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Monday Morning Quarterback: Two Steps Forward, Two Steps Back


“holds water”

Pardon the pun, it wasn’t intentional.

And if we’re being honest, the Titanic did hold water pretty well.  It took 2 hours and 40 minutes for that thing to sink, and I don’t know that James Cameron condensed that sequence at all in the movie, which felt like it was six hours.  But I digress…

Well, we’re Monday Morning Quarterbacking once again, but can you blame me?  So much news, so little time!  And only three blog posts per week!  If only it were 2011 when I posted four times per week, right?  I wonder if I’d have any hair left…

While I could easily spend this week regaling you with tales of 30-offer gong-shows and houses selling for 75% over the asking price, there’s going to be a lot of time for that this year.

Today, I want to talk about an inevitability that finally happened.

If I can pat myself on the back for two predictions that I made (repeatedly…) last December, it’s that the market would be chaotic in January, and that the Government would look to “tackle” some perceived problem in the mortgage and/or Housing markets as an attempt to show they’re acting on housing.

Well, the former is true, and we’re only two weeks into the year.  But the latter is also upon us, and it came exactly where many of us thought it would.

You might have read this article in the Financial Post last week:

“CMHC To Review Down Payments On Investment Properties As Part Of Federal Strategy To Tackle Housing Risks”


It was only a matter of time…

As we discussed in November, December, and in the New Year on TRB, the new “bad guy” for the housing market is investors.

We’ve beat foreign buyers to death (not literally, although that might provide some price relief…), we’ve taken shots at real estate agents, blamed interest rates, taken developers to task for not providing enough affordable housing (as though that’s their job…), and now the boogeyman comes in the form of me, you, and the guy who lives down the street, all of whom are buying second and third properties with our paltry 20% down payments, thereby making it more difficult for people who should be renting, to buy.

Fair enough?

Or hardly fair at all?

From the Financial Post article:

The federal government is planning to review the rules surrounding down payments on investment properties in a bid to curb speculation in red hot housing markets, with increases in the downpayment or restriction on the source of funds the most likely measures it might pursue, according to industry experts.

The review was one of a series of measures to combat soaring housing prices laid out within the Fairness in Real Estate Action Plan in the mandate letter from Prime Minister Justin Trudeau to Ahmed Hussen, the minister responsible for housing, in December.

The Ministry of Housing and Diversity and Inclusion, in partnership with the Canada Mortgage and Housing Corporation (CMHC), told the Financial Post that speculative investing in residential real estate has become an important concern, prompting Canadians to overbid on properties, borrow beyond what they can afford, and push home prices even higher.

“That’s why our government is looking at every tool at our disposal to tackle these challenges head on. That includes the Fairness in Real Estate Action Plan,” the statement read. “By developing policies to curb excessive profits in investment properties, protecting small independent landlords and Canadian families, and reviewing the down payment requirements for investment properties, we are targeting the issues the market is facing from multiple angles.”

If you’re a cynic, and maybe a bit of an ass, you can laugh at this, just like I am…

Once upon a time, you could be an “investor” with only a 5% down payment.



Once upon a time, you could be an investor with 0% down and a 40-year amortization.  That’s right, you could literally buy with no money (in some cases, 107% financing was available so you could get money back) and stretch your payments out over 40-years.

But who can think that far back, right?  Did the world exist before Google Maps, Amazon Prime, and Instagram?  Hardly!

Eventually, the standard that we all knew and understood was implemented: a minimum 5% down payment.

This lasted for quite a while and despite being able to tell tales of lower down payment requirements, you could still buy a house or condo, priced low or priced high, and purchase with merely 5% down while financing the rest.

Oh, the good old days!

Along came the financial crisis in the United States, which originated from loose mortgage regulations, and Canada solidified its place as “the safest banking system in the world” by introducing a slew of measures to reduce the amount of debt taken on by purchasers of real estate.

Today, you know that a 20% down payment is necessary to purchase an investment property.  But did you know that this has been in place for over a decade?  Or more to the point, did you know that prior to this legislation, you could purchase with 5% down?

Many of you know this, but some of you are scratching your head right now.  Your inner Roger Rabbit has his eyes popping out of his head!

So would increasing the minimum down payment requirement to 25% this year be a little bit of “once bitten, twice shy?”

How about 30%?  How about 35?

Hell, why not just force people to buy in cash?

Simply put: the government can’t do anything about increasing real estate prices, but they have to be seen as trying.  All three levels of government share blame in our lack of infrastructure necessary to thrive in 2022, whether that’s city-wide or country-wide, whether that’s transit, hospitals, schools, or room for a goddam grocery store near a massive new condo development that’ll put 37,000 people in 14 acres.

Seriously, have you seen the development up by the Vaughan IKEA?  If you took your kids to the “Night of Lights” over Christmas, like I did, you’ll know what I’m talking about.  While driving out of that mess of construction, I said to my wife, “Where are all of these people going to get groceries?  Where’s their dentist?  Where will their kids go to school?”

How’s this for a catch-twenty-two: we’re building condos way too fast for the government to provide supporting infrastructure, but we’re not building houses and condos fast enough to satisfy the demand from the growing Population.

Oh, the growing population!

There was no shortage of that in the news last week!

In the Globe & Mail:

“Canada’s Next Wave Of Immigration Set TO Add More Fuel To Overheated Housing Market”

From the article:

The federal government has increased its annual immigration targets to the highest levels on record, creating the conditions for a surge of new permanent residents, which Canada needs to fill job vacancies. These new immigrants will add to the country’s population and immediately boost the need for housing in major job centres and nearby cities.

