Will houses ever be affordable again in Canada?
The high cost of housing in Canada has been a hot topic for many years now, and it doesn’t seem like it’s slowing down the trend.
In 2020, a new home was sold for an average price of 391,900 dollars, and in 2021, that price rose to 453,700 dollars.
It rose to over 531,000 Canadian dollars in the last quarter of 2021, maintaining a continuous rise, and in 2022, according to the most recent data from the Canadian Real Estate Association (CREA), the national average price of a home in Canada is up to $796,068.
With prices continuing to rise, many people are wondering if houses will ever be affordable again in this country.
Will houses ever be affordable again in Canada? is the question on everyone’s lips.
Recent housing forecast
Recently, some experts believe that the housing market in Canada is inevitably going to crash and that it may happen soon.
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The reasons for their forecast centered around a potential interest rate hike, a decrease in foreign investment, and an overall decrease in demand for housing.
While the points behind the predictions are noteworthy, what hasn’t happened in its entity is the predicted outcome.
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An average Canadian wants to afford a house, but the conditions haven’t been as projected and the price of houses is still high.
So, will it ever change? What are the options, and on what basis should the average Canadian place their hope that the price of houses will one day come down?
Will houses ever be affordable again in Canada?
Unfortunately, no, houses will never be affordable in Canada again because, according to a recent estimate from the Canada Mortgage and Housing Corporation, the housing stock in the nation would need to increase to more than 22 million units by 2030 for it to be affordable for everyone who lives in Canada.
That’s an impossible fit to achieve because it means 3.5 million more housing units must be constructed nationwide than are now anticipated.
So, if you are expecting houses to ever be affordable again in Canada, you are placing an unimaginable expectation on the nation.
It’s almost impossible.
We are still dealing with a supply shortage in desirable locations. Higher immigration levels have put pressure on demand, along with the strong desire for urban lifestyle living, especially in Toronto, Vancouver, and Montreal.
So there is no way a reduction will take place.
To reduce the price of houses in Canada, a lot has to be put into the housing unit.
What can be done to reduce the cost of housing in Canada?
- The government should provide more funding for affordable housing initiatives.
- Municipalities should reduce development fees and other charges for new construction.
- The National Housing Strategy should be expanded to include more funding for affordable housing.
- The mortgage stress test should be reviewed.
- Banks should be required to offer more flexibility on mortgage terms.
- The government should invest in new housing initiatives that focus on affordability.
- The government should increase funding for social housing programs.
- Municipalities should introduce policies that encourage the construction of more affordable housing.
- The government should provide tax incentives for developers who build affordable housing.
- The government should establish a national housing fund to help finance affordable housing projects.
- Governments t all levels should reduce restrictive laws that limit construction at all levels.
A clear look at these suggestions will provide solutions to the current crisis in the price of houses in Canada.
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These solutions may not be immediate, but with time, they will prove effective.
The government should provide more funding for affordable housing initiatives.
The issue of house prices in Canada can be solved, but it will take a lot of effort from the government at all levels.
The government can start by providing more funding for affordable housing initiatives.
These initiatives could include building more public housing, providing vouchers for low-income families to live in private housing, or even giving tax breaks to developers who build affordable housing.
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This will see more people get into the building of houses, and with more houses available, the price will surely reduce.
Municipalities should reduce development fees and other charges for new construction.
Municipalities also have a big role to play here, and they can start by reducing the development fees charged for new construction.
Development fees are charges developers must pay to the municipality to build new homes.
These charges are levied by the municipality on developers and can add a significant cost to new homes.
Even though we can’t possibly rule out the importance of these charges in terms of boosting internally generated revenue.
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We have a bigger problem here as regards the prices of houses, so, we need to encourage developers to do more, and we can start by reducing these fees.
By reducing these fees, developers would be able to pass on some of the savings to homebuyers.
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This would help to make new homes more affordable and could potentially lead to a decrease in overall housing prices.
The mortgage stress test should be reviewed.
The mortgage stress test was introduced in Canada a while ago to cool the housing market and reduce the risks of default.
The stress test requires borrowers to qualify at a higher interest rate than they will pay on their mortgage.
This makes it more difficult for borrowers to obtain financing and ultimately drives down the price of houses.
While there are lots of reasons why this came into play in the first place, it has made acquiring a home more difficult.
And yes, we are not alone in this line of thought. An online poll conducted a few months ago on the popular social media platform Twitter shows more people requesting for it to be abolished entirely.
While most people will say it should be abolished, it may not be the right option, but it needs to be reviewed.
A recent study even shows that the mortgage stress test has increased after the hike in interest rate.
Narcity was quoted as saying “The mortgage stress test in Canada has gone up after a recent interest rate hike, which means buying a house just got even more difficult.”
There are several reasons why the stress test should be reviewed.
1. First, it has failed to achieve its primary objective of cooling the housing market.
The stress test has made it more difficult for first-time homebuyers to enter the market, which has driven up prices for everyone.
