Self-inflicted

In 2012 there were 34,000 realtors in Toronto. Today, like frisky rabbits, there are way more. Just over 73,000 by last count. This is more than any other urban area in North America, per population. Maybe the planet. Meanwhile commission rates (the standard is 6% of the full selling price) are among the highest on the continent.

Consider this.

The average detached in the GTA sold for $1,350,828 (city and suburbs combined). The average commish was $81,050. Plus $10,536 in HST, for a total of $91,586. Ouch. People who sell and then buy a new place also face land transfer taxes. On this house in the burbs that would cost $23,475. In Toronto proper, that jumps to $46,950.

So someone leaving the Bunnypatch region and moving into 416 would have to shell out almost $140,000 (plus legals and moving expense) just to go sideways and be closer to a subway station or Starbucks.

It’s easy to see why real estate has become massively unaffordable. Everybody has their hand out. Property taxes are catapulting higher (up a fresh 10% in Toronto). The underutilized house taxes are extreme at 3% of appraised value annually for not sleeping there at least 182 nights. Condo fees, utilities and insurance premiums are swelling like a dead hippo. And now as governments at all levels clamour for additional revenue, residential real estate is the target of choice. You should expect more.

But back to the realtors for a moment.

Sales cratered in 2023 amid higher mortgage rates and all of the costs listed above. At the same time the real estate gods themselves decided to bring in a mandatory health plan and send all agents a bill for almost two grand. As a result of this and market torpor an estimated 45,000 of them are expected to leave the biz this year. We may have a load of new Uber drivers as a result.

It’s not just the Big Smoke. It’s everywhere.

In the US, where sales have also cratered, the number of agents has fallen to the lowest level in a decade. One big reason American real estate turtled last year is the prevalence of 30-year mortgages. While current rates are around 7%, a huge number of homeowners are happily locked in at 4% or less – for decades. That means they actually cannot afford to list or move, which would involve refinancing at almost double their current rate.

So supply on the resale market has fallen precipitously, putting upward pressure on prices as demand outstrips inventory, leading to competition and elevated selling values. (By the way, the land transfer tax on a $1.35 million house in New York City is $5,400, compared with almost $47,000 in Toronto.)

Canada is a high-cost place to settle, obviously. Years of cheap mortgage rates helped inflate real estate values and higher interest charges have not done much to reduce them. The added cost of buying and selling plus ownership overhead and escalating property tax have punted most first-time buyers. Now, in 2024, we’ll likely see a decline in the Bank of Canada policy rate, leading to an uptick in sales. Prices may rise, depending on the hood and demand, but given our level of household debt, nobody’s expecting a boom.

The political solution is to build more houses. Ottawa has thrown $4 billion at cities who are trash their zoning restrictions, streamline approvals and add new infrastructure. So far there are almost no new multiplex units to show for it. Building starts have been falling, not rising. Construction guys say with the cost of labour, land, materials, financing and development charges it’s impossible to throw up ‘affordable’ units.

Unsolvable?

It seems so. Nobody can build houses average families can afford in places where they want to live. Governments are throwing money around with one hand while using the other to Hoover buyers, sellers and owners. The real estate industry has helped destroy affordability, thereby leading to tis own decimation.

The federal Libs are taking a big hit for this. Ironically, the federal Cons are peddling precisely the same failed ‘solution’ to the housing crisis – bribe cities to hasten construction. But market conditions prevent it. Buyers can’t afford those homes. So as rates fall, the population grows, GenZ gets house-horny and sales rise, nothing is fixed.

Time for better ideas, obviously.

Maybe it’s removing (over time) the tax-free status of real estate gains. After all, the current PR exemption proves what happens to an asset when you treat it differently from all others. Suddenly everybody uses leverage, speculates and expects to sell for more than they paid, essentially living for free. Housing becomes a cult. Society tilts. We end up with an economy of people selling properties to each other with skimmers (realtors and governments) living off the avails.

Or maybe we could build houses people can afford. Like these.

Source: New York Times

US builders have started putting up whole streets of 600-foot, even 400-foot, condo-sized detached homes. Sitting on  decent lots within half an hour of a city core, they’re selling for $300,000 or less. The ones above are located in the Elm Trails subdivision from Lennar Homes in San Antonio, Texas. Would Canadians buy them?

So far the feds here have made noises about a new era of wartime ‘Victory’ home designs, but nary a shovel has hit the dirt. No builders have signed on. No land set aside.

We are seriously messed up.

About the picture: “This is Viggo our “granddog” while helping our son’s family move last spring,” writes Chris. “Viggo , 10 months old at the time, noticed grandpa taking a break and decided to show his prowess at being a lapdog. We’ve enjoyed your blog Garth for years. Thank you for your wit and sage advice.”

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