The hot pandemic housing market is finally being labeled as one of the first industries to see exponential hyper inflation with a projected 9% price increase in 2021. As we head into our second summer of health orders, restrictions, and printed stimulus money, the Feds underreporting of inflation in hard assets like housing has now manifested with un-affordable results.
Speculation about the housing market as a bubble about to burst may have been premature, as the USA is now poised to extend mortgage forbearance until December 31,2021 with a 120 day grace foreclosure clause. Our markets in Canada mirror our closest neighbour to the south, and with over two million US households still using forbearance programs that were due to expire in September, this US extension will kick the foreclosure can a bit further down the road into 2022. Our own Canadian government will most likely follow suit with further stimulus programs and aid to businesses and homeowners as the continued shut downs and travel restrictions are deemed necessary to combat unprecedented pandemic variant spread.
Continuing on its breakneck pace into summer, and there are allot of voices weighing in to give their opinions and offer solutions on how to slow down our rapid real estate market growth as it reached epic sales volumes in the first quarter of 2021. As of now, all of these suggestions involve more or stricter regulations for purchasers and even one solution that penalizes property sellers.
Banks, lenders, politicians, regional councils, realtors and developers have all put forth ideas on how to slow down the skyrocketing Canadian and BC real estate market, some of the ideas being floated include; increasing the amount needed for down payments, lowering amortization from 25 to 20 years, raising the stress test qualifying percentage, raising mortgage interest rates, and introducing a capital gains tax on all real estate sales.
All of the above measures have one thing in common, they all target and in some way penalize home buyers and sellers. This approach was already tried and it did not solve the problem of out of check market growth. Concern for the affordability and longevity of the market in BC has been a hot button issue for years. If tighter restrictions on buyers was a solution to this issue, then prior measures should have had a greater effect on balancing the market a few years ago.
Raising interest rates seems to be the easiest fix, but they were lowered for reasons of necessity, to help our struggling pandemic flattened economy, and raising them now could be a great risk to our economic instability. The housing market is one of the main industries that is propelling us out of economic doom at present, and it could be dangerous to raise rates at a time when debt levels are high and citizens are still struggling with job losses and business closures.
The last federal legislative response and reactionary provincial policies aimed at correcting the market were both implemented in 2019 with the introduction of the Foreign Buyers Speculation Tax and the introduction of the qualifying B20 Mortgage Stress Test. The speculation tax was put in place to keep housing more affordable by ensuring that foreign buyers were actually residing in their purchases or paying a large sum to own prime real estate as a holding investment or second residence. Now, after more than a year of closed borders and no immigration, it is apparent that government did not have a real grasp of why the housing market was unaffordable to begin with and again BC citizens are paying the price – literally – for the failed policies that did solve the real problem.
Buyers are now priced out of the areas they work and need to live in, rental units are few and far between, and the future of affordable housing for low income families and pensioners is a critical issue that must now be dissected and discussed with a real hard look and honest approach. The sizes of urban city serviced lots is now on par with Holland, and they are one of the most crowded countries on the planet. To compare, land & lot purchases for new home builds 30 years ago was 10-20% of total build costs, today you need to budget 50-60% of the build costs
Immediate changes to long standing capital gains tax policies is simply exploiting the booming housing market to get hands on taxpayers hard earned home equity. A government tax grab, after printing billions in stimulus dollars is not a solution to the housing and affordability crisis nor is it a solution to pay back the grossly mismanaged Canadian federal debt.
We need real impactful policy that deals with the overwhelmingly apparent market catalyst fuelling this sky high market. The provincial government has at its disposal very easy way to resolve the real underlying cause of unaffordable housing, which is “a lack of supply”. Historically, real estate markets are cyclical and will correct them-selves, and a market correction is inevitable in our future, but there is a widening gap of supply. The acute issue is lack of supply of private saleable land and homes. Regulating the market further without addressing the supply issue will do nothing to stop price growth in the long term.
How do we know for sure that it’s a lack of supply that is the driving this freight train of a market? It’s simple math, we have double the population competing to own the same amount of saleable private land. In 1980 BC had a population of 2,500,000 and now 40 years later, we are fast approaching a total population of 5,000,000. We have two and half million more people competing to live on the same amount of privately owned land in BC in just 40 years, and with more population growth from the planned future immigration increase, an affordable balanced market will most likely never happen.
Why are governing policy makers blind to the real issue or rejecting supply-side fixes in their regulation considerations? One can only assume that our policy makers are putting progressive future left-wing agendas to prioritize environmentalism over affordable housing and home ownership needs. Toronto Dominion Banks CEO, Barhat Masrani, recently stated his opinions and recommendations, and he has been calling for longer-term measures to increase the supply of housing for many years. On that front, “instead of improving we are getting worse,” he said.
There is one viable and quickly implementable solution that would make an immediate market correction in BC without putting further regulations on the real estate industry, home buyers or burden tax payers. That solution is to release a small percentage of Crown Land holdings into the private sector to balance out the provinces supply of saleable land. At this time 94% of the land in B.C. is Provincial Crown Land, of which 2% of that is covered in fresh water. Federal Crown Land makes up a further 1% of the province which includes; First Nations lands, defense lands and federal harbors. The other 5% is privately owned! That’s right, the privately owned land holdings in this province make up only 5% of the entire land mass.
In Alberta crown land is called “publicly owned land”, 60% of which is provincial public land and 28.5% is privately owned, and federal public land covers the remaining 10% of the province. Looking further east, 90% of land in Manitoba is Crown land with the remaining 10% being private. As a whole less than 11% of Canada’s land is in private hands; 41% is federal crown land and 48% is provincial crown land. The land is the solution! Its already there, it just needs to be surveyed allocated and released.
According to the BC Ministry, Crown land is a public asset and the province has a responsibility to ensure it is managed to maximize and sustain the flow of economic, social and environmental benefits to British Columbians, now and into the future. As we find ourselves in a social and economic peril in this area why would the ministry and BC Government not consider releasing a small portion of crown land to alleviate the root supply issue. They have publicly stated the land should benefit all British Columbians, and right now the affordability of housing is becoming a serious issue to residents ability to remain above the poverty level.
If the provincial government released another 2-3% of Provincial Crown Land into the private saleable holdings we would see an immediate and lasting impact on the real estate market as supply would increase dramatically and prices would stop their continued rise. The uplifting economic benefits of homeownership could continue to grow the economy and the province and its residents would actually benefit as a result instead of being continually penalized for a population growth issue that has been neglected by governing bodies in BC.
The released crown parcels could be ear-marked for specific types of qualifying multi-unit and single family affordable housing which could actually be affordable! In setting prices for Crown land, the province has a responsibility to not distort private land markets, but, the private land market is in need of a correction. Should only the Sovereign Crown, government, bank/mortgage lenders and the already wealthy prosper and benefit from the land in this province and not all tax paying citizens?
To conclude, the land that is designated crown should not be more valuable as an asset than the well being, health and economic growth of the citizens and communities. This very viable option needs to be a serious discussion had by policy makers in their next zoom meeting. It’s time to try a different approach to solving the housing affordability crisis in this province. Crown land policy dictates the land is to be used to ensure the well being of it citizens, and it’s time the government put tax payers and citizens needs first.
Freddy & Linda Marks, 3A®Group RE/MAX Nyda Realty