Canada's Housing Bubble

Dec 02,  2010 Myke Thomas calgarysun.com

Housing affordability has improved since 2006/2007, but challenges still exist for Canadians wanting to get into homeownership, says the Canadian Housing Industry — Performance and Trends report from the Altus Group, prepared for the Canadian Home Builders Association.

The improvement came on the heels of reduced demand and historically low mortgage rates, and although demand increased considerably in late 2009 and early 2010, economic uncertainty since late spring has slowed most housing markets, including Calgary’s.

While demand, or the lack of it, determines prices and affordability, the report says, “Rising government-mandated costs continue to be a significant threat to homeownership affordability. In particular, increased municipal charges are raising costs for home builders.”

The municipal charges — land levies — pay for infrastructure in new communities, ranging from streets, sidewalks, recreation facilities, and in some cases, EMS and fire stations and more, but have unintended consequences, says the report.

“(Municipal charges) effectively transfer public sector debt into household mortgages, which itself is a cause for concern from a public policy perspective.

Most economic forecasters, and both the Minister of Finance and the Governor of the Bank of Canada have expressed concerns about the high debt levels of Canadians — and the dangers of high household debt to the Canadian economy.”

The report is timely for the Calgary housing market.

The city and the development industry are in negotiations to formulate a new agreement about who pays what for the cost of growth and who benefits from growth.

The talks, being conducted behind closed doors, include discussions about an additional land levy, and if nothing has changed from last summer, the levy will add a minimum of $10,000 to the cost of new homes— which would have a significant effect on affordability and not just in new suburbs.

Higher house prices in the ’burbs will lead to higher house prices in established communities — and while homeowners in those areas may think that’s good for their home equity, it’s only good if there are enough buyers who can afford to buy the higher-priced homes.

Higher prices will take a lot of buyers out of the market and not just ‘low income earners.’

Based on Canada Mortgage and Housing Corp. criteria, the report says a first-time buyer in Calgary would require an annual income of about $85,100, based on a modest home priced at $322,400 (80% of the forecast 2010 average MLS house price).

Regardless of the kitchen you’re in, that’s a lot of dough and is calculated before an additional levy of $10,000 is applied.

Writing in the CHBA’s national newsletter, Peter Norman of Altus says alternative methods of funding must be explored and suggests the Municipal Infrastructure Lending Program, established by the federal government in 2009 to lend money to municipalities.

Space doesn’t permit me to detail the program; however, the bottom line is about $2 billion is available.

The city and the industry should bring this program to the negotiating table.

Myke Thomas is the Homes editor and can be reached at 403-250-4324 begin_of_the_skype_highlighting 403-250-4324 end_of_the_skype_highlighting or This e-mail address is being protected from spambots. You need JavaScript enabled to view it