The Interplay of Housing Demand and Musical Chairs Analogy

When considering a move to a different home – whether an upgrade, relocation, or downsizing – people are apprehensive due to limited availability of suitable options. This concern is well-founded, given the limited quality choices in the housing market, often leading individuals to remain in their current residences that further leads to housing shortage.

Drawing a parallel to the game of musical chairs we play when we were kids and even now, this housing shortage resembles a situation where there are fewer chairs than participants. In this case, with demand outweighing supply, anyone to voluntarily give up their seat. 

a. The addition of newcomers through increased immigration injects more participants into the metaphorical musical chairs game. While this is a positive development, constructing only 200,000 housing units while accommodating 500,000 new Canadians falls short of being optimal.

b. The ongoing expansion of buildings featuring low-income rental components, encouraged by the situation imposed by COV, further diminishes housing options. The approval process for such constructions is time-intensive, and rising costs and financial constraints hinder builders from completing such projects. Even if these projects come to fruition, their completion dates, often three to four years away, might not align with the needs of those who have already left the area.

c.  The introduction of a rental ceiling cap by the government resulted in small-scale building operators (managing 6-24 units) being compelled to sell their properties due to surging operational expenses. This move paves the way for more extensive developments set to materialize in the next 4-5 years, effectively removing another chair from the housing market.

d. In an attempt to rectify the rental market, the government eliminated rental restrictions. Paradoxically, this led to a spike in rents, as investors shifted to Airbnb-style rentals, raising prices to offset inflation and property tax increments.

e.  In January 2023, the government introduced a "Cooling off period" in the home buying process, aiming to foster a fairer transaction environment. However, this measure coincided with an overall shortage of housing supply, consequently driving prices upward.

While not solely attributing blame to the government, it is clear they have assumed a prominent role in housing matters, and these are the outcomes observed thus far.

Potential solutions involve adopting a  YNMBY (Yes In My Backyard) attitude, encouraging diverse zoning and housing types, and promoting the construction of missing middle options like duplexes, four-plexes, and laneway homes. Incorporating insights from urban planners and implementing a temporary freeze on government fees and property taxes for 3-5 years, along with mitigating soft costs accounting for 25% of building expenses, could also contribute to alleviating the situation. 

Although any home owner who decides to became builder and property managers comes with discouraging caveat from CRA which would tax 50% of any capital gains. I do not foresee too many people going that path.
For those seeking guidance in navigating these challenges, one potential solution is to sell property with the stipulation of finding suitable accommodations or renting back the property. For more information on this approach, feel free to get in touch.