The Canadian Mortgage and Housing Corporation put out a release today that shows that the city of Calgary has an excess of housing inventories – increasing from the moderate categorization in December of 2020 to the high vulnerability category in March of 2021.
Toronto, Ottawa and Halifax also experienced increased housing market volatility. Each of those cities went from moderately vulnerable housing markets in 2020 to highly vulnerable markets in 2021. Canada’s housing market as a whole is considered to be moderately vulnerable with overvaluation and overheating being cited as the countries biggest issues in 2021.
According to the report, the three largest “Census Metropolitan Areas (CMAs) in Ontario are all now rated with a high degree of vulnerability.” This is not a shock to anyone living in the Greater Toronto Area (GTA) however – this is just more confirmation of a lived reality.
For instance, in the Kitchener-Waterloo area where Diverge Media is located – the average residential sale price was $530,376 in 2019 and $630,820 in 2020. In one year alone, the average residential sale price for homes in Kitchener-Waterloo increased by 18.9%. However, the trend of ever-increasing unaffordability in the GTA doesn’t stop there. Mississauga seen the average sale price for residential properties increase by 15.7%, Hamilton-Burlington saw increases of 14% and Oakville saw increases of 13.9%.
Back to Calgary – Why does it have excess inventories of housing?
Currently, the average sale price of a home in Calgary is projected to be around $472,000 in 2021 according to Remax. As the economy continues to struggle with the political classes’ continued attacks on the oil industry (heart of the economy there) the housing prices are likely simply unaffordable for many. We are likely seeing people begin to leave the city to find more affordable housing and work to sustain their loved ones.
As politicians continue to bring in immigrants from around the world (not against immigration) the pros and cons must be weighed in a cost-benefit analysis. Most of the Canadian housing market is already unaffordable for the vast amount of young Canadians (and many others) – immigration only compounds this issue by further constraining the availability of homes, thereby driving up the cost of homeownership.
Unless the government finds a way to meet the demand in the housing market – prices will continue to rise across much of Canada. They could incentivize the construction of high-density housing units through tax breaks and incentives – but that seems highly unlikely considering the massive amount of debt we’ve accumulated “fighting COVID”. That would be asking for more than they could give – wouldn’t it?
Another problem with homeownership in Canada – foreign ownership
Foreign investment into Canadian real-estate drives up the cost of ownership for Canadians – and it’s more prevalent than you realize. According to Transparency International Canada, although Stats Canada says foreign ownership in Canada is low (3.4% in Toronto and 4.8% in Vancouver), they say they don’t possess the tools to know how much property is foreign-owned.
According to the report, foreign companies have access to the real estate market with few requirements or checks:
“There are few requirements and checks on foreign companies and individuals wishing to purchase property. In all the four countries, foreign companies do not need to provide information on their real owners to any sort of company registry in order to purchase property or to the land registry upon registration.” So in essence, those numbers are just what was caught with a system not adequately designed to catch foreign ownership.
The report digs into the issues within Canada’s housing market further. It says that “While anti-money laundering provisions cover real estate agents, brokers and developers, notaries from British Columbia and accountants, they do
not cover other professions such as lawyers, law firms and Quebec notaries. Given their roles in real estate closings, this is a major loophole. Real estate professionals are not required to identify the beneficial owners of customers when conducting due diligence.”
Nearly half of most valuable residential properties in Vancouver owners aren’t identifiable
According to the report “nearly a half of the 100 most valuable residential properties in Greater Vancouver
are held through structures that hide their beneficial owners. Nearly one-third of the properties are owned
through shell companies, while at least 11 percent have a nominee listed on title.”
So put another way, a shelf company could be listed as the “owner” of the property and the real owner (beneficial owner) doesn’t have to list their name on the property. This was the case for one-third of the most valuable residential properties in the Great Vancouver area. This is concerning as it can be a haven for laundering criminal funds and allows for the potential of influential public figures and politicians to hide their purchases of residential properties.
Recommendations from the report
A few recommendations stand out in the report. First is that Governments should require real estate agents to register with a designated public authority for anti-laundering supervision. The report also calls for governments to require that politically exposed persons (PEPs), their family members and their close associates be automatically identified as high-risk clients when purchasing a property. It also says that “additional preventative measures such as enhance due diligence should be implemented.”
The report also says something that should already be obvious. It recommends that “Governments should require foreign companies that wish to purchase property to provide beneficial ownership information.” Simply put, who is benefitting from the purchase of the property – who is the real owner.
The report continues:
“Preferably, this information should be kept in a beneficial ownership registry and made available to competent authorities and the public in open data format.” With such straightforward recommendations coming from the report one has to ask – do Canadian politicians have any desire to clean up the Canadian housing market from foreign home ownership investment and potential money laundering?
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