Aftermath of COVID-19: Dramatic Shifts in Housing Supply, Demand and Costs

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Published: September 2, 2020 • Last updated: September 19, 2024 at 16:50 pm

6 Things Canadians Need to Know About The Future of Housing Markets In 2020

COVID-19 has suddenly and dramatically changed social behaviours, impacted employment prospects, knocked 5-10% of annual GDP out of the economy, reshaped how and where people work — may be permanently, and severely weakened (and in many cases killed off) the most vulnerable businesses and economic sectors including restaurants, business travel, hotels, commercial real estate and others.

Looking ahead, there are 6 big changes in housing markets that Canadians need to know about as life slowly returns to normal. (Click on the list item to go directly to the detailed analysis.)

Rental prices are declining but Canadians still cannot afford it. Should you move home?

Toronto Storeys, an online real estate journal, reports that July continued a trend of falling rental prices in Toronto for the eighth month in a row. – Average Rent Prices in Toronto Down for Eighth Straight Month

According to a Google survey of 1199 Canadians titled “Generation Boomerang” (reported by Finder) nearly 1 out of 10 Canadians have seen their living arrangements change since COVID-19 hit in the Spring of 2020. As the pandemic spread, more and more Canadians opted to give up their rental apartments to move in with immediate family members. About 1.5 million Canadians have moved back into their parents’ homes, and that number is projected to grow to over 2 million in the coming months as more than 600,000 additional Canadians report they are considering it.

Imagine having 3 children all living in the city of Toronto, all paying anywhere from $2000-$3000 a month in rent, plus all of their individual utilities/living costs (non-negotiables) per household. In a situation when job security is questionable, and many are already living on CERB payments from the government, the thousands of dollars in monthly savings from combining households is kind of a no-brainer, right?

Putting this into perspective, with younger residents moving home and the flow of new immigrants almost at a standstill, the supply of available rental units is suddenly exceeding demand.

Lack of affordability is not a new problem: according to a fact sheet from the Advocacy Centre for Tenants Ontario (Acto), MORE THAN HALF OF ONTARIO’S RENTERS MAKE AN ANNUAL INCOME BELOW $40,000, with many renters spending over 80% of their income for a two-bedroom apartment. But the affordability crisis, coupled with income insecurity and a surge in supply, explains the rapidly falling rental prices.

As shown in Figure 1 (Source: Acto), the majority of renter households in Ontario have average annual incomes below $40,000 (this is the case for only 18% of homeowner households).

  • 1 in 4 of renter households have incomes below $20,000.
  • Renter households earning less than $20,000 and living in two-bedroom units pay on average 81% of their income each month on rent plus utilities.</li

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Toronto Imposes Strict New Regulations on Airbnb and Short Term Rentals

To try to control the social-spreading of COVID-19, Toronto and other major cities imposed a ban on Airbnb and other short-term rentals. This ban put further pressure on Airbnb which had recently been subjected to a whole set of new regulations in late 2019. These strict policies and regulations are said to be the main factor in long term rental prices decreasing and an explosion of “new” long term rentals both furnished/not hitting the market.

“Before the pandemic, a one-bedroom condo in the downtown would probably not go for less than $2,200 per month, but now you’re seeing them being advertised for about $1,800,” according to Andrew Harrild, co-founder of Condos.ca, and a long time realtor in Toronto’s pricey downtown core. “It is a correction that was much needed, and we’re seeing a return to a more balanced market.”

Recently, Toronto moved to further restrict short-term rentals as a permanent solution to increasing the long-term rental supply and to implement enforcement of the rules enacted last year.

Airbnb has long been perceived as a nuisance by neighbourhoods and resident condo owners who accused Airbnb operators of creating “ghost hotels”, and as a major factor in raising the cost of long-term rental units. Beginning September 10, Toronto is implementing a licensing and registration system that all operators of Airbnb units must apply to in order to operate legally.

You must live in residences that you intend to rent (no more condos purchased by investors for sole use as Airbnb rentals — that’s illegal), and you must pay a 4% Municipal Accommodation Tax (MAT). Enforcement of this system will likely force the remaining illegal Airbnb operators to either convert to long-term rental accommodations or to sell their units, further bringing down prices.

