Table of Contents
Episode 303 – December 9, 2021
Listen On: Apple Podcasts | Spotify | Google Podcasts | YouTube
The end is nigh for 2021 and what a year it was! Soaring real estate prices, record low inventory, the stock market on fire, massive inflationary pressure, and all this set against the backdrop of a global pandemic. But what does this mean for 2022 and what are the headwinds we should all be monitoring?
Murtaza Haider, Professor of Data Science and Real Estate Management at Ryerson University & Columnist for the Financial Post, sits down with Matt & Adam to recap the Canadian real estate market, incoming potential policy changes, interest rate hikes, inflation and more. Will Canadian home prices go up in 2022? Check in with one of the country’s foremost real estate minds and get the inside scoop.
Listen to Episode
Guest Information
Murtaza Haider
Murtaza Haider is a professor of Data Science and Real Estate Management at Toronto Metropolitan University. He also serves as the research director of the Urban Analytics Institute. Professor Haider holds an adjunct professorship of Engineering at McGill University. In addition, he is a Director of Regionomics Inc., a boutique consulting firm specializing in the economics of cities and regions.
Dr. Haider is the author of Real Estate Markets: An Introduction (2020) and Getting Started with Data Science: Making Sense of Data with Analytics (2016).
Professor Haider’s research interests include business analytics, data science, housing market dynamics, transport/infrastructure/urban planning, and human development in Canada and South Asia.
Professor Haider is a syndicated columnist with Post Media. His weekly column on real estate markets appears nationally in The Financial Post and local newspapers including Ottawa Citizen, Vancouver Sun, Calgary Herald, Edmonton Sun, and Montreal Gazette. He also writes occasionally for The Globe and Mail and The Toronto Star.
Murtaza Haider holds a Masters in transport engineering and a Ph.D. in Civil Engineering from the University of Toronto.
Episode Summary
Who is Murtaza Haider?
I teach at Ryerson University in the real estate department looking at land development and transportation accessibility. I’ve been looking at housing markets and the evolution of cities for almost 30 years. I teach the largest real estate management course in Canada.
How is the Canadian commercial real estate market?
Canadian commercial real estate is doing quite well, but has its ups and downs. Industrial is doing really well as there’s a significant increase in demand for storage spaces and warehouses, due to the increase in online shopping.
Office real estate isn’t doing as well as commercial, since there hasn’t been a big increase in leases. But there also hasn’t been a big decrease in leases, and we have seen more subleasing, so office real estate is holding steady. Office in the urban core is struggling more than in the suburbs.
Retail commercial real estate is going to continue to struggle but surprisingly, rents are steady. I suspect that there will be a rethink about retail real estate after the holiday boom. This is due to restrictions, and not a lack of demand.
How is the Canadian residential real estate market?
The Canadian housing market is breaking new ground and posing new challenges. Demand for residential real estate is increasing and prices are increasing, but supply is dwindling. New construction hasn’t taken off like it should have. The sales to listing ratio is in favour of the sellers; there are few homes being chased by many buyers.
This sustains price growth and demand pressure. Buyers are bidding on 10-40 homes and still not finding something within their budget.
What real estate markets in Canada are overheated?
You could say that Toronto and Vancouver were overheated in the past but in the last 18 months we’ve seen rapid price increases in Hamilton, Windsor, Halifax and other smaller markets too. Have housing prices been rising in just one or two places in Canada? No, it’s a coast to coast phenomenon.
Why are housing prices in Canada so high?
The dramatic rise in housing pricing throughout the pandemic has been surprising. The rate of increase has surprised me but the fact that prices are rising isn’t surprising. Demand is increasing and we haven’t done anything in the last 50 years to address supply. We are building fewer homes.
In the 70s we were building 10,000-20,000 new homes for every million people. Now, that number is 5000 new homes for every million people. We have created a situation where more people want to buy or rent and fewer places are available. Unless we change that, the story will still be the same.
Keep your finger on the pulse of Vancouver’s real estate market with our Live Wire email newsletter.
Why is housing supply so low in Canada?
The average Canadian has ten times more land per capita than the average American. Obviously our climate and topography mean that not all of our land is developable; that’s why so many Canadians live close to the American border. But even if we only looked at developable land, you’ll see an artificial shortage of land. Sometimes this artificial shortage is for a good reason, such as protecting environmental green lands or agricultural lands. That’s crucial to sustainability.
But we also have artificial scarcity of land due to restrictions and planning regulations. These regulations slow down or prohibit development, which slows housing supply. If there’s a mismatch between what the planning regulations allow, what developers want to build and what people want to live in, you’re left with gridlock and a very slow building process that doesn’t suit the intended clientele. That’s why we have pent up demand due to lack of development.
There are other challenges to housing supply outside of planning regulations. There are labour shortages and issues with the supply chain, which can impact construction. You need the approval, labour and supplies to develop new housing.
How do we get more housing supply in Canada?
People complain and blame their provincial and federal leaders, but housing is a local issue. People should go to their local councillor and ask how much development they have facilitated. Most of the time, it’s the local level that is opposing new construction.
If we don’t have an urgency for housing at the local level, the federal and provincial governments should step in and jumpstart construction on the housing we need. Local leadership needs to understand this urgency and act now.
