A housing market downturn, even with the economic pain that comes with it, might actually be the better scenario here.
Not a quick fix, but it drives me bananas that when we compare housing prices now to those of previous generations, we don't talk about the difference in the houses themselves. It seems impossible to find a new house nowadays that isn't a luxury version: stone counters, hardwood/tile floors, more than 1.5 bathrooms, huge bedrooms, finished basement... Houses in the 60s/70s had NONE of this. You could find a house under 1500 sqft (+ basement) that had 4 bedrooms! (Fits us and a couple kids perfectly). And a semi-detached to save space while maintaining backyard access! Buyers are not given these options now, unless they look for older homes closer to city centres (which raises the price).
This is very much the right take. Unfortunately the political incentives are overwhelmingly and likely irreparably slanted toward the "preserve home equity at all costs" crowd and away from the "we need to solve the problem of housing affordability" crowd. It's going to go very badly for Canada and things will get much worse before they get any better.
What do I mean by worse? Canada (both as individuals and as an economy) is becoming house-poor. Toronto and Vancouver are already there, everyone else is now being dragged along for the ride. Individual and household choices will increasingly fixate on controlling housing costs and servicing debt - rather than spending money to support the local/national economy, maximizing opportunity, taking risks for career growth, improving day-to-day quality of life, or tolerating expanded investment in communities.
Not only that: housing is very clearly leading to a novel form of Dutch Disease. Why would anyone invest in starting or funding a business, or really anything that would improve the country's productivity, when they can make a quicker, easier, and more certain buck "investing" in housing instead?
The people who decide elections are, for now, overwhelmingly homeowners. In part they're putting their home equity first regardless of social cost. But really, Canada's governments at every level have been asking for this for a while. They're asleep at the wheel and deeply unserious in their attempts to improve the housing situation. Governments have shoved the most electorally significant set of Canadians into a place where their only choice is to protect their own housing wealth if they have it or go hopelessly all-in on housing if they don't.
I'm afraid the major Canadian parties have neither the will nor the political stability needed for credible action on housing. There is not a chance in the world any minority government will take action seen to be improving the cost of housing. They have been and will continue to focus on being seen to take action, rather than actually doing anything, and we're all going to suffer for it.
My fear is we'll only see credible improvement after the trough of a national economic calamity.
Hereditary inequality, through this or private education, is the biggest threat to Canada turning into the UK or the US. Good article.
The problem is deeper, it's cultural. The US and most other developed countries have also experienced near zero interest rates for years, but they invested in economic growth, businesses or even in the US stock market (which is business investment). Canadians put that borrowed money literally under the mattress in homes instead of economic investment.
The culture in Canada needs to be addressed first. We need more entrepreneurs, growth and dare I say it, ambition and drive instead of home flipping and craving of safety and security.
Great piece. Spot on.
The philosopher Richard Rorty foresaw Trump. Add real estate to his equation here:
"Members of labor unions, and unorganized unskilled workers, will sooner or later realize that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realize that suburban white-collar workers — themselves desperately afraid of being downsized — are not going to let themselves be taxed to provide social benefits for anyone else. At that point, something will crack. The nonsuburban electorate will decide that the system has failed and start looking for a strongman to vote for — someone willing to assure them that, once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen, [ADD: realtors, speculators, etc.] and postmodernist professors will no longer be calling the shots."
This is the problem with federal policy for a country so geographically diverse. The prairie provinces have seen very little housing growth compared to those mentioned above. I agree, pricing in some of the markets needs to be addressed, but a blanket federal policy is really going to hurt the prairies.
Full disclosure, I'm a REALTOR in Calgary. I did a bit of digging into this last week, and basically the housing price 10 year graph line is horizontally straight for Calgary, while GTA and Vancouver areas have their lines trending way up. I don't think I can post here, but the info should be available on CREA's website.
Tightening access to credit seems like the right thing to do. I'd also suggest taking a hard look at alternative lenders.
Longer term, I think we're going to need a giant home-building boom. In the wake of Covid and the increase in people able to work from home, people are moving further out from cities, so there's a mismatch between where people live and where the housing stock is. Plus even pre-Covid, rising rents (in Metro Vancouver they're 20% above rent-controlled levels) suggest a scarcity of housing stock, especially rentals.
I keep going back and forth on this issue.
Generational wealth continues to push the market upwards favouring wealth families. Supporting any measures that disqualify families that have high salaries but lack generational wealth will continue to shift more land to richer families.
Consider the opposite suggestion (impossible to implement): What if we made 95% of the mortgage rate based on income and 5% based on savings? You’d immediately cut out generational wealth and allowed people to buy homes purely based on their household income. Housing prices would plummet. Your average nice-sized home would be under $600k based on the average family income of a household.
Because we’re making it harder for people that have good salaries but no generational wealth to purchase homes, we’re making it easier for generational wealth to come in and swoop up those homes.
Are prices unsustainable? We have a real supply-demand issue with homes. The cost of building homes is going up.
Affordable competitive government housing... it can’t come soon enough.
If OSFI raises the qualifying rate this will have a negative impact on the investment in building dwellings, which, in the long run, will put further pressure on housing prices as the gap between supply and demand continues to widen.
Canada's economy is also heavily dependent on real estate investment and forcing the values of homes lower would be broadly unpopular. One angry enough generation of voters isn't a broad enough group to get support for this measure. A move that hurts the economy like this would also be felt disproportionately impact the job prospects of young people.
Lastly, the qualifying rate is something that primarily impacts that riskiest buyers, which happens to be the first time buyers that this policy is trying to help.
We've surrendered too much of our large urban areas to roadways and cars and on one hand and single family housing on the other. We need to change to create more livable space instead of letting the productivity gains of the city flow to a few landowners.
Well said! I've certainly benefited from the housing boom but see a horrifically divided society in the near future if we keep this up.