Trudeau's Housing Plan Falls Short

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🔮 Canadian Real Estate Revival Predicted for 2025

• Canada's real estate market is expected to rebound in 2025, with a spring surge starting as early as March due to stabilizing interest rates and pent-up buyer demand.

• Mortgage renewals in 2025 will bring 1.2 million homeowners transitioning from low 2020-2021 rates to rates above 3%, potentially prompting downsizing and increasing inventory.

• National home prices are projected to rise by 5% in 2025, with increased competition and reduced affordability concerns among buyers.

Why This Matters: Inventory growth in major markets like Toronto and Vancouver might shift the balance of supply and demand, impacting investor strategies. National price increases may favor long-term investment strategies, while short-term gains might be harder to achieve in Toronto's flat market.

💸 Rate Cuts Are Expected on Dec 11

• Canada's GDP grew by just 1% annually in Q3 2024, with a slowdown from 2.2% in Q2 and below the Bank of Canada's 1.5% forecast. This marks the sixth straight quarter of declining GDP per capita.

• October GDP growth was a sluggish 0.1%, with Q4 growth likely to fall short of the Bank of Canada's 2% target.

• The Bank of Canada has lowered interest rates four times in 2024, bringing the policy rate down from 5% to 3.75%. Another rate cut of 25 or 50 basis points is expected in December.

• Financial markets now estimate a 45% chance of a 50-basis-point rate cut at the Bank of Canada's December 11 meeting.
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😱 Here’s Why Homes Cost Double in 2024 Compared to 2013

• In 2024, $131,454 is needed to match the purchasing power of $100,000 in 2013, according to CPI inflation data.

• To match purchasing power in housing markets, incomes must be $208,710 in Vancouver and $229,438 in Toronto.

• Marginal tax rates for incomes adjusted to housing costs are higher, with federal taxes increasing from 26% to 29%.

• Combined marginal tax rates have risen from 38% to 46% in BC and from 37% to 42% in Ontario for housing-adjusted incomes.

• Financing costs have increased, with the Prime Rate rising from 3% in 2013 to 5.95% in 2024.

Why This Matters: Affording the same type of home now requires double the income, higher taxes, and significantly more expensive financing. Without housing, affordability challenges would be less significant, as a 30% income increase over 10 years seems achievable, while a 100% increase does not.

🤔 Trudeau Overpromises on Housing by 2 Million Homes

• The Trudeau government aims to build 3.8M new homes by 2031, which is 2M more than the Canadian Housing and Mortgage Corporation (CMHC) initially expected.

• To achieve this goal, each residential construction worker must complete 0.73 housing starts per year, compared to the 2019-2023 average of just 0.4.

• 88% of construction businesses reported worsening supply chain challenges in the second quarter of 2024.

• An additional 500,000 construction workers would be needed to return to the affordability levels of the 2000s.

Why This Matters: The government's ambitious goal of 3.87 million new homes by 2031 requires near-doubling current housing start rates per worker. The "infinite supply issue" stems from finite urban land, complex regulatory environments, and a fragmented construction sector that struggles to scale quickly, meaning physical and systemic constraints make rapidly increasing housing supply extremely challenging.

🏢 Converting Offices to Homes: Is It Worth It?

• Toronto's office space demand is unlikely to grow for at least 10 years, with the earliest need for new space projected around 2034.

• Converting office spaces to residential units is often financially unviable, especially for larger "Class A" office towers.

• Small office buildings (<40,000 sq. ft.) are the most financially viable for redevelopment.

• Hypothetically, redeveloping 10% of small office sites could yield 27,000-35,000 residential units while reducing office space by less than 1.3%.

• However, office space policies that require over 25% replacement of existing space often render projects financially unfeasible.

Why This Matters: These policies slow the conversion of underutilized office spaces into much-needed residential or mixed-use developments by making redevelopment projects financially unfeasible. Addressing this issue is crucial for fostering economic growth, meeting housing needs, and revitalizing underperforming urban areas.

🤔 WTF of The Week

Condo completions in the Greater Toronto Area (GTA) are set to drop sharply over the next several years, with a significant decline in projects under construction and many planned developments facing delays.

By 2029, annual completions could shrink to just over 3,000 units, highlighting a severe supply shortage. Slower sales and economic uncertainty doubt whether many planned projects will break ground.

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