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Market Squared: Guelph and the House of the Rising Sum

In this week's Market Squared, Adam tackles the challenges of living in a hot housing market (and considers getting some ice cream to make himself feel better)

When is being number one, not the greatest thing ever?

That’s a profound question, because being the best is supposed to be the pinnacle. If you are the best, then you have no other equal — whether you’re an Olympic gold medalist, Oscar-winner for Best Picture, or the Guinness World Record Holder for most Peeps eaten before barfing.

But being the best ain’t all it’s cracked up to be. The City of Guelph knows something of this.

Last week Moneysense magazine called the Royal City the best city to buy real estate in. Finally, we defeated Thunder Bay, and ground them under our red hot real estate! Like a Wicked Witch in Oz!

Our victory was heralded in this and other media outlets, and our mayor was a special guest on Breakfast Television. But it seems though that, like any great dinner party, the cheque has come due.

It was a very different tone that Cam Guthrie set in an interview with Amanda Lang on Bloomberg TV, a warning wrapped in the congratulations of others and town pride.

The warning was even embedded in the original Moneysense article too: “Homes in Guelph go for about $441,000, which is more than four times the average household income,” it said. “Relative to markets like Saint John, Thunder Bay or Moncton, this Southwestern Ontario city certainly isn’t cheap, but in the shadow of Toronto, this is what passes as affordable.”

“Passes as affordable” is relative. If you work three McJobs to have just enough money at the end of the month to be broke (to borrow a line from a Chris Rock movie), then $60,000 short of half-a-million is very not-affordable.

Statistics can be read a couple of ways, and I think thing Moneysense article is misleading in at least one regard. “Real estate investors looking in this market will appreciate how tight the rental market is in the city,” the article explained. “Rents have risen 20% over the past five years while they city’s vacancy rate is below 1%, meaning investors should not have to work very hard to find a tenant.”

To look at this another way, if you’re looking for somewhere with affordable rent that isn’t a dive, you have to work very, very hard indeed.

Moneysense, in their study, bought into a number of these kinds of Guelphisms. The low unemployment being another.

Sure there are a lot of jobs in advanced manufacturing companies, green tech firms, government and education. For people with those jobs, you need to find a house that will stay in the $440,000 range without some guy from Toronto (who just sold his Etobicoke home for over a million) outbidding you sight unseen.

Even more competition lies for those in unskilled labour and service industry jobs (AKA: jobs that aren’t going to let you save for that $440,000 house).

Let’s keep in mind too we’re talking about market value, and as it’s becoming abundantly clear, there’s a very big difference between market value and affordability when it comes to real estate.

The City has spent the last couple of years building an affordable housing strategy, and a big portion of the public engagement on that was drawing a distinction between affordable housing and housing that the majority of people can afford.

There’s still one problem on top of that though, there are more buyers than houses.

This is the paradox of recent attempts to cool the housing market at all levels of government as discussed at a meeting between Federal Finance Minister Bill Morneau, Ontario Finance Minister Charles Sousa, and Toronto Mayor John Tory. You can raise interest rates, you can charge vacancy taxes, you can impose new fees and levies, but the simple fact of the matter is that there’s more interest than houses.

This has been the unspoken issue for a while, and one that was made evident to me in a podcast I did last fall with three local realtors. They knew the frustration of trying to work with people to get their starter home, or their dream home, in a “red hot housing market.” Many were longtime Guelphites looking to solidify their roots only to see their scrimping and saving and idealism blown apart by Toronto buyers that are like music video rappers, “making it rain” by going $50,000, $100,000 or even $200,000 over the asking price.

The other vexing part, as Mayor Guthrie mentioned in his Bloomberg interview, is that there are still too many people that want the white picket fence and big backyard and are basically willing to pay as much as they possibly can to get it. Meanwhile, cities and towns all over Ontario are operating under the constraints of places to grow, running out of room to grow out and are now being forced to grow up. And you can’t have a backyard on the ninth floor of a condo building.

So what are we to do? Well, like a lot of our problems, it’s too complex for simple, immediate solutions. This won’t be solved in a day, with a simple act of council or some other level of government.

Would it help if we built more houses? Yes.

Would it help if we made sure that people weren’t overly relying on real estate as a place to park their money like a 3D hedge fund with a street address? Couldn’t hurt.

Would it help if we went to the Boathouse for some ice cream? I doubt it, but this stuff is heavy and we could all use a treat.

At issue is perhaps something that nobody’s really talking about yet, and that is the idea that the era of saving up to buy that single-detached home as a benchmark of adult success and achievement is over. You’ve heard of “Peak Oil,” well perhaps there’s such a thing as “Peak Subdivision” in Southern Ontario.

The day is coming when there will be no more land to build on, and when that day comes will we fight for last patches or personal Earth as the rich add more and more zeroes to their bids? 

These are just questions. Part of the housing issues we face now are all about the one end of the matter: how do we make it more affordable for people to buy?

But should we not be taking a more holistic approach? Does it make sense that everyone that wants to be a homeowner? Ot that they should be a homeowner?

One of the unintended consequences of the housing crash in the U.S. in 2008 was that many people questioned their need to own a home in the first place.

If we are indeed perched on a bubble, it would a shame if some Ontarions were “gifted” with the same hindsight.