For more information on Toronto’s policies for Airbnb and short term rentals click here – Toronto – Airbnb Help Centre

Source: Torontostoreys.com/toronto-rent-price-report-july-2020/

“Condominium apartments for rent have seen average rates decline by 11.4% annually to $2,182 per month. The average condo is nearly $275 per month cheaper in July than it was in January of this year. The bulk of the Rentals.ca condo listings are in Ontario, with the decline in downtown Toronto the main factor in the decline.”

Source: https://rentals.ca/national-rent-report

<strong?Source: Rentals.ca August 2020 Rent Report

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Ontario’s Bill 184: “The Eviction Bill”

Photo Credit: Barry Gray | The Hamilton Spectator, File Photo

Protesters hold a rally in Hamilton on July 22 against Bill 184. Critics say the newly passed legislation makes it easier for landlords to evict tenants who fall behind on a repayment plan.

Source: https://www.thestar.com/news/canada/2020/08/01/prepare-for-wave-of-evictions-as-rent-comes-due-ontario-ndp-warns.html

Ontario’s Progressive Conservative Government lifted the eviction moratorium (freeze on evictions during the pandemic), passing Bill 184 in late July 2020, in spite of strenuous objections from tenant advocacy group ACTO (Advocacy Centre for Tenants in Ontario). ACTO’s campaign against Bill 184 included offering five alternative solutions “Bill 184: Wrong Bill, Wrong Time” to the bill. Opponents deem Bill 184 as a pro-landlord bill that will reinforce and hasten landlords’ ability to evict tenants.

In Vancouver, the ban on rental evictions ended September 1; in Toronto, evictions have already begun, starting August 1. Younger renters are particularly vulnerable to eviction given many are employed in precarious or part-time work that has been lost to the pandemic and related shutdowns.

“While tenants and tenant advocates fought hard to stop Bill 184, these efforts were ignored by the Progressive Conservative government. More troublesome is that the expedited passing of Bill 184 coincides with the lifting of the eviction moratorium at the end of July and re-opening of the Landlord and Tenant Board (LTB) in August. This means that evictions, and their enforcement, will resume in August while the pandemic still poses a threat to the health of Ontarians.”

What are some of the main highlights for Bill 184?

Landlords Repayment Agreements/Plans Lead to Eviction:

Landlords are now entitled to give their tenants a “take-it-or-leave-it” repayment plan with terms that they have laid out. If tenants default on these terms or do not rebuttal with their own, a landlord now has the right to file an eviction order.

Landlords Can File an LTB Claim for Previous Tenants Up to 12 Months After Vacating:

Landlords can now bring a former tenant up to 12 months after vacating the unit to the LTB (Landlords and Tenants Board) fpr faulting on rent or any other payments.

Tenants Must Formally Notify Their Landlords Of Their Defence Claims Before Their LTB Hearing:

If a tenant has not paid rent or faulted on any payment due to the landlord not making necessary repairs in their unit – then the tenant must give formal written notice of all the items to repair to their landlord before the LTB hearing.

Unlawful Rent Increases Become Lawful after 12 months:

If your rent has been raised “unlawfully” – meaning outside Ontario’s LTB rules and regulations for that area, and the tenant has not refuted the increase for 12 months, then the raise in rent will be considered lawful.

Compensation to Tenants for False No-fault Evictions:

If a tenant has been evicted under the pretense of a “no-fault eviction” – either the landlord plans to use the unit for themselves, or needs to do renovations which cannot be completed with the tenant still residing there. However, if it is determined that this was a ploy to remove the tenant then that tenant has the right to bring a “bad faith” application to the LTB where they could be compensated by their previous landlord for 12 months of rent.

Fines for illegal evictions have been raised to $50,000 for an individual and $250,000 for a corporation.

Click here for additional information: 5 Bill 184 Changes To The Law That Tenants Must Know

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Average Toronto Home Prices Rise Again To New Record

The average sale price for a Toronto home is not for the average Canadian.

Last month the “average selling price” of a home in the GTA was a record of $943,710. A first-time buyer desiring one of these “average homes” would need to come up with a minimum down-payment of around $70,000 (just over 7% down of the cost of your home). Mortgage, property taxes, maintenance fees etc. can be no more than 39% of your total gross income. That means you would need to have a combined household income of $175,000 to be able to qualify for this mortgage (read: Mortgages 101 — What You Need To Know Before Applying for a Mortgage).

