'Supercharged demand' leads to soaring York Region housing costs

'Home prices went up 28 per cent while you were sleeping'

thestar.com
Kim Zarzour
Feb. 22, 2022

Building more houses won’t solve Ontario’s affordability problem, one of the Canada’s top housing experts says.

York Region’s Housing Affordabiity Task Force got a housing trends update Feb. 17 from Carleton University Prof. Steve Pomeroy -- and what they heard ran contrary to what the provincial government is saying.

Premier Doug Ford, at the Jan. 19 Housing Summit, blamed high housing costs on insufficient supply, pointing to the Scotia Economics report that Canada has the fewest homes per person in the G7.

But, Pomeroy, with the Canadian Housing Evidence Collaborative, told York Region councillors there is an important caveat: Canada has the largest average house size, with more people in each house.

“I don't think the lack of supply is as distorted as some of the analysis has suggested,” he said. “If you don't diagnose the problem correctly, you won’t come up with the right prescription.”

John Li, representing Richmond Hill Umbrella Residents Group, supported Pomeroy's assertion, sharing an analysis of Statistics Canada data showing supply in the past 20 years has not lagged behind population growth, especially in the GTA.

Pomeroy said the affordability issue is linked to how many people are looking to buy a house, their capacity to pay and FOMO -- fear of missing out.

“On the surface, we can see a significant divergence, prices have gone way ahead of the increase in incomes  and this is a serious problem. But it doesn't take account the fact that ... people don't buy houses with cash. It is a very highly leveraged asset.

“We can actually see for the best part of 10 years, the capacity to pay exceeded the average price of homes. So it was actually consumers, with lots of capacity to pay, pulling up house prices.”

Now the housing market is facing what Pomeroy calls “supercharged demand.”

“Many folks who have been sitting on a home they bought 20 years ago are now downsizing with significant appreciation. At the same time, three quarters of homebuyers are using that existing equity to buy bigger or better homes.”

This leads to bidding wars and house prices going over asking, he said.

“This past year ... home prices went up 28 per cent while you were sleeping; you didn't do anything to earn that increase ... But it's having a massive effect reinserted back into the market on the purchasing side.”

First-time buyers, fewer than one-third of buyers, are mostly new graduates with good jobs who may have difficulty with down payments but are able to afford payments, especially those getting help from their parents, he said.

Speculators, jumping on the appreciation bandwagon, add fuel to the upward spiral and that, he said, is “very, very hard to tamp down.”

But building new homes, particularly in areas that are attractive, won’t solve this problem, he said. If three homes are built on a formerly one-home lot in a good area, the house price will still be high.

“The realtors’ mantra is location, location, location. People want to live there, they will pay to live there.”

A combination of “carrots and sticks” could help, he said, suggesting restrictions on size of homes or price, or development charges on larger homes to encourage developers to create “the missing middle or missing middle price.”
The York Region task force is also looking at addressing the tight rental market.

Lack of rental supply and a dramatic erosion of low-rent stock has led to massive increases in rents, which is hard on renters who have half the median income of homeowners, Pomeroy said.

“We're getting new supply, but we're not getting supply at affordable levels.”

As rent increased, rental housing became an attractive asset for investors who are purchasing “underperforming assets” (those charging affordable rent), raising rents to be more attractive to investors.

“Increasing supply by itself will not result in house prices stalling or coming down, nor will it result in lower rents,” he said. “We need much more targeted thoughtful approaches and almost a surgical precision and the way we design policies.”