One of the weirder outcomes of the global pandemic has been a surge in house prices. Despite the worst economic downturn since the Great Depression, prices are up everywhere from London to Sydney to Manila. The median price of an existing house in the United States in August rose 11 per cent from a year earlier. In Canada’s biggest urban market, Toronto, both sales and prices reached a record high in September.
It is all quite unexpected. Housing prices took a dive during the last big recession a decade back. When the pandemic hit, it looked as if the long run-up since then was finally over and that prices would come back down to earth, giving mere mortals a chance to buy a home. Toronto prices tumbled in April as the big lockdown took effect. Officials at the Canada Mortgage and Housing Corp. said they didn’t expect them to bounce back until at least the end of 2022.
Instead we have something close to a real estate frenzy, right in the midst of a second wave of COVID-19. People with means are rushing to take advantage of rock-bottom interest rates; already low before the pandemic, they have reached new, record depths. A five-year fixed mortgage can be had for less than 2 per cent.
Rising demand means rising prices. As the Globe reported this week, in Greater Toronto “competition for detached and semi-detached houses helped send the average selling price across all types of properties up 14 per cent to $960,772, compared with the previous year.”
That’s great if you’re a homeowner. The asset that keeps the rain off your head is worth even more than before the pandemic, a silver lining if there ever was one. The long-expected real-estate crash has been put off – at least for now: the CMHC is still predicting price drops and the Swiss bank UBS says Toronto is among seven global cities with the biggest risk of having a burstable housing bubble.
It’s good for some prospective home buyers, too. If you are middle-class or better and have kept your job, this may feel like a good time to buy a bigger place or get into the market at last. Mortgage deferrals from the banks and income supports from the government have taken some of the financial sting out of the crisis.
But for many others, the mid-COVID-19 housing boom is discouraging news. Their hopes of getting a chance to sneak into the market during a pause in the seemingly endless escalation of prices have been dashed. Younger and less well-off Canadians are starting to see home ownership as an unreachable dream. So, along with all its other destructive effects, the coronavirus could drive a further wedge between generations and classes.
What to do? Governments can help to increase the supply – and thus moderate the cost – of housing by cutting the red tape that slows building approvals. They can push back against the rampant NIMBYism that stalls or halts so many housing projects as comfortable neighbours try to keep newcomers out.
They can promote higher density in cities, both in their cores and suburbs. Despite the thickets of skyscrapers and condo towers that have sprung up in recent decades, sprawling Toronto’s density is nowhere near New York’s or London’s. Simple arithmetic says that allowing for more units of housing on a given plot of land will yield lower prices. Urban sprawl is not just environmentally destructive. It is costly.
But to be honest, house prices have already flown so high that even these measures won’t put owning a home within the reach of everyone. So it makes sense to provide alternatives. In an important speech last year, CMHC chief Evan Siddall called out the “glorification of home ownership.” Renting, he said, “is a perfectly valid option, and may in fact be the best long-term option for many households.”
That is certainly true in Europe, where millions of prosperous families from Frankfurt to Paris live happily in secure, well-maintained apartment buildings without ever holding a mortgage or a deed of ownership. Governments should do everything they can to make it easier for developers to build rental housing, including lifting the rent controls that make it less attractive to build rental and harder to maintain it.
A small boom in new rental construction is already underway in Toronto. Rents, meanwhile, have been dropping lately. There is more than one way to find a happy home.