Let’s put this into perspective:

  • To be in the top 5% of Canadian incomes, you would need to be earning $102,300 or more annually.
  • The top 1% of Canadians earn $191,100 or more annually or put differently, SEVEN TIMES THE NATIONAL MEDIAN INCOME.

So who is buying these “average homes”? Not average Canadians!

So yes, house prices have reached new levels of unaffordability, but they are showing no signs of falling, and in fact, are demonstrating continued strength even in the middle of the COVID-19 pandemic. Demand remains strong even with these extraordinarily high prices because there is a severe supply shortage of the kinds of homes people want to buy close to the major cities where the good jobs are.

If you are not deterred by the prices and think now might be the time for you to make a move, we recommend reading this article where ASKROSS breaks down everything first time homebuyers need to know to qualify for a mortgage.

Quickly summarizing, lenders primarily care about 4 factors when making a decision about whether or not you are qualified for a mortgage:

  • Employment and income history
  • Credit history
  • Your available funds to make a down payment and cover closing costs
  • What are you buying, and where is it located?

Learn more: Mortgages 101 — What You Need To Know Before Applying for a Mortgage

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How Will My Mortgage or Loan Deferral Affect My Credit Score?

We are coming up on six months of mortgage payment deferrals for more than a million Canadians. These and other measures such as CERB payments are cushioning the housing market against economic fallout. According to Marc Desormeaux, Senior Economist with Scotiabank Economics, “If those supports unwind before the labour market fully recovers an uptick in mortgage arrears and defaults can reasonably be expected.” (Source: Scotiabank Economics Publications: Canadian Home Sales (June): Housing News Flash)

By the way, if you are in an agreement with your lender for either a mortgage and other loan deferrals (if it has been agreed to by the lenders) it DOES NOT negatively affect your credit score, but it does affect lender perception.

So while your credit history and credit score is protected, if you are planning to refinance your mortgage or switch lenders for a lower rate, it’s not a good look if your current mortgage is in deferral.

“CMHC president and CEO Evan Siddall said last week that as of July, around 11% of insured mortgages nationwide are in deferral.”

The total mortgage deferral volume in the big six chartered banks as of the end of July exceeded $130 billion, from more than 500,000 payment deferrals.

Percentage of Mortgages Currently In Deferral Across Canada:

  • Hard hit by energy market weakness during the pandemic, Alberta had the highest rate of mortgage deferrals at 21% of all mortgages.
  • Saskatchewan and Newfoundland are each at 14.8%.
  • British Columbia hovered near the national deferral average at 11.1%.
  • Ontario had 10.1%.
  • The three Northern Territories and Nova Scotia each posted a 9.9% deferral rate.
  • Manitoba was at 9.6%.
  • New Brunswick’s rate was 9.3%.
  • Prince Edward Island’s was 8.4%.
  • Quebec had the lowest deferrals rate nationwide, at 5.6%.

According to our colleagues at RateSpy “There are $170 billion of mortgage deferrals outstanding at the Big 6 banks, as of July 30. The vast majority of them expire by the end of October. Here’s a quick tally of the percentage of big-bank mortgages that are deferred (Source: National Bank Financial):

BMO: 14% (vs. 14% in Q2)
CIBC: 15% (vs. 16% in Q2)
NBC: 5% (vs. 11.9% in Q2)
RBC: 12% (vs. 18% in Q2)
Scotiabank: 18% (v.s 17% in Q2)
TD: 12% (vs. 14% in Q2)”

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Cottage Country and The Living is Easy

It’s not just your grandparents looking to downsize into a country home. Many younger families are heading for the city exits and looking for backyards, larger homes and fresh air (not to mention, less chance of COVID-19). Moving beyond the suburbs, and even into cottage country is the latest trend spiked by COVID-19. Many Canadians who have adapted to working remotely from home have decided to either relocate for the summer and some permanently.

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There is also a groundswell to being closer to our immediate families and their neighbourhoods. As we slowly get to increase our social bubbles, many Canadians have decided to “move back home” to be closer to their loved ones and to alleviate the financial burden they would experience living on their own – especially in the City of Toronto.

The global pandemic has changed many Canadians’ outlook on how they would like to live/how close they actually need to be to their physical jobs. Now, more than ever, it’s uncomfortable to be in a densely populated area or to be a part of the notorious fast-paced rat race in Toronto.

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​Ross Taylor
One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents

Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column ​ in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.

With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.

If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.

​For more information, visit About Ross Taylor.