The Impact Of Supply Vs. Demand On Housing

The Impact Of Supply Vs. Demand On Housing Affordability

People are worried about how the Canadian real estate market is currently doing. Since last year, affordability has decreased at the quickest rate in more than 26 years, making it difficult for many first-time homeowners to climb the housing ladder. People generally feel helpless in the face of skyrocketing inflation and increased borrowing costs as prices continue to rise. A beginning single-family home that is inexpensive might no longer exist. According to The Financial Post, record-low borrowing rates and a lack of inventory have caused a rise in the average selling price of a Canadian home of more than 50% over the past two years.

The housing affordability report from the National Bank of Canada presents a sombre image of the “worst affordability since the mid-90s, with levels in Toronto, Hamilton, Ottawa, and Halifax not seen since the turn of the century.” Mortgage payments now account for 67.3% of the average pre-tax household income, with the rise in interest rates noted as a major factor. For many families, this significant rise is untenable.

IT ALL COMES DOWN TO SUPPLY AND DEMAND

Although there are several reasons that contribute to rising home prices, supply remains the biggest problem. The Canadian government’s Federal Budget 2022, There was more clarification given. “To put it simply, Canada is experiencing a housing shortage—we have fewer homes per person than many [OECD] countries,” says the author. Finance Canada and the Canada Mortgage and Housing Corporation predict that at least 3.5 million additional homes will need to be constructed by 2031 to meet our expanding population, which includes birth rates and immigration, over the ensuing ten years. That translates to constructing over 400,000 homes a year for ten years. Canada currently averages around 286,000 new houses per year according to 2021 data from the Canada Mortgage and Housing Corporation and Canada is experiencing a severe labour supply shortage.

BUILD UP, NOT OUT

Where these 3.5 million new homes will be constructed is another factor. Such a large number of single-family dwellings necessitate a vast quantity of room. “Land is becoming more scarce due to rising human populations and pressures on natural resources.,” said Dawn Parker of the Environment’s School of Planning and Waterloo’s Institute for Complexity and Innovation. Cities like Edmonton, Alberta have already realized that we need to grow upwards, not outwards as they introduce their Zoning Bylaw Renewal Initiative. Edmonton’s city planners acknowledge that multi-residential properties are needed to “bring the ‘transformational’ long-term goals in the City Plan to life, including ‘15-minute districts’ [areas that allow residents to complete daily activities within 15 minutes of travel time within a district] and more infill and transit-friendly development.”

While single-family homes are becoming increasingly unaffordable, more people in different life stages are choosing to rent instead of buy. The premium for buying compared to renting a two-bedroom condo in the GTA has gone up by 15.4% in 2022. Until 2018, the opposite was true; mortgage payments were generally lower than average monthly rents. According to an interview conducted by CBC News, Canadians are starting to realize that “renting right now seems to be the better option overall.”

APARTMENTs ARE THE KEY

Renting provides regular monthly prices, and flexibility, and avoids the duties and liabilities related to property ownership in light of rising mortgage rates, a choppy stock market, and rising inflation.

Due to land scarcity, population growth, the difficulties of finding affordable new homes, and a growing emphasis on work-life balance, there is a continuing need for multi-residential structures like apartment complexes. Apartments in prime locations are a vital housing alternative, even if many individuals are being compelled to move further away from metropolitan centres owing to housing costs. An apartment complex can house hundreds, if not thousands of people on the same amount of land as a few single-family homes. The flats may already exist in some urban locations, but they are desperately needed.

INVEST IN THE SOLUTION AND GROW YOUR WEALTH

Canada is in desperate need of more housing solutions. Among the G7 countries, Canada has on average the lowest housing supply per capita. The persistent national housing shortage, most pronounced in Ontario, is threatening to worsen Canada’s housing affordability problem while home prices are already surging to record highs.

Pyramine’s Fund targets underperforming and undervalued residential houses and select new developments in Canada. We have multiple projects we are targeting in order to add value and maximize capital appreciation.

Learn more about Pyramine’s Funds by emailing  info@pyramineinvestment.com