Yet I was always drawn back, like a moth to a flame, to my home, the country I truly love Canada. To this day, I consider it to be one of, if not the best country in the world to live, work and play.
This year marks Canada’s 150th birthday, surely a time to celebrate our great country and all the opportunities it has to offer.
This year also marks another 150 year milestone that has recently been announced as part of the 2016 census results released last week. However, this latest news certainly garners no reason for any celebration. In fact, “our home and native land” may never be the same again.
You see, our country is getting older in more ways than one.
“The 2016 census from Statistics Canada shows the largest increase in the share of seniors since the first census after Confederation. The proportion of those aged 65 and older climbed to 16.9 per cent of Canada’s population, exceeding the share of those under 15 years old at 16.6 per cent.” Source
Now all this is far from surprising. We already knew that just like all the other G7 countries across the globe, we in Canada also face declining birth rates. What is surprising however is how fast this is now accelerating, as evidenced in the chart below.
In the meantime, “the proportion of Canadians aged 15 to 64 grew just 0.4 per cent between 2011 and 2016, its lowest rate since 1851, comprising 66.5 per cent of the population. The agency expects that proportion to decline to about 60 per cent by 2031, when the youngest baby boomers turn 65.” Source
This is big news. Really big! Here’s why:
Sweating to the Oldies:
We have an aging population as Canadians are living longer yet having fewer kids. At the same time, the number of working Canadians is dwindling at an alarming rate.
The acceleration of people living longer will put a massive strain on our social systems. Everything from Canada Pension Plan, Old Age Security and government health plan costs are all undoubtedly already accelerating to the upside.
Yet our massive federal and provincial government debt, combined with a decreasing working population, and hence lower tax revenues , will leave our government in a dire position and greatly hinder it’s capabilities of being able to continue covering the costs of these huge and ever increasing social benefits and programs we enjoy today.
So the obvious question is: Who will pay for all these in the not so distant future?
Certainly not the Ontario government, where provincial debt now hovers over $318 Billion dollars, making the province most indebted sub-sovereign jurisdiction in the world.
To put this in perspective, if you live in Ontario then your share of that debt is nearly $23,000! Source
But that’s the least of our worries, since those who are expected to take care of our aging population, who are supposedly expected to pay for the run up in health care costs and retirement and other social benefits, are having a real tough time finding work today.
I am of course talking about our young adults and our children.
Advice to the Young at Heart
“Youth employment rates in major cities like Toronto and Montreal remained low, with the opposite finding for older workers.
The researchers believed this was due to a few factors, including fewer opportunities for young people who leave school compared to those who do so in resource-rich areas. They also concluded that older, white-collar workers living in urban centres like Toronto and Winnipeg stay in the labour force longer, boosting their employment rates.” Source
Hold your horses, because it gets worse.
In 2011, the working-age population (those aged 15 to 64) represented 68.5% of the Canadian population. Source In 2016 that number has now dropped to 66.5% and by 2031 it is expected to drop even further to 60%.
This means that the percentage of available working age Canadians dropped by a full 2%, or by about 700,000 Canadians, from 2011 to 2016.
So you would have expected either 700,000 more jobs available or a much higher unemployment rate.
Yet what we are seeing is the total opposite!
As you can see on the chart above, over the same 5 year period Canada’s unemployment rate has not gone up at all. In fact, the unemployment rate actually dropped by 1.2%, or by about 300,000 Canadians, from around 7.5% in 2011 to 6.7% in March 2017. Source
So what does this all mean?
Take this Job and Shove It
A decreasing work force combined with a decreasing unemployment rate can only mean one thing.
Simply put, from 2011 to 2016 over 1,000,000 jobs simply vanished, but that’s not all.
From 2011 to 2016, Canada’s population grew by a whopping 5.8% from 34.34 million Source to 36.3 million Source. That’s nearly 2,000,000 more people, of which about 66.5% or 1.3 million of these newcomers to Canada who are also looking for work.
