Peter F. Trent: The winners and losers of runaway house prices

Eye-watering increases have served one group exceedingly well: the residential real-estate salespeople.

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Canada has left the other G7 nations in the dust in regard to one measure: our runaway house prices. Since 2000, they have tripled after inflation. The runner-up came in with a mere doubling of prices. Canada’s prices started pulling ahead of the G7 pack in 2013. 

Prices in Greater Montreal have shot up with slightly less velocity. And before Canada’s bubble began in 2000, the average house price in Toronto or Vancouver was already double what we were paying here.  

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While low mortgage rates (remember them?) fuelled some of this rise, there are two factors unique to Canada that help explain our skyrocketing prices: 1) the sudden rise in temporary and permanent immigrants, and 2) an anemic number of housing starts. 

In 2001, on the island of Montreal and not the whole region, the average house was assessed by the city at $170,000 and the average condo unit at $97,000. In today’s dollars, that’s $270,000 and $154,000. Well, the average house is now assessed at $840,00 and the average condo unit at $492,500. Just like in the rest of Canada, that’s a threefold increase in value after inflation. 

Despite this, single-family houses might continue to appreciate for want of new house construction. One-third of Montreal Island dwellings are apartments, one-third “plexes,” one-sixth condo units, and one-sixth houses. These houses — mostly located in pre-merger suburbs — occupy half the Island’s residential land.   

This explains why land represents 45 per cent of the value of Montreal Island’s average house — but only 19 per cent of a condo unit. And land appreciates while buildings relentlessly depreciate.  

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In 2022, 90 per cent of new dwelling starts in Greater Montreal were condos, many of them highrises. Mind you, the 30 per cent increase in the cost of low-rise housing construction during the pandemic didn’t encourage that building form. And in 2023, Greater Montreal housing starts slid 37 per cent. 

Now, one group did exceedingly well by eyewatering house-price increases: the residential real-estate salespeople. Because realtors charge a fixed percentage of the value of something, when that something soars in price they become the unmerited recipient of a huge spike in income. No increased brainpower, stress or hours worked was involved in capturing this descent of manna from house heaven.  

In a fair world, if real selling prices of houses triple over two decades, the sales commission percentage should be cut by two-thirds. Yes, the traditional Canadian five to six per cent commission shared by buyer’s and seller’s agents may have been shaved to four to five per cent today — plus sales taxes — but that’s about it. 

There is a Canadian class-action legal suit modelled after a recent $418 million U.S. settlement relating to real estate commissions that might bring commissions down somewhat. Meanwhile, in the U.K., Netherlands and Sweden, real-estate agents charge less than two per cent.   

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It is true that Montreal homeowners have also been enriched by the housing bubble, but keep in mind Montreal housing prices struggled just to keep up with inflation from 1980 until 2001 — during which two decades realtors somehow put food on their table earning some $15,000 (in today’s dollars) when selling the average house.  

The swollen number of Canadian realtors profiting from today’s astronomical house prices constitutes an industry unlikely to co-operate in getting prices down. Asset bubbles are heightened by a greater frequency of transactions driven by buyers’ fear of missing out. This increases both the number and quantum of realtors’ commissions.  

Meanwhile, a whole generation of Montreal families has been shut out of the housing market owing to unaffordability; many of them have to rent or have upped sticks to cheaper off-island municipalities. Like our G7 friends, they can only scratch their heads as they watch the gilded Canadian house caravan pass them by. 

Peter F. Trent, a former inventor and businessman, served five terms as mayor of Westmount and led the Montreal demerger movement. His Merger Delusion was a finalist for the best Canadian political book of 2012. 

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