If you’re an adult between the ages of 20 and 35, and you live at home with your parents because you can’t afford to do otherwise, here’s news for you: your inability to buy and rent is helping to prevent demand for housing — and therefore housing prices — from soaring even higher than they already have.
This insight comes courtesy of a report released on Tuesday by CIBC Capital Markets. The report, authored by economist Benjamin Tal, predicts that the frenzy we’ve seen in cities like Toronto and Vancouver will stabilize in the short-term. But in the longer term, things are predicted to get worse when home-dwelling adults are finally ready to buy.
“That army of potential buyers can be seen as an insurance against long-lasting significant price decline,” the report says.
Tal says that even though there’s been a slew of new policies introduced to cool Canada’s red-hot housing markets in the past year, new ones will still be needed to foster a healthy housing market in the future.
In Greater Vancouver and the Greater Toronto Area, recently implemented regulations have seen success at slowing down previously soaring housing prices. In Vancouver, the controversial 15% foreign buyers tax has helped quell activity since its introduction in 2016 — not due to the actual tax, says Tal, but due to its impact on the psyche of potential domestic buyers.
Tal says that such policies will only provide temporary relief, however.
In the GTA, for example, stabilized housing prices do not adequately address the fact that there is neither enough land nor housing units to satisfy mounting demand. What’s more, the rate of demand is even higher than typically reported in official estimates.
“In the GTA and Vancouver [...] supply issues will continue to dominate long-term housing trajectories,” reports Tal. “At this point we do not see any real relief. In fact, the opposite is the case.”
Of course, economists are often quick to trumpet that Toronto’s housing problem is a supply problem. On the other side, experts argue that speculation is a major problem in the market that has artificially inflated demand. The number of Canadians who own multiple properties today is at a record high and there is also a curious case of unoccupied housing in Toronto.
Still, Tal comes down firmly on the side of supply being a solution.
“Without significant changes to land and rental policies alongside a dramatic change to housing preference among buyers, those centers will become even less affordable.”
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