Combined, that’s nearly 2.3 million more working aged Canadians and Canadian residents looking for work.
So by all accounts our unemployment rate should have actually skyrocketed over the past 5 years, but as indicated above, the opposite actually happened. Here’s why:
Despite all these festering “Big Picture” issues that hide just below the surface, lies the one and only saving grace to anyone looking for work in our great country. That is, our Baby Boomers are retiring at unprecedented speeds and this has softened the blow to what would otherwise have been a huge unemployment crisis.
In fact, if you look at some of the other countries around the world also plagued with aging populations, like Spain and Greece, unemployment rates there are obscenely high at 18-23%, respectively. By comparison, our Canadian unemployment rate of less than 7% today looks absolutely amazing.
Moreover, as indicated above, the percentage of Canada’s population deemed to be working age is expected to fall from 66.5% in 2016 to 60% and by 2031, the year the last of the Baby Boomers are expected to retire.
Unfortunately, this does nothing to improve our youth’s chances of finding a job today and having to wait for our demographics to shift in their favour is likely not a viable option either, as this is unlikely to enable them to pay for their living expenses without a job today.
Now add to this some major shift in our workforce as a result of perpetual and accelerating cost cutting measures. These include the proliferation of the “gig” economy, where employers are opting for more and more contract labour to the detriment of full time jobs, thereby avoiding the need to pay workers health, retirement or any other benefits. These also include low paying part-time jobs with little to no benefits which are also cannibalizing full time jobs with higher pay and benefits.
“It’s the end of the world as we know it and I feel fine” – R.E.M.
Now let’s take this all together and apply it to the 2016 census results that now also indicate a shrinking work force and disappearing jobs for our youth.
These macro changes may very well ultimately lead to the total annihilation of our entire middle class. That same group that incidentally pays for the lion’s share of Canada’s income taxes and hence the largest contributing group to our government’s revenues used to pay for our social safety net.
Needless to say, it is becoming quite evident that Canadians certainly have some major challenges ahead that will continue to unravel and affect us all, quite possibly for many generations to come.
Not surprising, all these factors will have some major ramification for our real estate market in across the GTA, and indeed across the entire Greater Golden Horseshoe Region.
You see, Canadians now face, and will most likely continue to face, some very harsh realities.
The main problem is not the eye popping real estate prices or rising rental rate increase of the past decade and especially the last few years.
All these would be no issue at all, as long as our annual incomes continued to rise in lock step with “real inflation” let alone a 33% year-over-year increase to Toronto real estate prices. While at the same time, “Canadian salary increases to average 2.6% in 2017” source
However, this is really only a culmination of a long term trend.
A 50 year history of the relationship between average family income and average home prices in the region paints a much more disturbing picture. One that has really started accelerating at an almost elliptical rate since Ontario enacted the Green Belt Act, 2005 twelve years ago, which I will explain later.
In 1967 average family income in Canada was just under $5,000. Nearly 50 year later, “the average wage for Canadian employees was $952 a week – or just under $50,000 a year ($50,589 in Ontario). This represents a 0.4% increase over the same period last year.” source
Meanwhile, in 1967 the average home price in Toronto was $24,078 source which works out to approximately 5 times annual average family income for that year.
Now fast forward to 2017 where the average price of a detached home in the GTA now stands at about $1.6 million.
To put this in perspective, while the average family income has increased 10 times over the past 50 years, the average price of a fully detached home in the GTA has increased by a whopping 32 times the annual average family income in Canada today.
So if you think that real estate prices are getting expensive and out of reach of most people, that’s because they really are!
Is it any wonder that home prices are getting further and further out of reach in the GTA not only for our youth but for the vast majority of the people living in the region?
Already today, more and more of our youth, seniors, those on fixed income or social assistance, especially those in hot real estate markets like Toronto and Vancouver, are making some very difficult decisions like whether they can even afford to pay for rent or other things they may need like food, public transit, cloths, childcare, a car, gas, electricity, child care, post secondary education, etc.
