A recent article in the Globe and Mail imagines what would happen if Canada’s housing market doesn’t collapse, but instead, continues to rise.
To understand what that future would look like, the Globe says we should consider Australia, a country in which the average house costs 6.7 times what the gross annual median household income is. (In Canada, the average house costs 4.5 times the median.)
Not surprisingly, homeownership in Australia has become elusive to people outside the highest income brackets, particularly those living close to larger cities.
“As Australian housing prices have climbed, new buyers are increasingly choosing more modestly priced condominiums over single-family homes, and developers are obliging by increasing the stock,” the Globe and Mail article explains.
“For the three months ended September, 2012, 35 per cent of new housing construction in Australia was in multiple units, up from 29 per cent five years early and 21 per cent two decades ago. It is sort of a New York or London-type shift. In those cities, no one but the very wealthy can reasonably expect to buy single-family homes in or near the city core, so development is concentrated in multiples,” the piece continues.
So, will development increase with the prices? The Globe points out there is certainly room for it in Canada. Toronto, the country’s most populous city, has only 945 people per square kilometre, compared to Sydney, Australia, which has 991 people per square kilometre.
But there has been concern in places like Toronto, that Canada’s condo boom has already been too pronounced – that speculators have bid up prices too much and that supply may be increasing too quickly.
“That may be true, although the Australian case would argue against it,” the Globe article reads.
“In Toronto, much of the building seems to have been in smaller units, and it could be that there has been some overbuilding in units catering to singles or small family units (although demographics would argue for long term demand for smaller units). In the Australian case, however, the new building seems to also include townhouses, which presumably cater to larger households.”
The Globe and Mail says that if housing prices keep rising, then new buyers are going to have to make increasingly difficult decisions – like commit to living further away from city centres.
“The other choice is to embrace the idea of less space and stay in the city. If more buyers go with the latter choice, the downtown building boom may have only just begun,” the article concludes. More micro-units, perhaps?
For more on this, make sure you read the Globe and Mail article in its entirety here.