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Biggest Construction Strike in 20 Years in Ontario - Impacts on the Toronto Real Estate Market?

You have a pre-construction condo unit and you were getting ready for occupancy.

Then what happened?

I’m sure you received the Unavoidable Delay letter from the developer.

A letter that looks very similar to this one.

A strike began on May 2 and the below trades are involved.

From tile, to hardwood, to drywall.

Pretty much everything related to home construction.

So what the heck is going on?

Construction strikes may not sound new to you because construction workers typically go on strike every 3 years so their unions can negotiate better terms for them.

This time, it’s a little different.

It’s the largest construction strike in Ontario in 20 years.

And they are looking for a lot more money.

As you just heard, some trades turned down an offer of a 12.8% increase over 3 years.

From what I heard from my developer friends, trades are asking for increases ranging from 15 to 40%.

So they are definitely looking for something big.

And they are not going to end the strike until they get what they want.

With inflation high up at 8.3% in the U.S. and 6.7% in Canada, can you really blame them?

The strike will likely go on for another month or two while they negotiate.

The thing is, a 6 week strike could translate to 3 months of construction delays because you will need to reschedule things and so they end up taking much longer than originally planned.

So we’re stuck in a deadlock situation.

If developers give in and grant a say 20% increase to the trades, then that means their cost would increase 20%.

And who’s going to share that cost?

The buyers, obviously, right?

If the developers choose to stay firm and let the strike continue, that’s going to cause delays.

And delays are very expensive.

For example, they need to keep paying interest for their construction loans even though there’s nothing happening at the sites.

So that also means a higher construction cost.

And who’s going to share that cost?

Yes, the buyers.

You see, we have no way out, the cost will be going up.

Remember when we discussed the government’s cooling policies last month, there were both supply side and demand side policies.

The market is cooled down right now because demand is suppressed by the interest rate hikes.

On the supply side, the government had an ambitious plan to double the number of new houses we build every year.

With Ontario’s biggest construction strike underway, it’s definitely going to be a big roadblock to increase supply.

Here’s the thing.

On one hand, the government keeps saying that they want to make housing more affordable.

On the other hand, they keep making construction costs higher and higher.

Later this year, the development charges in the City of Toronto will increase by 49%.

Apparently, the government needs to increase their income as well.

And don’t forget about the Inclusionary Zoning policy, it’s taking effect on September 18.

For new pre-construction projects, condo developers will have to set aside 5 to 10% of the floorspace for affordable housing.

On its face, the policy is making housing more affordable for lower income households.

But in reality, who’s going to pay for the construction costs of those affordable units?

No surprise, the buyers.

So essentially, the regular buyers will be paying more to subsidize the affordable units.

Here’s the thing.

As Bloomberg puts it, the biggest threat to the global economy in 2022 is not Omicron.

It’s inflation.

And there will be more rate hikes coming along to tame inflation.

In terms of the housing market, the rate hikes discourage demands and act as a downward force to push prices down.

On the other hand, the massive strike, 49% increase in development charges, Inclusionary Zoning policy, are all upward forces pushing prices up.

You see, there are opposite forces in the market right now and it just comes down to which direction is stronger.

I do think the answer is obvious.

And if housing prices continue to go up, who’s going to be able to afford them?

People who are already holding onto properties.

Others may just have to rent.

Definitely not an answer that everyone wants to hear.

But you know it’s true.

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