All these trends are expected to have some huge implication on the country’s hot housing markets.
As the 2016 census data indicates, “The three biggest metropolitan areas in the country — Toronto, Montreal and Vancouver — are now home to more than one-third of all Canadians with a combined population of 12.5 million, with almost one half living in Toronto and its suburban neighbours, the data shows. Canada is once again the fastest growing country in the G7” source
The reason for this is simple.
To combat the effects of our national declining birth rates, our government continues to increase the number of people it welcomes to our country as new immigrants. As already indicated above, Canada’s population increased by nearly 2 million people or 5.8% from 2011 to 2016 alone.
Given the challenges we now face, we should all expect to see the influx of new immigrants to accelerate faster than ever before. After all, who else is going to pay for our aging population, infrastructure, health and social systems?
In this respect, we as a nation are extremely fortunate. Unlike countries like Japan, Canada remains one of the most attractive places to live in the world. In fact, for the second year in a row Canada has been name the 2nd best country in the world source and the 6th happiest country in the world source.
These are only a few of the reasons why thousands of immigrants from all across the globe continue to flock here every single year.
“The Government of Canada is maintaining its commitment to a strong immigration program and will welcome 300,000 immigrants in 2017”. What’s more economic advisors to our federal government recently recommended that Canada increase even that target 50% higher to 450,000 over the next five years to attract top talent to Canadian companies. source
That’s an extra 3 – 4.5 million or 10% of Canada’s current population every 10 years!
Based 2016 census data, “The three biggest metropolitan areas in the country — Toronto, Montreal and Vancouver — are now home to more than one-third of all Canadians with a combined population of 12.5 million, with almost one half living in Toronto and its suburban neighbours, the data shows.” source
“The Greater Toronto Area (GTA) is projected to be the fastest growing region of the province, with its population increasing by over 2.8 million, or 42.9 per cent, to reach almost 9.5 million by 2041. The GTA’s share of provincial population is projected to rise from 48.0 per cent in 2015 to 52.7 per cent in 2041.” source
This means that well over 37.3% of ALL expected population growth throughout the entire country, at least for the next quarter of a century or so, will be looking to settle in the GTA.
In addition, thousands more are expected to migrate to other municipalities within the Greater Golden Horseshoe and Greater Golden Horseshoe Areas, which today is home to nearly 24% of all Canadians, and this is based on current 300,000 annual immigrant targets set by the federal government.
What happens if the government decides to increase these even further as has already been recommended?
Today, over 108,000 migrate to the GTA alone annually, a trend that can only be seen as accelerating to the upside, and will continue to do so for the foreseeable future.
It is not a far stretch to say that all these new migrants will need a roof over their head. So expect demand for homes to remain red hot for the foreseeable future.
While at the same time supply of housing will not increase overnight. Moreover, neither our federal government nor Ontario government’s recently announced “Ontario’s Fair Housing Plan” has addressed the “real” main drivers of our real estate market in any meaningful way whatsoever and this can only mean one thing for the entire Greater Golden Horseshoe Region real estate markets.
It may come to pass that Ontario’s Fair Housing Plan may have a temporary cooling affect on the market in the short term, and temporary is the active word here.
Over the mid-long term Ontario government continues to address the 800lb gorilla in the room: The massive expected population growth in the region as outlined above will continue to be a driving force of massive demand for housing in the region.
Unfortunately, the supply side of the equation for housing is looking bleak as well.
In 2016 Ontario’s government has place further land use restriction to the original Green Belt Act, 2005 along with the Places to Grow Act, 2015.
The map below illustrates just how both of these pieces of legislation have effectively land-locked nearly the entire Greater Golden Horseshoe Region.
They have done so by the implementation of the world’s largest Greenbelt area to the north with Lake Ontario to the South.