2. Second, the stress test imposes a significant financial burden on borrowers, which can make it difficult for them to save for a down payment or make their mortgage payments.
3. Third, the stress test creates uncertainty in the housing market.
Reviewing it and possibly reducing it will reduce the burden on buyers alike.
The government should invest in new housing initiatives that focus on affordability.
Another way government can assist in reducing the price of houses in Canada is by investing in new housing initiatives that focus on affordability.
This will have a direct impact on the supply of affordable homes. And by increasing the supply of affordable homes, the price of houses in Canada will go down with time.
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This is a great option because no one will lose in the long run, the government will gain in terms of tax and fees by buyers, and citizens get to afford houses.
Banks should be required to offer more flexibility on mortgage terms
How about more flexibility in mortgage terms from banks? In 2019, Stephen Poloz (the then bank of Canada governor) made a public suggestion that the country needs fresh ideas when it comes to mortgage options.
One of those ideas was making the mortgage terms more flexible and encouraging loan terms longer than five years.
Currently, banks are inflexible when it comes to mortgage terms, which makes it difficult for people to buy houses.
But if banks were required to offer more flexibility on mortgage terms, it would make it easier for more people to get involved, buy houses and therefore reduce the price of houses in Canada.
It’s not just the real estate industry that will benefit from this, requiring banks to offer more flexibility on mortgage terms would also have other benefits.
It would stimulate the economy by increasing the demand for housing. It would also help to reduce the number of people who are homeless or living in substandard housing.
Some may argue that this policy would be difficult to implement or won’t solve the issue immediately, nor will it have the desired effect on the price of houses.
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However, this is not a reason to abandon the policy. The benefits of this policy are too great to ignore, it will encourage more people to get involved.
The government should increase funding for social housing programs.
Social housing programs provide affordable housing for low-income households, which can help to reduce demand in the overall housing market.
This particular option has worked in many countries including Japan. In Japan, the government offers government housing subsidies to both renters and letters.
And that’s not all, there is also a system of public housing for low-income earners which encourages more people to buy homes at affordable prices.
Can it work in Canada? The future has to tell. No one can predict tomorrow right, but this is a proven workable plan, so why not?
By increasing funding for social housing programs, the government can help to make housing more affordable for everyone just like in Japan and many other countries this has worked.
Ultimately, the goal is to make housing more affordable for everyone in Canada, and any option (that will not affect the lives of Canadians negatively) but draws a path for this goal to be achieved should be welcomed.
And one of such actions is to increase funding for social housing programs.
Municipalities should introduce policies that encourage the construction of more affordable housing.
I know we have said a lot so far, but how about municipalities introducing policies to encourage the building of affordable housing?
For example, the municipality could offer a reduction in development charges or a fast-tracked approval process.
They can also require that a certain percentage of units in new developments be affordable.
Spain is doing something similar (as at the time of this work, the plan is still underway), though not exactly.
It is also targeted at making houses affordable for the vulnerable.
More on that here.
Introducing these policies to encourage the building of affordable housing is one way that municipalities can help to reduce the price of houses.
Amazingly, each municipality can also find other approaches that work best for its unique circumstances as long as the target is met.
The government should provide tax incentives for developers who build affordable housing.
We can’t say how viable this will be, but it won’t be a bad idea to try. It’s like setting a trap for developers.
If you give us affordable houses, you get this in return, so why not?
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The government can provide tax incentives to developers who build affordable housing.
This will hopefully, encourage developers to build more affordable housing, which would ultimately make housing more affordable for everyone.
More on this was cited by The National Housing Conference article titled “The Role of Tax Incentives in Affordable Housing“.
Reducing restrictive laws that limit construction at all levels
Many factors are limiting the construction of new houses in Canada.
One of the most significant is the number of restrictive laws limiting construction at all levels.
The laws are there for a purpose, and they are all unique in what they serve.
They help to protect the environment and ensure that development is done responsibly.
So any changes made to these laws would need to be careful. That’s why they can’t be thrown into the bin.
Rather, they can be made more flexible.
They are discouraging more people from embarking on building new houses, so reducing these restrictions will encourage people to build houses, thereby making more houses available for rental purposes.
So, this option is worth exploring.
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By reducing the number of restrictions on construction, we may see a significant decrease in the price of homes.
It’s no secret that housing prices in Canada have been on the rise for the past few years.
This has made it difficult for many people to purchase a home, especially in larger cities like Toronto and Vancouver.
Some experts are predicting that prices will continue to increase, while others are saying that the market will soon correct itself.
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Whatever the future holds, the government can play a key role in reducing the price of houses in Canada.
They can invest in new housing initiatives that focus on affordability.
They can also engage in other initiatives such as building more social housing and providing incentives for builders to construct more affordable housing.
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By investing in these kinds of initiatives, the government can help to reduce the price of houses in Canada and make housing more accessible for all Canadians.