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The escalation of the international trade war is likely to exacerbate the situation. Although Canada is not directly involved in the US-China trade war, the Canadian dollar has been adversely affected by global concerns that growth has pushed down oil prices and the prices of copper, nickel and zinc.
The weakening of the Canadian dollar against the US dollar means that the price of all building and decoration materials purchased by Canadian developers through US manufacturers and suppliers will rise.
In Economics 101, we know that when supply equals demand, prices will reach equilibrium.
Therefore, apart from preventing all immigrants from entering Canada and / or letting their children live with their parents until the age of 50, the only way to reasonably control house prices is to increase supply.
To put it simply, if the land development regulations of major Canadian cities are not changed, people’s housing affordability will continue to decline.
Housing affordability fell to its lowest level in 27 years in 2017, according to the Royal Bank of Canada’s Department of Economic Research. Some cities, such as Montreal and Edmonton, have managed to bring new housing supplies online to balance rising house prices. Efforts in Toronto and Vancouver have not been successful.
Dana Senagama, market analysis manager at (CMHC), a Canadian mortgage and housing company, said: “supply is slow to respond to price changes, and we keep seeing this happen.”
Although high demand and limited supply are the main culprits for rising house prices, high government development costs are also a factor in rising housing costs.
According to a report released by the Association of Construction and Land Development in May 2018, government development costs account for an average of nearly 22% of the price of ordinary new houses. The government development cost of the single-family villa is about $186300.
These development costs have doubled in a short period of time and will continue to rise.
Another challenge about affordability is how long it will take to add new housing in an area.
Methods that were effective in the past are no longer working. At present, regulations and procedures relating to land planning, zoning, examination and approval, infrastructure and services are difficult to keep up with the demand. no, no, no.
For example, it takes about 10 years to complete a new low-level or high-level project in the Greater Toronto area from start to finish.
The slow listing of new houses is mainly affected by two aspects. First, in a region with strong demand, inventories are limited, so prices remain high.
Secondly, according to the current population forecast, there will be 9.7 million people in the Greater Toronto area by 2041, and the number of immigrants in the Greater Toronto area will also increase significantly, so there is not much relief in solving the problem of affordability.
As the demand for rental housing continues to outstrip the supply, the demand for rental apartments is expected to grow further.
With house prices stubbornly high, potential buyers are becoming more and more reluctant to buy a house, so they will continue to regard buying a house as an affordable option.
There is no doubt that the imbalance between supply and demand is still a major challenge for the real estate market. Fortunately, for investors in the industry, that is unlikely to change in the foreseeable future.