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Your Weekly 411: GTA's Housing Crisis Just Got Worse 😥
Urban 411
September 29, 2024
This week's newsletter is arriving a bit late as we've been making some changes on the backend to enhance your experience. We're happy to let you know that we'll be back to our regular schedule of sending updates every Thursday moving forward!
Today, we're covering
🏠 Canadian Real Estate Flippers Remain Active
🤑 Investors Grab 30.4% of the Housing Market
💸 Ottawa’s Vacant Housing Tax Sees Low Revenue Impact
😱 Municipal Fees and Delays Drive GTA Housing Costs
🙏🏽 Canadian Regulator Relaxes Rules for Mortgage Renewals
🤔 WTF of The Week
Read Time: 5 minutes
🏠 Canadian Real Estate Flippers Remain Active
Canada has defined a flip as buying and selling within 12 months.
Canadian real estate flippers remain active, with 2.42% of transactions in Q2 2024 involving homes purchased and sold within 12 months.
This share is virtually unchanged from the previous year, just 0.19 points below the record high in Q1 2023.
Flippers are selling properties quickly. In Q2 2024, 1.2% of homes were flipped within 6 months of purchase, representing half of all flips.
Why This Matters: While some flipping activity may involve value-adding renovations, the high rate of quick flips suggests a mix of speculative activity and rapid property turnover, which can impact local housing markets. The persistently high rate of real estate flipping in Canada reflects a dynamic housing market segment that can significantly influence property values and availability.
🤑 Investors Grab 30.4% of the Housing Market
Canadian real estate investors reached a new record market share of 30.4% of home purchases in Q1 2024
This represents nearly 1 in 3 home purchases in Canada going to investors
The Bank of Canada's methodology likely underestimates the actual share of investors, as it excludes institutional, corporate, and foreign investors, as well as cash buyers
Why it Matters: The high and growing share of investors in the Canadian housing market raises concerns about housing affordability and the effectiveness of policymaking in addressing these challenges. Understanding the true extent of investor activity is crucial for developing appropriate policy responses.
💸 Ottawa’s Vacant Housing Tax Sees Little Impact
The Underused Housing Tax (UHT), effective in 2022, imposes a 1% annual tax on foreign-owned vacant or underused Canadian real estate.
Ottawa introduced UHT to deter foreign investors from leaving properties empty and raise revenue for housing affordability.
As of mid-June 2023, the Canada Revenue Agency (CRA) assessed only $74 million through UHT, with 98% of the 670,000 returns showing no balance due.
Implementation and administration of the UHT have cost the CRA $59 million over two fiscal years, including $900,000 for public awareness campaigns.
According to Department of Finance estimates, only around 30,000 of Canada's 16.5 million residential units are expected to be affected by UHT.
Why This Matters: The vacant home tax has been a costly and ineffective policy, wasting millions of dollars in implementation and administration. The tax has failed to address its intended purpose of improving housing affordability.
Given the low revenue and high costs, what should be done with the Vacant Homes Tax? |
😱 Municipal Fees and Delays Drive GTA Housing Costs
On average, it takes 20 months for housing projects to gain municipal approval.
Each month of delay adds $2,673 to $5,576 to the cost of each housing unit.
Based on average approval timeframes, delays increase new home costs by $43,000 to $90,000.
Municipal fees, taxes, and charges account for almost 25% of the cost of a new home in the GTA.
Since 2022, municipal fees have increased by an average of $42,000 per unit for low-rise developments and $32,000 for high-rise units.
Municipal fees now add an average of $122,387 to the cost of a condominium and $164,920 to the cost of a single-family home in the GTA.
Why This Matters: The escalating costs make housing increasingly unaffordable for potential homeowners. There's a decline in development applications, signaling a potential further strain on the GTA's housing supply.
🙏🏽 Canada Relaxes Rules for Mortgage Renewals
Canada's banking regulator (OSFI) is relaxing mortgage stress test rules for homeowners switching lenders at renewal.
Effective Nov. 21, banks won't need to apply the stress test for borrowers with uninsured mortgages who are doing a "straight switch" (same amortization, no increase in loan amount).
This change is expected to:
Make it easier for borrowers to switch lenders at renewal
Motivate banks to offer more competitive rates
Previously, borrowers had to requalify at renewal if switching lenders, which became difficult due to rising interest rates.s.
Why This Matters: This shift could provide significant financial relief for many Canadians, especially in the current high-interest environment, while increasing market liquidity and economic flexibility.
🤔 WTF of The Week
Yikes! 😬 Mike breaks down how much development charges have shot up in the last 10 years—nearly 1000% in Toronto alone! With costs like these, how does this help with housing affordability? This ties directly into this week's theme of affordability, and it's clear that rising fees like these are making it even more challenging for buyers to enter the housing market.