We see all of these taxes like the speculation tax, the empty homes tax, the foreign buyers tax, etc. But if you don’t address the supply issue, housing will always be unaffordable. I don’t think anyone can say that these taxes have made housing affordable in Canada.
What is blind bidding? Is blind bidding good or bad? Does an end to blind bidding help Canadian home buyers?
An end to blind bidding helps in that buyers will know what’s happening. But ending blind bidding doesn’t make housing more affordable. The problem with blind bidding is that it leaves all the power with the sellers.
Typically when you buy a house, you’re putting in a blind bid based on what you think the house is worth and what you can afford. The problem isn’t with this first bid but with subsequent bids. If you’re told you’re in the top five of bidders and can revise your bid, you don’t know where you stand. You may already be the top bidder, beating out the second highest bid by $200,000. But because you don’t want to miss out, you may put another $200,000 in. That’s the power of blind bidding that doesn’t keep things level between buyers and sellers.
Once blind bidding is gone, it removes that imbalance. But it doesn’t remove the imbalance between demand and supply. You’ll still bid higher than the rest and consider bidding up the price because you know there’s a shortage of supply. So I do support the elimination of blind bidding to make things more fair between buyers and sellers, but I know it won’t make housing affordable.
Currently, no one is collecting data on bidding. Lots of people are arguing that blind bidding doesn’t actually do any damage. If that’s the case, let’s put the data out there. We need to collect the data and make it available to people. We’re missing the bidding data from the Canadian marketplace to back up that claim.
Real estate regulations happen at the provincial level. So I am strongly advocating for the feds to use their leverage to bring the provinces and regulators together to see if blind bidding really is a problem. The industry needs to look at the impact on and serve in the interest of both buyers and sellers, not just sellers. The industry can’t pick favourites. Because if you sell, where are you going to go?
Keep your finger on the pulse of Vancouver’s real estate market with our Live Wire email newsletter.
How will interest rates change in 2022? How do interest rates affect the Canadian housing market?
Sadly, I can’t predict interest rates. But I look at first principles. Are consumer prices increasing because of higher demand or because of supply chain issues? It’s hard to know where price pressures are coming from. But we can see that wages are not increasing on par with prices. So the assumption is that there will be an increase in interest rates as they’re used to prevent markets from overheating.
There may be a moderate increase in interest rates but as long as mortgage rates are under 4-5%, I don’t think that will impact the demand for housing. In the 80s and 90s, we saw mortgage rates of 15%. So if today’s mortgage rate goes from 2 to 4%, I don’t expect a huge change in demand. I would expect prices to still grow, but grow at a slower rate, with rising interest rates.
I look at wages as I think they’re a better indicator of whether the market is overheated or not. With supply chains disrupted, natural disasters and labour shortages, supply is constrained but demand remains the same. So prices go up. But those increases may not be due to inflation, which is why I look at wages instead.
The Central Bank is reluctant to raise the interest rate too high because that can halt recovery. Sometimes it feels like these decisions come down to a coin flip!
What is the future of cities coming out of the pandemic?
Aristotle said man is a social animal, but that was when he was living in a town of 500 people. Who knows what he would think of a city with 5 million people all sharing walls!
I am already seeing this phenomenon of people working from home two days a week and working from the office three days a week. But that’s a 40% decline in the need for office real estate.
So we have to be prepared that the demand for office real estate, and subsequently retail, is 40% less. There will be a return to the cities, but the demand may be 40% less compared to pre-covid levels.
What do you predict for the Canadian real estate market in 2022?
British statistician George E. P. Box said, “All models are wrong, but some are useful.” We have to remember that forecasts only inform our decision making; they don’t predict the future.
No one thinks we will address the supply issues in one year. Short of a major crisis, I suspect housing prices will continue to rise. If we are going back to work, I am expecting more of a rapid recovery in 2022. This will increase the demand for housing even more.
Do you believe in the Canadian housing market?
I am bullish on Canadian real estate but I am also concerned. There are a significant number of households who struggle to pay the minimum market rent. These people have been priced out of the housing market and they are the ones who need help. The focus should be on Canadians who struggle to pay the minimum market rent, not just on people who have to settle and buy their second-choice home. These Canadians who are struggling to afford rent do the jobs that keep our cities functioning. If the people our society relies on can’t afford to live in that society, we have a problem.
Supply skepticism needs to be addressed. And you can’t blame others – like foreigners or speculators. The demand is here, it’s local. We have to address the inadequate supply and that starts with speaking to our local councillors.
Keep your finger on the pulse of Vancouver’s real estate market with our Live Wire email newsletter.
Episode Host
Adam Scalena
Adam is a full-service realtor, specializing in Vancouver’s best areas. His systematic approach to real estate and dedication to his clients has consistently placed him within the top 10% of realtors operating within Greater Vancouver.
Matt Scalena
Matt is real estate obsessed and considers himself a lifelong student of the Vancouver real estate market. As a co-manager of the Scalena Real Estate team, Matt prides himself on expertly advising buyers and sellers on all aspects of the fast-paced, dynamic Vancouver real estate market. He is present at every stage of the process, from that first phone call or email right through to when keys are exchanged between sellers and buyers.
Resources From Episode
Sponsors
