An economist from one of Canada's Big Five banks said housing affordability issues are now so acute civil unrest is a possibility.
Benjamin Tal, deputy chief economist with the Canadian Imperial Bank of Commerce, said at the Real Estate Forum in Toronto that he could see protests becoming the norm.
"Mortgage interest payments are rising by 31% yearly," said Tal during a presentation. "Why do you think rent is rising? Because people cannot afford to buy, they are renting."
The latest statistics from the Canadian Real Estate Association released this month show the national average home price for all housing classes was $656,625 in October 2023, up 1.8% from October 2022.
Tal said the next federal election, set to take place on or before Oct. 20, 2025, will focus on housing affordability, and the economist said he recently met with federal Cabinet officials to discuss the issue.
"I told them if we don't deal with it effectively, I'm seeing pockets of civil unrest. I'm seeing renter strikes. I see anti-immigrant sentiment. It is starting, you can see the sentiment," said Tal. "We have to deal with it urgently."
The site rentals.ca said in November that average asking rents in Canada hit a new high of $2,178 in October, an almost 10% jump from a year ago.
International Student Concerns
The economist called for an immediate reduction in students from outside the country to reduce demand for housing.
"Make sure there is a link between the ability of the university to house the students," said Tal.
He said government estimates of nearly 1 million international students in Canada could be off by 750,000.
"When the census comes to talk to foreign students, they don't speak to them," said Tal. "One thing we can do is get rid of the Mickey Mouse colleges accepting foreign students. What they are doing is selling Canadian citizenship on the cheap."
In an interview with CoStar News, Tal did not back down on his statement about potential civil unrest. "Housing is a major major issue," he said. "Look at what is happening all over the world. It's not out of the question we could see civil unrest."
During his presentation, Tal blamed much of the affordability issues on the Bank of Canada, which has kept the overnight lending rate at a 22-year high.
The residential real estate market "is facing the biggest test since the 1991 recession," said Tal.
Lower Prices
He noted existing home sales have fallen 41% from a year earlier, and while prices have been mostly unaffected, even with higher carrying costs because of interest rates, those days may be over.
"We are approaching a buyer's market with no buyers, but this not going to solve the affordability issue" over the long term, said Tal, who added that Canada needs to boost the housing supply.
To the commercial real estate audience, the economist noted the biggest issue for them is probably the 10-year bond rate, which affects capitalization rates and valuations of property.
"We are very close to a recession or a mild landing," said Tal. A recent decline in long-term rates "is not a head fake. The question is why it isn't going down even more. It's not enough."
Tal said one issue is the United States economy is still charging ahead based on government spending that is much higher relative to the size of each of the two economies.
If you think Prime Minister Justin Trudeau "is spending like crazy," try President Joe Biden, said Tal. "There are hundreds of billions of dollars being spent there."
He added that the United States "is doing well and preventing 10-year rates from going down. This will all change. Biden will not spend as much next year."
Tal's prediction is that long-term rates will decline in Canada as the United States economy slows, something that he said could take until 2025.