Some real estate stories were never finalized in 2017. These situations threaten to loom large in 2018 and, just like a bad hangover, reminding us of the year before
Some of us know the feeling. Maybe it was a long night of drinking or an all-nighter binge-watching the latest Netflix series with more junk food than your final Halloween haul as a trick-or-treater? Whatever the reason, that next-day hangover is a rough one. Head hurts. Mouth is dry. And you just want to go back to bed, sleep it off and pray that when you wake up that everything is all better.
Ask a few buyers and sellers — and even a few analysts and politicians — and they probably feel the same way about Canada’s real estate market. Just like a hangover, some of last year’s property market stories threaten to loom large going into the New Year. Here are the six real estate hangovers of 2017 that will cause more than a few headaches in 2018.
(Note: This is a long read.)
Extreme weather is the “new normal” and it could mean higher housing prices
In May 2017, the residents of Cobourg, Ontario, a city about 90 minutes east of Toronto on Lake Ontario, watched in horror as their beach disappeared due to high water levels in the lake. It was an early, wet start to the summer of 2017 and the heavy rains and flooding actually deteriorated beach conditions forcing low-lying homes to be evacuated and hurting tourism business throughout the year.
Fast-forward to July, when residents and first-responders in Alberta and B.C. are tackling their own extreme weather. This time it was wildfires with the first declared state of emergency called in early July. Both provincial governments struggled to control hundreds of wildfires and by the end of 2017, more than 1,300 fires burned in B.C. (between April and November) destroying more than 1.2 million hectares of land and causing more than $564 million in damages. Residents around the Williams Lake area, just north of Kamloops, B.C. were forced to evacuate, while the fires prompted the longest state of emergency in B.C.’s history, lasting a total of 10 weeks.
Following the wildfire season, professors from the University of British Columbia and the University of Northern British Columbia, along with fire ecologists, drafted a letter warning the province that 2017’s fire season was the “new normal.” Not just a warning, the letter contained numerous recommendations, including prescribed burns to decrease fire hazards around rural communities. The BC NDP appear committed to staying out, in front of this situation. They announced a review of the 2017 wildfire and flooding season. The report is expected to be completed before April 20, 2018.
While extreme weather stories could be considered a Canadian past time — think of all the extreme cold Tweets from Ontario and Quebec recently or the flurry of activity in the Maritimes during the “snow bomb” — these climatic occurrences are actually a threat. Damage from weather events threatens our livelihood and our lives displaces families from homes and costs the taxpayer significant dollars to maintain emergency help or to aid in clean-up. Worse, these extreme weather situations are not going away.
The B.C. wildfire report — which includes a review of evacuation procedures — is expected to before April 20, 2018, and many believe it will prompt changes in how we live, work and play in western provincial fire-prone areas.
Across Canada, the issue of flooding is getting centre stage. Jason Thistlethwaite, an assistant professor at the University of Waterloo’s faculty of environment, explains: The problem is that municipalities that set zoning regulations and collect property tax revenue end up not having to pay for rebuilding costs after these climatic events. Worse, Thistlethwaite estimates that as much as 75% of homeowners who currently live in a floodplain, don’t even know it. Speaking to CBC.ca, Thistlethwaite says:
“The municipality really doesn’t have an incentive to go in and use land-use planning and building codes and communications strategies to tell people that they are at risk of flooding, particularly given that most of the revenue comes from development, it comes from property taxes,” Thistlethwaite said. “So they face a real conflict of interest.
“Poor land-use planning at the local level basically goes unpunished and in fact gets rewarded with additional disaster assistance from the province, from the federal government.”
The cost of this poor-planning adds up. In February 2017, the Parliamentary Budget Office released a report estimating that over the next five years the federal government will spend an estimated $902 million per year in disaster-related relief to provinces and territories — off that, 75%, or about $673 million, will be used to rebuild after floods each year.
With the severity and frequency of climatic events increasing and the costs adding up, Canadian property owners and renters are probably going to start noticing changes. For some, it will mean increased home insurance premiums — or no coverage at all for certain types of damage. For others, it could mean higher property taxes or steeper municipal fees to cover costs.
These changes will also impact home buyers. If more and more land is designated to be in flood-prone or fire-risk areas, this could prompt land scarcity for new-build home developers. If suitable land for residential development becomes scarce, in certain areas, this could help drive up the prices of current, resale homes (and available land) and elevate the cost of new-build homes.
