Financial Post, June 21, 2016 –
Housing gridlock — that’s what realtors call it. Affordability issues leave you stuck in your existing home, but looking for a better living space.
About the only move left for Canadians demanding a better home has been to renovate the one they have, which has led to record levels of spending on home improvement. A new survey from Canadian Imperial Bank of Commerce out Wednesday suggests that Canadians are now turning their attention to landscaping — a renovation that doesn’t do much for the appreciation of home values.
The findings from the bank might be another clear sign that Canadians are settling into their current houses because of the state of the market, which is increasingly being choked by a lack of affordability.
“The shift in focus from indoors to outdoors is surprising,” said Barry Gollom, vice-president, mortgages and lending, with CIBC.
Between May 19 and 25, 2016, Angus Reid surveyed 2,129 people online about their renovation plans. The top project was basic maintenance, cited by 54 per cent of respondents, down slightly from 55 per cent in 2015. The big jump was in landscaping, with 42 per cent of respondents planning some type of project, up from 25 per cent a year ago.
Gollom said “landscaping, patio and deck,” is a growing phenomenon and might indicate that people have spent so much money inside their house, that they are now turning their attention to the outside.
Separately, Altus Group has noted that renovation spending in 2014 was $20 billion more than was spent on new homes that year. In 2015, Canadians spent $70.1 billion on renos and Altus forecasts that figure to climb to $71.4 billion this year.
The CIBC survey backs that up, with the average renovation project coming in at $13,017, up from the $12,293 average in 2015, although the bank says only 37 per cent of Canadian homeowners plan to renovate this year versus 40 per cent in 2015.
Bathroom renovations were cited by 33 per cent of respondents, down from 40 per cent in 2015. Only 26 per cent plan to update a kitchen in 2016 versus 31 per cent who said they would in 2015.
“I think the shift has gone from seeing renovation as an investment — the return you see from a bathroom or a kitchen tends to be much higher than on landscaping,” said Gollom. “I think there is focus on quality of life versus the return.”
Interestingly enough, renovation spending is highest in struggling Alberta, with the average homeowner planning a project worth an average $22,951, up from $13,520 a year earlier. In British Columbia the average project is expected to drop to $15,522 from $16,639, while in Ontario panelists said their spending would drop to $13,878 from $15,487 a year earlier.
Benjamin Tal, the deputy chief economist with CIBC, says renovation spending has “mostly stabilized” at this point but at a “very high level” he doesn’t expect to decline very soon.
“At first you had a lot of pent up demand from the recession in 2000 and that was behind much of the activity in the first half of the last decade, but in the second half after 2008-2009 you had the beginning of a new trajectory,’ said Tal, adding that the current renovation market is driven by housing prices. “Basically, people are unable to buy what they want.”
The lack of available product has been cited by real estate boards in both Toronto and Vancouver, which have been the driving forces of the housing boom in Canada. In May, detached home prices rose 36.9 per cent from a year earlier in Metro Vancouver to $1,513,800 and in the Greater Toronto Area detached home prices rose 18.9 per cent during the same period to $986,691.
Brad Henderson, chief executive of Sotheby’s International Realty Canada, said he can’t say exactly how directly this housing gridlock is leading to renovation, but it’s part of what is driving home repairs.
“Whilst people are fascinated by the price of homes, more and more people are not selling because, by the time I sell, pay commissions, pay land transfer tax, and go through the hassle of moving I may not be any better off than I am. So, what I’ll do is renovate and just stay where I am,” he says. “As more and more people choose not to put homes on the market it just encourages upward pressure on prices.”