The dogfight

The election this year turned into a dogfight on who had the big plan to corral real estate prices.

Since the vote, nothing’s been fixed. Moreover, zip will happen until the spring budget. And meanwhile the housing stats just get worse. October sales surged as mortgage rates started to ascend. Bankers report their big golden gates are being thronged by people looking for pre-approvals at locked-in costs before things get more expensive.

Inventory continues to collapse. Across the country the supply is less than two months. In some hoods, it’s two weeks. And, nationally, prices went up 2.7% last month. That’s a 32% annualized, compared with the actual one-year surge of 20% for detached houses in Van and 29.7% in the steamy, house-lusty 905 part of the GTA.

So, anyone thinking the Justin-Jag tag team would tackle the realtors must feel jaded. In fact the steps we expect next – more money to help newbies pay closing costs and the weird FHSA tax shelter to create down payments, for example – will only make things more torrid. Plus, as Covid fades (and the economic implications are the virus are finito) Canada will be welcoming a lot of new citizens. Many will end up in YVR and the GTA, as usual. And this brings us to provincial politicians.

What’s coming?

In BC, as we mentioned, the glorious socialists in charge plan to let any buyer break a real estate contract with a seven-day cooling-off period. This is nuts, of course. It will allow people to bid on many properties at the same time, since they can wiggle out of any that go south or when a better one comes along. They can offer extreme bids to blow off competition without recourse. They can continue to shop the market after securing a property, knowing that nothing is contractually tied up. In short, it removes a market-driven price discipline and will allow values to inflate. This also makes selling an unstable experience with gossamer threads holding any deal in place. Hard to see how it does anything other than shrink inventory and swell prices.

Oh well. Capitalism was never a strong point for the Dippers.

But in Ontario the PC government is (presumably) far more rightist. And there’s an election in six months. Plus Doug Ford wants to succeed Erin O’Toole and become prime minister of the land. So the cost of housing is a mega-deal, and you can expect sparks.

Recently the Tories’ pollster has been collecting public opinion data on real estate. According to the CBC, these are the choices presented when this question is asked: “what should the government do to make housing more unaffordable?”

• Make more land available to build homes.
• Tax vacant homes.
• Restrict developer profits.
• Restrict foreign buyers.
• Provide incentives to home buyers such as a tax credit.
• Restrict some real estate practices such as blind bidding.
• Put an end to people fighting developments in their neighbourhoods.
• Force municipalities to be much quicker with their building permit process

Hmm.

Increasing the supply of homes is an obvious fix, but that takes years. And years. Even with land made available and approvals fast-tracked. Let’s hope it happens. BC is doing the same, but by allowing municipalities to bust single-family-only neighbourhood zoning. A recipe for conflict.

The question, then, is what can be done in the next six or 12 months to deal with this social dilemma? If Ontario chooses to incentivize buyers and further tax owners, the odds of success are zilch. Ending blind bidding would be cool, but what will replace it? Will prices fall if everyone bidding for a home is made aware of what the competing offers are?

And what happens come April when Ottawa’s First Home Savings Account allows loans from the Bank of Mom to be both tax-deductible and grow tax-free, then used as an untaxed and unrepayable down payment? Is that the next bomb to go off under prices? Will this hasten the Bank of Canada to begin its tightening cycle as Canada’s economy becomes more dangerously tilted to dirt? Already inflation’s out of control. Average detached house prices of $2 million will leave the rest of the world wondering what the hell Canadians are smoking. But, of course, we already know. Justin gave us that, too.

Meanwhile even the bankers are confused. CIBC’s Benny Tal suggested the other day that sane people should not even try to buy a house under these conditions. RBC’s economists say the affordability ‘challenge’ is about to get worse, “as prices continue to increase, interest rates rise and much of the strong income gains will decline – as sizeable government programs will be rolled back.” The bank holds out optimism that as the cost of money rises, “the base case scenario is for the housing market to cool, not collapse. We expect prices to flatten in the second half of 2022.”

So, will government make things better or worse?

If you were born before 1980, try not to laugh.

About the picture: “Here is Galileo age 7 our Brussels Griffon or to use the correct name our Griffon Bruxellois,” writes Elsbeth. “This is a breed so out of fashion that only 16 people in all these years have correctly identified him to me. 10,000 people have said ‘what is it, a Star Wars Ewok?’ This breed is healthy, the long-haired version is hypoallergic, they know if someone is even thinking of looking at your property and they love children. What’s not to like. The breed is hundreds of years old and feature as the family pet in a lot of 16th century Dutch masters’ painting so unlike a lot of pedigree dog breeds we know exactly what they are supposed to look like and ensure that current dog fashion doesn’t change them. Probably why they are so out of fashion then!”