Source – betterdwelling.com
- “…Make no mistake, Canada’s housing crisis is a crime (figuratively… mostly, but that’s a story for another day.) The existing political machine has little need to actually resolve any of these issues. Things get (and stay) broken when the incentive is slanted to keep it that way. Canadian real estate didn’t just slant the incentives for municipal policies. In a true-to-fashion bubble, it’s consumed by every level of government. More than 1 in 3 of Canada’s federal policymakers are real estate investors. Heck, even a “socialist” that rails against investors declared multiple investment properties and rental income, because of course they did”
Canada’s Epic Real Estate Bubble Means Mayors Can’t Afford Their Own Cities
How unaffordable is Canadian real estate? It’s reached the point that mayors of major cities can’t afford to buy a home in their own city at today’s prices. Not much sympathy from a typical household that makes significantly less. However, it should trigger more questions around how they’re dealing with housing. Are policymakers really that bad at their job, or is this intentional sabotage?
About Today’s Numbers
Today we’re looking at whether mayors of Canada’s major cities can afford a median home in their city. Affordability is determined using National Bank of Canada (NBF) minimum income calculations. Household incomes used in the analysis are also from NBF, since the data doesn’t lag as much as national sets.
Got it? Let’s do this!
Toronto Real Estate Is So Bubbly, Its Mayor Would Need A Second Job To Buy Today
Toronto, Canada’s largest city, has been declared the world’s largest real estate bubble. The median home was $1.19 million in Q4 2022, which would require $244k/year to service that mortgage. The city isn’t known as a particularly high paying one, with the median household earning $91k/year. Hate to break it to you, but that means your odds of owning are slim if you don’t already own.
At least you’re in good company, because even the mayor’s lofty salary ($216k/year) isn’t enough to buy today. It’s a median home, so they might be able to find something in the bottom half of inventory without a second income. Maybe they can get a job at a telecom firm or ask a coworker to be roomies?
Vancouver’s Mayors Are Often Well-Heeled Entrepreneurs For A Reason
Vancouver real estate is world-renowned for being a global investment, not housing. Heck, the CEO of Blackrock once told portfolio managers 8,000 miles away that Vancouver real estate is a great store of wealth. Naturally, buying one of these safety deposit boxes/sleep holes isn’t cheap—$1.31 million. A borrower would need an income of $270.3k/year just to service the mortgage. It’s a little, okay… a lottle, shy of the $92.1k/year a median household makes.
There’s a reason Vancouver’s mayors are either successful entrepreneurs or old money—you need a small fortune if you don’t already own a home. The mayor’s $185.6k/year salary is quite distant from the income needed to service a mortgage. In fact, a single-income mayor would need almost a whole other median household to get that mortgage.
Montreal Real Estate Is No Longer Affordable, But The Mayor Can Still Live There
Montreal used to be known as one of the most affordable parts of Canada. Cheap credit, stimulus, speculation, and induced demand changes that pretty fast. A median home now sells for $524.7k, requiring a minimum income of $127.9k/year for the mortgage. It may seem affordable for Toronto or Vancouver, but not for a local median household making $75.4k/year. Home prices need to fall by nearly half, or incomes need to double to restore any future there.
At least Montreal’s mayor can * drumroll * still afford to buy a median home. The mayoral salary comes in at a modest $196k/year, almost triple the median. That’s a massive gap between the top policymaker and the households that elect them.
Victoria’s Mayor Would Need Another Mayor As Their Roommate To Buy A Home
Victoria is a relatively small city, but so expensive it’s often grouped with Federal policy for Toronto and Vancouver. A median home came in at $1.08 million in Q4 2022, requiring an annual income of at least $221.9k per year for a mortgage. Household incomes are just $78.2k/year, meaning it’s another place where the odds of owning are slim if you don’t already own. Quite possibly the worst odds out of Canada’s major cities.
In this case, the mayor would need to bunk with another mayor to make the mortgage payments. The salary is listed at $118.7k/year, just over half the amount needed.
Most of Canada’s Cities Are Hard To Buy In Now
Canada’s major cities are so unaffordable, a median household can’t afford any of them. “Drive until you qualify” used to be the solution, but it isn’t very effective these days. If you tried that in Canada’s major cities today, you’d probably hit the US first. Major cities have seen exurbs (distant suburbs) rise much faster, narrowing the gap.
Policy Designed To Exacerbate The Housing Crisis
Why’s this important? This wasn’t just complaint fuel, nor am I arguing that mayors should be paid more. As highlighted above, households are the real losers in these circumstances. This is about incentive.
Whenever there’s a crime, there’s a motive. And make no mistake, Canada’s housing crisis is a crime (figuratively… mostly, but that’s a story for another day.) The existing political machine has little need to actually resolve any of these issues. Things get (and stay) broken when the incentive is slanted to keep it that way.
Are You Voting For The Real Estate Speculator or The Real Estate Speculator?
Consequently, Canadians are presented with policymakers sitting on significant conflicts of interest. Take Toronto’s upcoming election that kicks off soon. The top three candidates are a real estate investor, the spouse of a real estate developer, and, well… whatever the heck this is that Canadian news skipped.
Canadian real estate didn’t just slant the incentives for municipal policies. In a true-to-fashion bubble, it’s consumed by every level of government. More than 1 in 3 of Canada’s federal policymakers are real estate investors. Heck, even a “socialist” that rails against investors declared multiple investment properties and rental income, because of course they did.
There’s nothing wrong with being a real estate investor or landlord by itself. Insert joke about some of my best friends being in real estate. 😉
However, Canada requires politicians to abstain from voting on their own investments. At the Federal level, they aren’t even allowed to manage their own portfolio, with real estate being the exception. All of a sudden, Canada’s government is stacked with real estate investors regulating and providing incentives to increase the value of their assets.
Curious why no elected official has ever proposed changing this rule. Oh, well…
Have a home? Well, not a problem that impacts you—right? It’s actually a big risk for a city’s housing to be persistently more valuable than the labor produced. The transfer of income from consumption and investment to real estate produces long-term damage to livability and thus property values. Everyone wants to live here now, but the OECD is forecasting Canada will be the worst performing economy for the next 40 years. It can be tricky to get people to continue to pile into that opportunity at a premium once they figure that out.
Money that should be creating jobs goes into shelter. While the price preservation scheme pitched by policymakers is to just buy smaller homes. Highly skilled labor will eventually realize that other countries want their labor, not their rent cheques. It’s happened to Tokyo, Paris, London, and New York. Every time, the people in charge in those cities said it’s different this time… until it wasn’t.