Toronto’s Boom-Bust Housing Market: Has the Government Done Enough?

Screen Shot 2017-09-03 at 2.32.47 PM.png

My research is all about the impacts of boom and busts on local economies and governments’ responses to it. Usually I focus on places farther away – natural resource communities – but it’s hard not to notice what is happening outside your front door: Was Toronto’s housing market a bubble? Has it popped or deflated? The media has a fascination over that question as can be seen hereherehere, and many more. Anyone who acts like they know for certain is selling something. The experts, economists and major government entities, admit they don’t know. But here is what I do know: it is a perfect example of the boom-bust framework. A hangover of uncertainty is a classic sign of the boom-bust framework in action.

Government Responses:

The government’s recent actions were to cool down the housing market to make it more affordable. And it’s been a success... so far.

  1. Signaling. Irrational exuberance can be stopped by powerful technocrats warning of dire consequences. CEO Evan Siddall of Canada Mortgage and Housing Corporation (CHMC) – the public entity responsibility for regulating the housing market with the dual goals of promoting homeownership while maintaining financial stability – expressed concern about the level of indebtedness Canadians are taking on to purchase homes. The Bank of Canada Governor Stephen Poloz has issued a warning about the “unsustainable” rise in Toronto real estate prices, but stopped short of referring to it as anything but reflecting job and population growth. This makes lenders wary of who they are lending to and for how much.
  2. The federal government has tightened house lending rules by (a) introducing tougher requirements to qualify for a mortgage and higher minimum down payments, (b) increasing reporting requirements to catch tax-dodgers, and (c) tightening rules on mortgage lenders including more stringent stress tests.
  3. The Bank of Canada recently raised the overnight interbank rate by 0.25 percent – the first time in 7 years – and signs are pointing that another raise in the rate is on the way in a few short months. The relationship between this and borrowing rates is indirect, but it does mean that the price of borrowing (e.g., mortgage rates) is going up. When borrowing is more expensive, people can afford to bid less on housing – that is, unless they are paying cash.
  4. The Ontario (provincial) government recently passed a series of reforms into law intending to make housing more affordable for residents. This includes (a) expanding rent control policies to cap how fast rent can be increased on current tenants and further protections for them from being unduly evicted; (b) creating new policies that would expand housing supply by expediting condo approval near transit nodes, promoting greater infill development, and investing in government rental housing; and (c) placed 15 percent tax on foreign homebuyers to ensure that residential units are homes for locals foremost instead of a financial investment for those living abroad. 

Putting it into context:

The cool down makes it look a lot like boom-bust framework is at play.

  1. Irrational exuberance was at work. Toronto’s housing prices rose far more and far quicker than anyone expected. Despite expectations and predictions of a bubble bursting, housing prices continued to climb for over a decade and even accelerated over the last few years. Though whether it was a bubble or not is still in doubt, no one in their right mind argued that it was economically sustainable. A few went overboard – Toronto exceptionalists – comparing the city to global hubs of London or New York.
  2. Booms have their downsides. The consequences of a boom include low-income families being gentrified out of their homes by rising rents, middle-class families who find buying their first home farther away with each passing year, and even those who can afford to buy must enter bidding wars where success is dependent upon unconditional offers – asking for an inspection is a deal-breaker and even seeing the house in-person might be too much to ask.
  3. Booms are followed by busts. Let’s be clear what a bust is: a slow-down in investment that causes a drop in prices as irrational exuberance gives way to reality. This does not mean a 50% drop in prices or a recession is on the way (it could, but I am not in the prediction business). This short-term drop in prices hammers those who are overleveraged at the peak. Bankruptcies mount as creditors seize and sell-off the assets of their borrowers. Supply increases as demand falls. Uncertainty of when conditions will change perpetuates the cycle further.
  4. There is a reallocation of money and assets. In other words, the geography changes. Investors (in this case, homebuyers) now have a lot more choice in where to place their money. They will critically evaluate their options and choose those they think are the best prospects for the future. This means that there will be places that continue to rise and places that decline.

 

In my research, rural regions tend to take the brunt of the bust while cities – and particularly their cores –  tend to do better. If that trend holds here, don’t hold your breath for a cheap downtown condo. But now is a good-time to buy on the outskirts. Want to buy near a main transportation hub? Those prices are still (likely) going up.

Prices are still high and unaffordable for many. Has the government done enough? Should it do more? Post in the comments below!


Blog entry written by Austin Zwick, PhD Candidate in Planning

http://geography.utoronto.ca/profiles/austin-zwick/

Advertisements

Canada Ought to Ban Thermal Coal Sooner Rather than Later

Thanks to an open letter from BC Premier Christy Clark, Justin Trudeau is seriously considering banning imports of thermal coal from the United States in retaliation for Trump’s tariffs on softwood lumber. Even if a solution is found for the lumber industry, Canada ought to ban all imports of thermal coal anyways. If the Prime Minister wanted to make a bold environmental step forward, he would release a detailed plan to mandate the phase-out of coal for electricity generation in line with his well-publicized goal of doing so by 2030. Pushing the target date up to sooner rather than later would be even better.   

What is thermal coal?

Coal is a fossil-fuel rock that is made up of mostly carbon, remaining portions of water, air, hydrogen, and sulfur. Coal is often intermixed with additional impurities which cause significant damage to the local environment as well as a leading source of greenhouses gases. Gases released during burning include carbon dioxide, hydrogen sulfide, ammonia, nitrous oxide, and sulphur oxide. The last two are the cause of acid rain, while nitrous oxide is 300 times more potent of a greenhouse gas than CO2. Additionally, burning it releases coal ash into the local environment and often includes trace amounts of toxins including lead, germanium, arsenic, and uranium. The David Suzuki Foundation points out that, “Air pollutants from coal plants are known to produce heart and lung diseases, aggravate asthma and increase premature deaths and hospital admissions. Coal plants are also a significant source of mercury that is harmful to children exposed during pregnancy and in early life.” This has lead health and environmental groups, such as the Pembina Institute, to call for Canada to completely phase out coal for electricity generation by 2030. A call that Trudeau answered.

unnamed

But this call was not to completely phase out coal completely, but rather thermal coal specifically. As on the chart shown on the left, there are four main kinds of coal: lignite, sub-bituminous, bituminous, and anthracite. Lignite to low-grade bituminous is used exclusively for electricity generation, known as thermal coal. This more plentiful kind of coal has a lower carbon content and more impurities, making it the most environmentally damaging. High-grade bituminous coal is known as coking coal, which is used to produce coke – a key input in steel production. Anthracite, the rarest of coals, is very high carbon and burns much cleaner compared to other coals. It’s prized for its minimal impurities and therefore used almost exclusively in industrial production.

Canada and Coal

Canada has the fifth largest coal reserves in the world and produces nearly at nearly 10% of the world’s total. In 2010, Coal mining contributed $5.2 billion to Canada’s GDP including employing more than 42,000 people either directly or indirectly. This accounted for 14% of total mining employment.

But the coal is not evenly distributed throughout Canada. Almost 90 percent of the reserves are in western Canada (Saskatchewan, Alberta, British Columbia, and the Yukon) with the remaining 10 percent in Nova Scotia. Coal makes up 13% of Canada’s electricity production overall, but 74% in Alberta, 73% in Saskatchewan, and 60% in Nova Scotia. Many Canadian provinces do not use coal at all, including Quebec, Prince Edward Island, Newfoundland and Labrador, Nunavut, Northwest Territories and Yukon. Ontario recently completed a phase-out of coal in 2014, yet the cost of doing so made the price of electricity rise by 70 percent in the processwhich has been a source of political flak to Premier Kathleen Wynne.

The Trudeau government should be commended for making it a national priority to eliminate coal-fired power plants by 2030. But his process of doing so was to negotiate deals with individual provinces under a broader climate change framework. These agreements, not only allow for exceptions, also lack concrete details as well as a dedicated funding source – besides loans from the Infrastructure Bank – to make the transition. This is problematic as future provincial governments may pull out due to political pressure caused by either local job concerns or rising electricity rates. The deal has also been criticized as insufficient for Canada to meet its goals set forth in the Paris Climate Accords.

Why did Christy Clark write that letter?

Even if Trudeau doesn’t ban thermal coal imports because of the softwood dispute, Christy Clark wants to tax the thermal coal industry to death. BC produces very little thermal coal (unlike other Canadian provinces), it’s natural endowments – and correspondingly, its production – is overwhelmingly coking coal. This higher-grade coal is destined for steel production is East Asia, mostly China. BC does not allow for burning coal for electricity production anyways.

Eighty percent of all of Canada’s coal exports – from BC and the other prairie provinces – are shipped through BC’s four shipping terminals (three are outside of Vancouver, and one is to the north in Prince Rupert). American coal companies use BC’s ports to access these East Asian markets as well, because American ports lack the capacity to meet East Asian demand. As the United States moves away from coal – more due to it no longer being price competitive against natural gas from fracking, not environmental regulation –  coal companies cite port expansion as a necessary lifeline to their declining industry. But West Coast states have continued to deny American ports the permits to expand based off of environmental concerns.

By banning American imports, it would achieve two objectives: (1) it would decrease port prices for BC coal, making BC’s coal more price competitive overseas while at the same time serving a fatal blow to American coal companies; and (2) by doing so, it would take some of the most environmentally damaging coal off the market, which would make a small dent in decreasing global greenhouse gas emissions. Speeding up the timeline on eliminating coal-fired power plants from Canada’s energy mix – along with providing a funded, concrete plan to do so – would be the next bold step.

Graphic source: http://history.alberta.ca/energyheritage/coal/early-coal-history-to-1900/global-coal-formation/coal-properties.aspx

Blog entry written by Austin Zwick, PhD Candidate in Planning

http://geography.utoronto.ca/profiles/austin-zwick/

Numbers Don’t Lie. SSE Literally Worse than Doing Nothing

When the city staff report on the Scarborough Subway Extension (SSE) came out two weeks ago, headlines focused on how the price tag had risen to the point of exceeding the $3.56 billion dollar funding envelope for the project.  What should have received more attention is the dramatically falling projected ridership numbers, especially when those numbers are put into context: the SSE will carry fewer people than the Scarborough SRT does today. Worse yet, the SSE offers no comparative advantage over doing nothing at all.

Looking at on-going studies conducted by the City of Toronto (2016; 2017), as well as past ones conducted by the TTC (2006) and UofT (2015), a clear picture of our transit options emerges. For the same cost of the SSE ($3.56B), the city could build the Sheppard East LRT ($1.70B), the Eglington East LRT ($1.13B), the Scarborough SRT Retrofit ($0.43B), and still have $300 million leftover.

The SSE builds 1 new stop while closing 5 and therefore nets minus 4 stops to the system. Whereas the combination of the three projects builds 43 new stations and leaves all current SRT stops in place. The only downside is that the SRT will be temporarily out of service for only 8 months while it is renovated, but it will be usable once gain for at least the next three decades. Additionally, studies show that the LRTs provide 1.5 times as much redevelopment and intensification opportunities throughout Scarborough than SSE does.

The future Eglington East LRT (43,400) and the future Sheppard East LRT (35,800), as well as the current Scarborough SRT (40,010), will each serve more people every day than the SSE (31,000) at a fraction of the cost. This is worth repeating: the SSE will carry fewer people than the Scarborough SRT does today. Mayor Tory is currently asking the city’s taxpayers to spend $3.56 billion dollars to serve 9,000 fewer people than what the current system serves. The SSE route would not even be in the top 10 busiest surface routes in operation, a far cry from the necessary ridership for a subway. Toronto is literally better off doing nothing, riding the SRT until the wheels fall off and then using buses afterwards.

It’s time to change course. Let’s build Scarborough the world-class transit it deserves: a network.

Studies:

Scarborough Subway:

(2017 City of Study Study)

Eglinton East LRT

(2016 City of Toronto Study)

Sheppard East LRT

(2015 UofT Study)

Scarborough SRT Retrofit

(2006 TTC Study)

Cost: Scarborough Subway: $3.56B

Total: $3.56 Billion

Eglinton East LRT: $1.7B

Sheppard LRT: $1.13B1

Scarborough SRT Retrofit: $430M2

Total: $3.26 Billion

New Stops: Scarborough Subway: 1

Total: 1

Eglinton East LRT: 18

Sheppard LRT: 25

Scarborough SRT Retrofit:  0

Total: 43

Typical Weekday Riders: Scarborough Subway: 31,000

Total: 31,000

Eglinton East LRT: 43,400

Sheppard LRT: 35,800

Scarborough SRT Retrofit: 40,0103

Total: 119,210

Notes:

$1B in 2010 dollars, adjusted for inflation using the Bank of Canada CPI Calculator

2 $360mil in 2006, adjusted for inflation using the Bank of Canada CPI Calculator

3 Assumes no ridership change from present


Blog entry written by Austin Zwick, PhD Candidate in Planning

http://geography.utoronto.ca/profiles/austin-zwick/

Revival of the Terra Firma

We are excited to announce the revival of the Terra Firma (GGAPSS publication) in the form of an online blog! We will be posting a variety of blog entries to facilitate the sharing of ideas, experiences and resources among grad students. All graduate students in the Department of Geography and Planning are welcome to submit blog entries on any of the following: Graduate research (including fieldwork experiences), conference experiences and recommendations, comps experiences, coursework to share, personal opinion pieces, research groups and community involvement, Toronto life, and student life.

Wondering why you should submit an entry? Read this post by Melissa Fong from 2012 on the benefit of blogging during graduate studies.

Please note that blog entries will be reviewed before posting and we request a word limit of 800 words.

Links to external involvement and media are welcome.

Please feel free to e-mail ggapss@gmail.com with any questions or alternative entry topics, and to submit blog entries anytime.

We look forward to reading your blog entries!

Statement on the potential CUPE 3902 strike

In light of the potential strike by member of CUPE 3902 Unit 1, members of the Department of Geography and Program in Planning came together in the past week to discuss how the possible labor action would impact our department as a whole. We’ve worked hard in Geography and Planning to create a supportive and more democratic culture, so we wanted to make a collective statement for department members to sign that acknowledged the different roles we all occupy in the university as well as the different inequalities we face. Our statement is a commitment to supporting each other, improving the lives of people in our department, and keeping dialogue open in what could become a contentious and divisive labor action.

We encourage other departments to talk about the strike and write your own statements of solidarity. We welcome you to use as much of our statement as works for your department.

If you are a member of the department and wish to add your signature to our statement, please visit: http://goo.gl/Tl1i6p

If you are not in the department you can view our message here: http://goo.gl/7EgPFO

Please share widely!