Could Working At Home Reset Canada’s Real Estate Markets?

Written by Posted On Tuesday, 26 May 2020 05:00

In March, about 4.7 million Canadians who do not usually work from home did so because of the COVID-19 pandemic, says Statistics Canada. When those who usually work from home are included, four in 10 workers or 6.8 million people worked at home, while an almost equal number worked from locations other than home. About two in 10 workers were absent from their jobs, with 2.8 million not working for reasons related to the pandemic.

Working from home is certainly not new, but for many companies and institutions, the pandemic showed that it can be done and has certain benefits – the need for less office space being a prime reason. And while working from home isn’t something everyone can do; some believe the practice will become much more widespread after the current crisis has passed.

What could this mean for Canada’s housing markets?

“Rural locations could draw increased interest for a few reasons,” wrote BMO senior economist Robert Kavcic in a recent commentary. “First, the move toward remote work could open up an affordability valve by allowing households to settle beyond commuter-friendly (and increasingly expensive) locations. Also, densification has been the norm in many regions over the past decade, but the current experience could alter preferences, placing more value on large lots and rural settings. This shift would likely be incremental, but noticeable for smaller communities.”

Statistics Canada says most of the job losses from the pandemic have been in the sales and service occupations, where face-to-face working make it impractical to work from home.

“In contrast, employment was little changed in several broad occupational categories for which previous Statistics Canada data suggest telework is more feasible, including management, natural and applied sciences and business, finance and administration,” says the agency.

“Those who do not normally work from home but did so (during the pandemic) were much more likely to have a bachelor’s degree or higher (58.4 per cent) than those who had continued to work outside the home and those who were absent from work. This provides further evidence that working from home is more feasible for workers employed in professional or managerial occupations, which typically require higher levels of education.”

If they are able to work from home, many of these employees may be happy to “drive until they qualify” to outer suburbs or smaller communities.

While many analysts, including Kavcic, believe that real estate prices in the cities will bounce back once the pandemic is over, others are not so sure. 

Benjamin Tal and Katherine Judge, economists at CIBC Economics, wrote, “as the fog clears, we expect to see average prices five to 10 per cent lower relative to 2010 levels.” And the CEO of Canada Mortgage and Housing Corp., Evan Siddall, says the agency is forecasting a decline of nine to 18 per cent in the coming year.

But falling prices won’t make it easier to buy a house. Siddall, who before the pandemic was leading the charge against homeowners adding more debt, now says the high number of deferred mortgages, combined with increased unemployment and declining house prices, “is cause for concern for Canada’s longer-term financial stability.” He hinted that CMHC may recommend increasing minimum down payments for insured mortgages from five to 10 per cent.

“The shock is likely taking an enormous toll on the next cohort of first-time homebuyers, whose ability to save for a down payment has been impaired,” says a report by RBC Economics.

But moving to the suburbs or a smaller community might not just be for financial reasons. In recent years, city condos have been getting smaller as demand for downtown homes increased. The idea was that young homeowners didn’t spend a lot of time in their condo as they enjoyed the amenities of the city. But with the city essentially closed down during the pandemic, spending much more time in the small condos may be less appealing.

Cities like Montreal, Toronto and New York were the hardest hit by COVID-19, with some blaming the density of those cities for the spread of the virus.

“The idea is powerful. But it’s wrong,” wrote the Globe & Mail’s architecture critic Alex Bozikovic. “In several of the places where COVID-19 has hit the hardest, early studies suggest that dense urban living is not the culprit.”

He says in the New York area, it was in the suburbs rather than Manhattan that had the largest rates of infection.

Bozikovic says those who point to density as the problem are confusing density with overcrowding. If you have your own condo or apartment you can stay safe, he says, but some people have inadequate housing and must share cramped apartments and rooming houses.

Demand for downtown condo projects may wane post-pandemic, as a combination of lower employment, less immigration to the cities and fewer foreign students reduces demand. Tal and Judge say “there is a real possibility that some developers might choose to stall new site acquisitions in anticipation of discounted deals and opportunities following the crisis. We expect this trend to be more visible in the condo space in most major cities, with a number of project cancellations likely to be announced.”

But no one is predicting a total collapse of the market. In Toronto, a recent survey by Ispos Reid for the Toronto Regional Real Estate Board found that home-buying intentions have remained “quite stable,” suggesting that there is pent-up demand and many people will be looking to buy a home once the recovery begins.

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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