Renters get their day in the court of public opinion
Finally, Canada’s renters were finally heard in 2017. Turns out there’s been a rental crisis in Canada for almost half a decade (maybe longer, depending on who you talk to). From a tenant’s perspective, it’s virtually impossible to find a good quality rental unit that doesn’t blast a hole through your monthly budget.
While many are voices still weighing in on how and why the real twist to this story is that in 2017 provincial governments decided to act.
The Ontario Wynne government passed the Rental Fairness Act, 2017, which expanded rent control to all private rental units, including those occupied on or after November 1, 1991. (Only units built and on the market before November 1, 1991, were subject to rent control.) As of April 20, 2017, no landlords in Ontario can raise rents more than the rent increase guideline. In 2018, that annual rent increase has been sent to 1.8%.
In Calgary, Alta. and Victoria, B.C., tenants garnered media attention through protests. They took to the streets to yell out their criticism of “forced evictions”— evictions prompted by years of scheduled construction on a rental property or due to unsafe living conditions. While the Victoria residents got help — the provincial government agreed to step in to find a solution — the Calgary residents of Kensington Manor got no such luck. Some were given 15 minutes to collect their belongings before the building was closed off due to structural integrity issues.
Back in Ontario, the Ontario Energy Board (OEB) passed a law that would ban hydro disconnections in Ontario between Nov. 15 and April 30, due to non-payment. While the new law protects both homeowners and tenants, the OEB went a step further to ban the installation of load limiters during winter months. These devices are often used by companies or landlords to restrict the flow of electricity to a customer’s home in order to reduce the overall consumption.
While there will always be tenant and landlord clashes, the incidents in 2017 will most definitely spill over into 2018.
Some fall-out will be developers backing away from purpose-built rentals (rental restrictions don’t provide incentives to build this type of building). But we should also expect to hear more stories about landlords finding it hard to cover expenses as costs rise (rising interest rates will certainly add to costs considering income is now capped with newly implemented rent controls in B.C. and Ontario). Finally, don’t be surprised if we witness more municipal and provincial action taken to further protect tenants.
New home-owners really are out in the cold
On March 28, 2017, the Toronto Star released a story by Kenyon Wallace about how the Ontario government was stripping Tarion of its builder-regulator role. The first line said it all:
“The Ontario government is stripping Tarion new home warranty corporation of its responsibility to regulate the province’s homebuilders.”
“Tarion’s multiple roles and responsibilities can give rise to a perception of conflict of interest and could result in an actual conflict or conflicts of interest,” Government and Consumer Services Minister Tracy MacCharles said Tuesday. “The new home building sector is an important driver of Ontario’s economy and, quite frankly, I believe it deserves a stand-alone regulator.”
Turns out the Star ran an investigation that found Tarion was keeping secret records of poor or incomplete work on new build homes across the province.
According to the Star’s research, Tarion does not receive government funding, so it is not subject to freedom-of-information laws or oversight by the Ontario ombudsman. Plus, the salaries of Tarion’s CEO, chief operating officer, eight vice-presidents, 17 directors and 30 managers are not made public (although the aggregate cost is known and topped out at nearly $24 million last year). To fund itself, Tarion relies on home warranty enrolment fees that builders pay, and sometimes pass on to purchasers.
New-homeowner advocate Karen Somerville says Tarion should be more transparent because the purchase of a home is the largest investment most people make. She isn’t alone in her concern or criticism. For more than 30 years critics worried that Tarion was in a conflicted role. Former Ontario ombudsman, Dr. Daniel Hill, first suggested the warranty program fall under the ombud back in 1986. It never happened. Despite not falling under the ombud’s jurisdiction there have been almost 300 complaints about Tarion to this office since 2007.
The problem starts with a false perception: Most home buyers assume that all new-build lofts, condos and homes are covered by a provincial warranty. This isn’t the case. Up until 2017, only three provinces — B.C., Quebec and Ontario — make warranty coverage mandatory. This meant that only in these three provinces were new home builders required to register with their respective provincial regulator. In the rest of Canada, it’s a bit of a wild west show with some builders offering a warranty and others that don’t.
