And Boom it went…But will it Bust? ‘The Housing rental Market’ by Tim the Tenant

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In an ongoing effort to write a piece about housing prices in london, I’ve become caught up in some actuarial equivalent of a soap opera, or rollercoaster ride, or whirlwind of fuss and bother. As I am still a renter, I had not been keeping such a close eye on the events of the last few months…better make that the last year…OK, to be safe, the last couple of years… And therein lies, for me anyhow, part of the problem (or, should I say, challenge).

The story is big. It involves billions of dollars shifting between mysterious “foreign investors” and property developers – who themselves have apparently been buying up truckloads of rose-coloured glasses. It crosses the continent. It begins, more or less, with the start of the Great Recession, in late 2008, and continues to this very day. It features the lowest mortgage rates and the highest home sale prices in Canadian history. It’s really an ongoing tale of speculation, and tenancy deposit compensation. Buyers want to know if mortgage rates will go up (and if so, when and how much?) Developers would like to know if they should keep buying up property in Toronto and building even more condominiums, despite some time last year making the city North America’s #1 Condo Market (surpassing Vancouver – itself a major player in this drama). The federal and provincial governments are scrambling (have been; will continue) to keep up with the events and try to corral the bull market. But even the efforts of any number of finance ministers have not, so far, kept away the gaze of The International Organizations that, you would think, have bigger things to tend to. With an anemic American “recovery” and a crumbling eurozone, what would the likes of the IMF and the FSB need to fuss with our little 11th-place GDP for?

I thought this was a good question. But, as I kept stepping back to take in the full scope of the story, I began to try and connect the dots. So, far, my paint-by-numbers report looks something like this:

Vancouver, a couple of years ago, was experiencing a similar situation to Toronto. Condos were being bought up at a furious rate by foreign investors, with most of them becoming “non-owner occupied properties.” Prices for good-ol-fashioned single-dwelling homes were rising faster than anyone had seen and higher than anyone could understand. Despite a “cooling” process, which helped to reduce, if not completely deflate, the size of its housing bubble, Vancouver retains the honour of the having the second least affordable houses on the planet (http://www.demographia.com/dhi.pdf). On average, Toronto housing prices are a mere 2/3 that of Vancouver’s, though some events (like an apparently unremarkable North York home that sold, in March of this year, for 55% above its list price) are pointing to the same future. With high sales and higher prices, Toronto has become – for housing anyhow – the “it” city. This is helped by a number of factors – none of which we’ll be describing in detail in this particular offering, but all of which are providing cat nip for business columnists and market analysts. The headlines tell some of the story, which I’ve categorized for your convenience: