The Effect Of Policy Changes In Real Estate
Written by Guest Author: Ronald A. De Coteau
In 2022 the housing market saw seven interest rate hikes and two major housing policy bills to address inflation and the current housing supply crisis.
While there seems to be economic uncertainty among home buyers and real estate investors, the truth remains that real estate investing is still a core part of wealth generation for many Canadians.
There are news articles suggesting that 1.6 trillion dollars of Canadian household wealth will evaporate. In my opinion it is a transfer, rather than a wipe out and you should get on the right side of the ledger. This wealth depreciation is mostly tied up in Real Estate loss as a result of interest rates hikes.
Interest rate hikes began in January 2022 and as of December 2022 it continues to decrease the buying power of potential new homeowners coming to Canada.
Here are some of the things that are outside of your control with regards to building wealth and real estate:
Immigration Policy
Compared to other G20 nations, Canada has one of the lowest population per capita at 3.9 per km versus the United States which is about 36 per km. That is about to change with immigration policies that are designed to welcome hundreds of thousands of immigrants into the country in the next few years. In fact, in July it was recorded that 492,984 immigrants were welcomed in Canada. This type of interest in Canada will have the effect of increasing demand for housing.
Monetrary Policy
Following the pandemic all nations with vibrant economies around the world including Canada began increasing interest rates to combat inflation. This also has the effect of cooling the housing market as interest rates impact how much property future buyers can afford. Also as an unintended consequence of the battle between interest rates and inflation, rents increase as home ownership becomes a distant reality for would-be purchasers.
Housing Policy
Policies surrounding housing supply is an important mandate given that immigration policies have outpaced housing policy for decades. Not to mention that most cities are not building sufficient housing to sustain the population growth because of exclusionary zoning policies designed for a laborious planning and permit processes of a past era.
Despite all these policy changes that are outside of your control, here is what you can do to ensure you secure your retirement through property ownership.
- Purchase a home that can also serve as an income generating asset. Many cities have now included provisions within their local bylaws that will allow for the creation of rental units. Though a rental unit may seem daunting, working with the right team of professionals can certainly make this a breeze.
- Educating yourself on how to use your home as a wealth generating tool can secure your family's future by creating financial freedom. For example, after owning your home for several years there is a possibility of refinancing your home and purchasing another property that can serve as a rental unit.
- Be patient when you purchase a property and never sell unless you intend to invest the processes of the sale into another property, this is a wealth preservation strategy used by everyday millionaires.
The provincial and municipal governments are doing its part in making it possible for families to remain in home ownership despite the higher mortgage payment.
Here are how housing policies in 2022 have changed the way that properties can aid in short term retention and long term wealth generation for the population.
- Existing property owners and new home buyers can create an income stream by adding additional residential units to their primary dwelling “as of right”, by retrofitting an existing detached garage into a rental unit. In some cases, these additional residential dwelling units are suitable accommodations for a student returning home from college, an adult downsizing, a residence sharing with relatives, or even elderly that need long term love and care from family. In other cases, these additional residential units are being used as an income generating asset by families to generate wealth, which can take the form of a long term or short term rental (eg. AirBnB).
- Often gentle identification is associated with a single family dwelling when it is converted into a two unit dwelling or even a three unit dwelling. If there is a detached garage on the property it can also be converted into a “garden suite”. In any of the above cases these properties are often viewed as more valuable assets by the bank and can’t be refinanced at a higher value.
2022 came with many changes that worked for but also against homeowners and real estate investors. The silver lining is that if you own property you should keep it and if you don’t you should acquire it, because it will aid in the generation and retention of wealth in 2023 and beyond.