Even when a builder falls under a regulator, there’s no guarantee a new homeowner will be protected. In May 2017, Canada’s largest home builder, Mattamy Homes, came under fire after buyers in two Ontario communities complained about being forced to take possession of homes that weren’t ready.
New homeowners in Waterdown, Ont., and Markham, Ont., reached out to the media to complain of serious deficiencies that were never fixed before their respective closing dates. These weren’t minor issues. Some homes were missing kitchen sinks and countertops, while others had visible cracks in the foundation or water seeping into the basement.
Faced with public scrutiny, Mattamy issued a public apology, but it once again put a spotlight on the question: Who looks after new-home buyers?
In 2018, expect this question — and any potential answer — to get a lot more press.
Data and privacy will meet deadlines and make headlines
On December 1, 2017, after years of court battles, the Competition Board was vindicated when the Federal Court of Appeal ruled in their favour.
At the heart of the debate is whether or not the Toronto Real Estate Board can or should protect information about home sales. TREB argues that consumer privacy is violated with the release of this information. The Competition Board argues that keeping this information only accessible through a gatekeeper (a licensed Realtor) is anti-competitive and bad for consumers.
TREB has already filed an application to the Supreme Court of Canada, but the highest court won’t decide whether or not they’ll even hear the case until sometime this year. In the meantime tech-disrupters, in anticipation of an opening of the floodgates, are preparing for a data deluge. Keep in mind, this release of data is how Zillow got its foothold in the U.S. MLS market back in 2006, before becoming the real estate behemoth it is today.
Interest rates are rising. Period
For the first time since 2010, the Bank of Canada hiked their overnight rate. The move came in July 2017, followed by a second rate hike in early September. There were no more rate hikes in 2017, but these two incremental hikes meant the overnight benchmark rate stayed at 1% and prompted every Canadian to come to terms with the fact that rates were finally starting to rise.
The Bank of Canada’s November Financial System Review highlighted three key signals for a healthier, more risk-averse national economy. These included healthy job creation, tightened housing policies and, you guessed it, higher mortgage rates.
While indebtedness, particularly the number of indebted households, remains high, the nation’s number one banker is cautiously optimistic. Bank of Canada Governor, Stephen Poloz, pointed out that household debt relative to income has reached historically lofty levels. But with higher rates on the horizon and even stricter mortgage lending rules, he was a bit more optimistic about the nation’s economic vulnerabilities.
But this isn’t new news. We’ve been reading about these potential rate hikes for more than 12 months now — and the news on rising interest rates isn’t going to stop.
Mortgage lenders may hit a moment of increased competitiveness during the spring real estate market. If this happens we can expect big headlines about rate cuts, only to have these stories followed by headlines blasting rate increases. It’s the cyclical nature of real estate, mortgage rates and the ongoing global economic battle to return to the norm of 5% interest rates. But, like any good hangover, interest rates will be a nagging headache for some time.
In Amazon’s wake…
Amazon is at it again. Amazon announced last year that it will build a second headquarters somewhere in North America. The complex will employ tens of thousands of well-paid workers and these cash-rich people will want to set down roots, escalating property prices in the lucky municipality chosen by Amazon.
We’ve already seen what can happen when a large, well-capitalized company like Amazon opts to set down roots. As a Seattle-based company, Amazon is almost single-handedly accredited for sparking a sharp rise in housing values in this Washington state city.
Nearly 240 metros, including Toronto and Vancouver, turned in their proposals to become Amazon’s second home and to capture the $38 billion USD that the company estimates will be contributed to the local economy.
Since Amazon is sure to have a profoundly transformative effect on the housing market of whatever city it lands in anyone in that city and the surrounding area will certainly hit the jackpot once the company announces its decision sometime this year.
View all posts in this series
- Canada’s housing market in 2017: A year in review
- Canada’s housing market crash in 2018
- 8 real estate market trends to watch for in 2018
- What do home appraisers see for Canada’s housing market in 2018?
- 2018 offers better, more saner opportunities: Realtors
- 17 strange real estate stories of 2017
- Design trends for 2018
- Luxury real estate will thrive in 2018
- Choosing colour of the year
- Wading into the housing market in 2018? Here’s some advice
- 4 things to know about the real estate market correction in 2018
- Real estate hangovers of 2017 that will impact 2018