This will ramp up competition for homes at a time when national real estate prices have jumped 40 per cent in the past two years.

“Canada’s strong population growth is a factor driving our home prices upward at a faster pace than in many other economies,” said Bank of Montreal chief economist Douglas Porter, who analyzed the relationship between population growth and home prices in 18 developed countries.

He found that countries with faster population growth have had greater home price inflation than those whose populations have remained stable, or decreased.

Oh, you don’t say?

Fast population growth leads to higher home prices?

Is this really what constitutes “news” in 2022?  Is the population so naive and ill-informed that we’re telling people “two plus two equals four” and expecting them to learn something that day?

I’ve seen more talk about the relationship between immigration and housing in the past three months than I think I’ve seen in the past ten years.

Another great read from last week, this one by the Editorial Board at the Globe & Mail:

“Immigration Is Rising. SO Will Housing Prices – Unless We Start Building A Lot More Homes”

As Canada pursues record immigration, the country has to explicitly plan to meet the challenges. We won’t reap the full benefits unless we do so. But the system for addressing all of this is fractured. Ottawa sets immigration targets yet new housing supply is dictated – and too often stymied – by municipal zoning.

Ottawa is convening a so-called national housing supply summit later this year, bringing together the feds and the cities. It’s a start. For too long, a policy of population growth has been disconnected from all discussion of housing that growing population. For too long, there has been a little – or no – co-ordination. Housing policy has to catch up to immigration reality.

Amen, sister!  Amen!

But what then can the government do?

They’re not going to close the doors to immigration.  That would be seen as xenophobic, plus, we need immigration to grow our economy!

At the same time, with every new mortgage regulation or tightening of the market, the government tries to be the good guy and keep real estate prices from escalating but risks being the bad guy by making it harder for many Canadians to purchase.

Last week, this article appeared in the Financial Post:

“Is Ottawa Finally About To Get Serious About Housing Bubbles?”

The subheading reads:

One thing is clear, the political pressure to avoid measures making it harder to buy a house is immense

That’s the problem!

The government giveth, and the government taketh away!

The Bank of Canada and the Department of Finance are hardly working in lock-step.

And all the while, politicians, who stay in power by promising the population things that simply cannot be delivered, have to smile and tell everybody, “It’ll be okay.”

But it won’t be okay.

Until we stop letting foreign money land at the airport and flow into the real estate market, or embrace renting long-term as a viable and popular alternative to home-ownership, or invest in infrastructure in the Golden Horseshoe that would bring us up to 2022 standards from where we currently sit (ie. appropriate for the 1970’s), then the market is going to continue doing what it’s doing.

Another option comes to mind: building more houses.

But this is difficult, and governments don’t do difficult.

Governments promise.  Governments pander.  Governments blame.  Governments deflect.  Governments buy time.

I mean, as an example, does anybody believe that the Ford Government is acting in the best interests of the population right now, or are all their decisions and actions based on the highest chance of re-election?

That’s the problem in government, and whether it’s municipal, provincial, or federal, the government isn’t doing anything about building housing long-term.

Murtaza Haider & Stephen Moranis penned this in the Financial Post last week:

“Canada Needs A Fresh Approach To Build Desperately Needed New Homes”

No kidding!

You have to scroll about two-thirds of the way down the article to get past what we already know (ie. the same-old about rising prices) to read this:

Governments in Canada have finally realized that increasing housing supply is critical to improving housing affordability in Canada. Minister of Housing and Diversity and Inclusion Ahmed Hussen acknowledged “more supply is one of the solutions.” The Liberals will serve Canadians better if they realize that increasing the housing supply is not just one of the solutions, but the most critical missing piece of the housing puzzle.

Building more housing above and beyond the business-as-usual scenario must accompany measures directed at curbing housing demand. This is even more relevant for Canada because it has plans to admit over 400,000 immigrants each year.

So far, the Liberal government has allocated $4 billion for a Housing Accelerator Fund to construct 100,000 homes targeted at mid-income earners by 2025. Another $2.7 billion has been earmarked to refurbish existing or build new affordable dwellings. And $600 million is available to convert underutilized office buildings into rental dwellings.

The government intends to transfer these funds to municipalities willing to increase housing supplies by reducing development approval times, allowing higher density in built-up areas, and building more dwellings near public transit infrastructure.

Finding the right partners in local governments to deliver more housing by 2025 will be a challenge Liberals continue to face. But leaving decision-making in the hands of officials and representatives in the three tiers of government is unlikely to deliver more housing.

The dispersed mandate to approve new developments has not served Canada well. An overhaul of the development approval process is needed to consolidate decision-making for new housing development under one authority.

So having read all this, tell me now: how in the world does increasing the minimum down payment on an investment property from 20% to 25% do ANYTHING to help our market?

It doesn’t.

It won’t.

It can’t.

But it’ll show the masses, “The government is taking action!”  Those that don’t read the Financial Post, or TRB, or anything beyond what inappropriate dress Kylie Jenner wore to her friend’s wedding will continue to lay blame in the wrong place, but provide praise in the wrong place too.

Another day, another needless and ineffective “solution” to the housing crisis.


The post Monday Morning Quarterback: Two Steps Forward, Two Steps Back appeared first on Toronto Realty Blog.

This post first appeared on | Toronto Real Estate, please read the originial post: here

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Monday Morning Quarterback: Two Steps Forward, Two Steps Back


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