An article in last week’s Globe and Mail suggested the median home price in Canada is around $776,400 CAD (or $564,372.35 USD, as of this writing). The price point varies between cities, property types, provinces, regions and more. Nevertheless, it’s a noticeable spike in an over-inflated Canadian real estate market that’s already priced out many potential home owners from all walks of life.
This figure will likely raise a few eyebrows in some U.S. states. Average home prices in nearly one-third of the country’s major housing markets have declined, according to CNBC. It’s reached the point where American real estate has become somewhat more affordable and an attainable goal for young families.
Plenty of eyebrows were raised in the Great White North, too. The reasons for this in my particular household were likely a bit different than most others.
Canada’s mortgage industry started in the 1930s, and my family has been involved almost from the start. Louis Taube, my late grandfather and a lawyer, dealt with mortgages before the rise of the Central (later Canada) Mortgage and Housing Corporation, the national housing agency, in 1946. Stanley Taube, my father and also a lawyer, bought his first mortgage at age 13 in 1949, owned a trust company and remains in the industry. While I headed into politics and media and opted not to become a lawyer, I carried on this tradition and became a mortgage agent.
Through our decades of knowledge and experience in this industry, we’ve witnessed some astonishing developments in Canadian real estate. The average house price escalated from $72,500 in 1982 to $439,100 in 2015—and has exploded even further. Five-year fixed-rate mortgages, which sat at slightly over 21 percent in 1981, are roughly between 4 to 4.25 percent today. Major cities like Toronto, Vancouver, Calgary and Montreal experienced massive housing booms, vibrant real estate markets, fierce bidding wars, higher asking and sale prices, and increased levels of foreign investment.
If you believe in private enterprise and a free market economy, the national housing market in Canada should’ve been allowed to thrive and ultimately correct itself. The federal government and several provincial governments opted to throw cold water on a hot market and implemented some unnecessary artificial controls on real estate and mortgage rules several years ago.
Here are two examples.
British Columbia announced that a 15 percent tax on properties purchased specifically by non-residents would be implemented on Aug. 2, 2016. What happened? Foreign entities rushed out, closed mortgage deals and flooded the market before the deadline passed. Vancouver, the province’s biggest city, experienced a massive 33 percent drop in home sales. While purchase prices remained unchanged, this surtax caused market stagnation and reduced the demand for building supplies and part-time/full-time labor for new homes and condominiums. The mortgage industry began to sputter for domestic and foreign buyers alike. And a tax on vacant homes was added on Jan. 1, 2017.
Ontario unwisely followed B.C.’s lead and announced 16 restrictive measures to slow down the white-hot real estate market in its biggest city, Toronto. The so-called Fair Housing Plan introduced by the Ontario Liberal government included a 15 percent foreign buyers tax, capping most rent increases to 2.5 percent, and gradually imposing a vacant home tax. Toronto, similar to Vancouver, immediately experienced a real estate slowdown. Home sales dropped by 1.7 percent between March and April 2015, according to the Canadian Real Estate Association. The Toronto Real Estate Board also noted the average house price in the Greater Toronto Area fell from $920,791 in April to $863,910 in May of 2015, or a drop of 6.2 percent. While the downward trend in the Toronto real estate market ended in short order, the plan was an unnecessary, anti-free market strategy to take.
Where do things stand today? The left-wing B.C. NDP government has maintained the property surtax for non-residents, and it’s now at 20 percent in certain areas of the province. As for Ontario’s Fair Housing Plan, it’s still on the books but has largely been supplanted by the more logical Housing Supply Action Plan introduced by the right-leaning PC government. A little better in one province—and a bit worse in the other.
Some analysts argued this real estate slowdown was a sensible move. They noted that escalating house prices came tumbling down—over six percent nationally—and reached somewhat more attainable levels. They argued that first-time and regular/irregular buyers could now consider entering or reentering the housing market, too.
This analysis missed the mark. The belief that housing prices and mortgage rates must be lower so that more people can enter the real estate market is farcical. People don’t have the right to own a home; rather, they need to play by the rules of the game to qualify for home ownership. This could include acquiring wealth, obtaining good paying jobs, establishing solid credit, saving for a downpayment, and ensuring whether they can meet their mortgage terms. In other words, they should work within the real estate market as it exists, and not as they want it to be.
Government interference in the natural ebbs and flows of real estate and mortgage lending has set a terrible precedent for Canada. Federal and provincial politicians will now feel comfortable in proposing and setting artificial rates, regulations and standards when a housing market is performing above capacity as well as below capacity. Free-market thinking could therefore take a backseat in future years to political meddling. More people could be forced to stay in their apartments for longer periods of time. An insufficient percentage of renters, including younger ones, will shift into permanent home buyers—as is the case today.
The number of private mortgage brokers, agents and lenders is beginning to decline, too. Why? The success of this industry is directly tied to the long-term viability of Canadian real estate. If housing prices and sales are artificially slowed down on a frequent or infrequent basis, the options for obtaining a mortgage could be narrowed to big banks (which are more cautious lenders by nature) and an exceedingly small handful of private individuals and firms (who’d have to charge higher rates and huge fees to survive).
If the median home price in my country continues to escalate, maybe the family business will end with me after all.
—Michael Taube, a columnist for the National Post, Troy Media and Loonie Politics, was a speechwriter for former Canadian Prime Minister Stephen Harper.