That's driven by the farmland bubble. Southern Ontario farmland prices are up 700% since the mid-2000s, which has priced urban sprawl out of the market. With Toronto (i.e. the cities around the City of Toronto) unable to expand like they once were able able to, that has increased buying pressure on the land that is already within the city limits, thereby also driving up the cost of housing in those cities.
While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases. The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
>The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
Why is farmland in those areas so sought after? Were canadian farmland historically underpriced? Is the land just really good farmland? Are speculators buying it because of global warming?
1. High prevalence of supply managed (dairy, poultry) producers. These farmers are effectively guaranteed a high income through policy. Said income provides a lot of room to buy land with.
Further, the way into these sectors is to buy what we call quota. Dairy farmers in Ontario imposed a price cap on quota back in 2006 in an effort to make it accessible to young farmers. While the fair market value of quota has likely doubled in the meantime, the maximum price you can pay is what it was in 2006. This means that there is even more cash floating around, that historically would have been tied up in quota purchases, in which to buy farmland with.
2. Increased profitability in agriculture in general. The US ethanol subsidy program of 2007 set the stage for significant increases in the price of field crops. As that program winded down and prices were coming back down, the US midwest got hit with three major weather events over the intervening years that decimated their crops, boosting prices again for those who had one. Not to mention that the US Farm Bill has been modified over the years to be more favourable to foreign countries like Canada.
Do you think the legalization of marijuana has had an impact? I visited a cousin in Windsor back a few months before legalization hit, and the surrounding farmland was experiencing a huge boom in greenhouse construction, I assumed to house marijuana grow operations.
very interesting observation. I live in Toronto and it's the first time hearing about this. Can you point to any articles about farmland preventing urban sprawl?
It's interesting because back in the 2000's that was the main talk about how Urban Sprawl was going to ruin everything!
This isn't true. Costs of housing have spiralled out of control outside of Toronto and Vancouver -- here on Vancouver Island in Nanaimo the house I built in 2018 for $950k is now worth near $1.5M. Up 20% in the past year. It's nuts.
>While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases
Kelowna? Calgary? Halifax? Are those places being driven up by farmland demand?
I've been looking to buy in the Toronto are. Prices are up 15% since November. Houses that had comparable sales of $850k in November are now going at around the $1M mark. I don't know how that rise is sustainable.
Lol exactly. I don’t wanna tout who has the most expensive houses but Prague and Brno win with the average wage / price ratio. I’m already remote for US company and still cannot a flat here due to abysmal central bank rules.
Interestingly, Warsaw is much more affordable. They also build a lot more condos there. AFAIK around 100 000 new housing units were built in Warsaw in span of just 5 years. That pushes the prices down.
In Poland there is anew term called pato-developer, from patological developer. Patologia is a common derrogative for something not good.
The pato-developer thing comes from the fact that many of these new apartment complexes often make huge compromises on quality or amenities. A common complaint is very thin walls or apartments with windows facing a few meters from neighbors. Search in youtube for pato developer and you will see some really comical videos.
It is very not ideal, but even so it provides a huge pressure relief on housing demand and kind of allows young people the ability to afford something to start a family. Real estate is even so often used as an investment but I think with the current interest rate hikes the crazy valuations on the main cities will come down.
Aren’t the rates fixed? If not then it’s a fairly ridiculous trade to take on. If no one has a fixed rate then without massive inflation any kind of interest surge will decimate the country.
If that is the case, then banks in US are taking the same "ridiculous" trade by offering fixed rates to almost everyone, and will be decimated by any kind of interest surge.
It's not clear to some countries stick almost exclusively to fixed rate mortgages, and others stick almost exclusively to variable rates, but the people in "variable rate countries" have saved a lot of money historically.
Banks package the loans into bonds which are then sliced up and sold to investors. Banks aren’t really in the speculation business as much as the underwriting business when it comes to mortgages.
Fixed rates are always a better option for the person borrowing the money as you can refinance if rates go lower, lowering your monthly payment.
Variable rate loans are far more regulated for a reason.
> Fixed rates are always a better option for the person borrowing the money
Check how variable rates and fixed rates have compared over time
Basically, the "fixed rate" very rarely was smaller than the floating rate.
Banks know how to calculate the rate ceiling and you're rarely going to win by betting against it. (Why would they risk borrowing it at a smaller cost than the given interest rate at a given time?)
Sure there's a risk of interest shock, that risk is not zero. You can mitigate it by a) not buying something overvalued and b) having a big enough downpayment
The standard mortgage in Canada has a five-year term, amortized over 25 years. You generally cannot lock in a low rate for 30 years the way you can in the United States.
Yeah, but on the other hand, black swans. We're navigating into uncharted territory and it feels a bit like 1929. And this time we're much more interconnected.
And the thing is, maybe it would be better to blow off some of that steam in small bursts than find our <<after>> that 2 days ago was the point of no return.
That is true for properties that are valued at less than 1mil. And you have to pay mortgage insurance. For properties that are >= 1mil, you have to put 20% down.
While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases. The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.