occur when new residents move in. Although there was always concern about displacement of lower-income residents, “there will be losers in the name of progress” was a common refrain.
This seems to be changing, now that swelling property values are not only displacing the poor, but the middle class. “Progress” has been replaced by “housing crisis.” Many neighbourhoods, municipalities and even metro areas have experienced annual double-digit house price inflation over the past decade, forcing many middle-income individuals and households to make tough choices about where they want to live.
As you can imagine, there are many folks very angry about the lack of affordability, and they want a solution. The battle cry calls for someone to be held accountable for the messy housing situation, especially in Vancouver and Toronto, where prospective home buyers face the greatest homeownership hurdles.
But who really is to blame for high housing prices?
The statistic that everyone evaluates, writes about, or complains about when discussing residential real estate is the average end-selling price. However, with the decline in interest rates, homebuyers are focusing on their monthly carrying cost only, which has not spiked like the end-selling price.
Although there is much debate about the impact on the housing market should the cost of borrowing increase, the low interest rate environment is expected to remain for several more years. TD Bank’s chief economist Beata Caranci expects Canada to remain in a low-growth scenario, which likely means weak inflation and low interest rates. Low rates will continue to support housing demand moving forward.
Almost 70 per cent of Canadians own a home, and for most of them, it is their largest financial asset. It is in the interest of these homeowners to protect the value of their home by protecting their neighbourhood, pushing back against basement apartments, infill townhouse developments or high-density condominiums that might shift the area’s demographic profile, disrupt their bedroom view, disturb their peaceful morning drive or in any other way alter their affluent enclave.
Politicians fight for their constituents, and push back against zoning changes that could hurt the enjoyment of properties owned by current residents at the expense of future residents in dire need of added housing stock. The lack of new supply is resulting in a price spike in many areas.
For years, parents have pushed their children into homeownership, even if renting made more sense to their current lifestyle. A recent study in the USA indicated that 91 per cent of millennials want to own a home, despite the fact that the market there recently experienced a major crash.
The bank of mom and dad remains open, as parents continue to extend financial support for down payments on property — why would a first-time buyer turn down this money and rent? High house prices means wealthier parents, which in turns means bigger down payment gifts for their offspring, further perpetuating the cycle of house price appreciation.
Home and Garden Television and other stations that feature home renovation shows inspire people to want to buy and “fix up” properties. It is estimated that nearly $70 billion dollars was spent on renovations in Canada in 2015, an increase of three per cent over 2014. The Altus Group expects a jump to $72.3 billion in spending in 2016.
The allure of improving the value of a property or altering it to your personal taste is a huge benefit of ownership housing. Most landlords won’t allow major renovations to be done to their properties, and why would you spend money to improve a property you will not ultimately own? Bungalows in major cities are disappearing as folks add second storeys for their growing families, immediately adding hundreds of thousands of dollars of use-value and financial value to their properties. The same financial windfall occurs with the increase in basement apartments in many municipalities, adding a new income stream for homeowners.
There are many more factors that could be added to this list, including foreign ownership, population growth among highly educated individuals, the resurgence of high-priced downtown cores, the increase in two-income households, upgraded technology that allows more people to qualify for mortgage credit, boomers’ appetites for vacation properties and second homes, an increase in temporary residents (especially students), the greater acceptance of pre-construction condo buying that has made building ownership housing more profitable than rental housing, and many, many more.
What would you add to the list?
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