All this in their effort to protect valuable green space, fertile farming lands and in an attempt to mitigate urban sprawl by promoting building up, that is promoting builders to build more condos and other multi-unit buildings, instead of low rise units like fully detached, semi-detached and town homes.
So expect more of the same ever increasing real estate prices across the entire Greater Golden Horseshoe Region over the mid-long term as demand continues to outstrip already anemic supply. This will especially be more acute in the highly coveted supply for low rise homes, which has now been severely restricted for the foreseeable future.
Hence, real estate prices, especially for low rise homes across the entire region, are expected to continue moving higher over the long term. Likely much higher!
If you think that the Greater Toronto Area real estate market is already overpriced and overheated now, then we can only imagine what prices will be like 10 to 25 years from now.
Not surprisingly, unlike generations that came before them, who may already own real estate in the GTA and are somewhat protected only by the sheer luck of already being in the market, our youth today may as well kiss any hopes and dreams of home ownership goodbye, at least for the foreseeable future.
On the other hand, while new home buyers are finding next to impossible to find affordable housing in the GTA, the same cannot be said for foreigner looking at the very same market.
Despite what you may think of Toronto’s “overheated real estate market” you constantly hear about in the news today, Toronto real estate prices are downright cheap, based on price-to-income ratio, when compared to other international cities around the globe, and foreigners are taking notice.
How cheap? Well the saying goes, a picture is worth a thousand words and the following chart is no exception:
Even though locals may feel that prices for Greater Toronto Area homes is currently insane, when viewed internationally, our stable economy and political climate, our stable banking system and our low Canadian dollar still make Toronto home prices look darn cheap and very attractive to thousands, if not millions, of potential immigrants, international investors and buyers alike.
However, what may surprise you is that foreign buyers are not looking to necessarily buy into in our real estate market for the sake of simply investing or parking their capital in one of only a few stable countries in left in the world today.
Instead they actually wish to send their children to school here or move here themselves.
Despite all the hype of foreign buyers and speculators driving our real estate market that has run rampant in the news lately, actual facts fail to support these assumptions.
The Toronto Real Estate Board has recently released this data in respect to the volume of real estate transaction driven by foreign buyers and speculators.
“The number of buyers with a mailing address outside of Canada is well-below one per cent, regardless of the year. Most of these buyers have a mailing address in the United States.” source
Between 2008 and April 2017, the average share of foreign buyers in the Greater Golden Horseshoe was 2.3 per cent. The share was 2.2 per cent in 2016 and 2.6 per cent for the January through April period in 2017. The majority of foreign buyers – 87 to 90+ per cent – purchased their home as a place to live: 91.5 per cent in 2016 and 88 per cent January through April in 2017….” source
“It is not yet clear what impact the measures contained within the Ontario Government’s Fair Housing Plan have had on TREB’s market area or the broader Greater Golden Horseshoe.” source
Yet the media has led most of us to believe that most of those foreign buyers were from Asia and have greatly exaggerated just how much foreign buyers have been a key driver of the GTA real estate market.
Escalating demand, driven predominantly by unprecedented net migration into the GTA and the Greater Golden Horseshoe Region, combined with diminishing supply for housing, especially low rise homes will continue to drive real estate prices higher over the mid-long term.
This will continue to mean that those who wish to live in the Greater Toronto Area will have to pay a steep premium to do so, regardless of whether they wish to buy or rent their homes.
Few who still dream of affordable housing in the GTA fully appreciate that there has now been a permanent structural change to the area’s real estate market, where prices are unlikely to ever come down to any semblance of what is consider affordable by the locals.
This is similar to what has been experience by many international cities, and their respective surrounding areas like, London, Hong Kong, Tokyo, Manhattan, San Francisco, Seattle and Vancouver and yes, now Toronto has joined the ranks as well.
Toronto, including the Greater Toronto Area, has finally come into its own and is now considered a true international city with international city real estate prices to boot.