Justin Ling: What Gerson got wrong (and right) about the housing crisis

If I can put a fine point on this: the federal programs, heralded as “affordability” measures, are bad. Don't let Trudeau off the hook.

By: Justin Ling

In April 13’s edition of The Line, chief boomer antagonist Jen Gerson makes a cynically astute assessment of the state of housing in Canada: The crisis, she correctly asserts, is only for those who recently made the bank-breaking decision to buy a home, those aspiring to join them, and those still paying monthly rent. The nearly-two-thirds of the country who own their own homes are making off like bandits in this hot market, and there is simply no political incentive to make the good times stop rolling.

All that is infuriatingly true.

Gerson, however, makes a critical error: She describes a federal government acting by not acting; enabling wild asset inflation by feigning action and doing nothing. “Governments are going to throw a few pennies at the problem,” Gerson panned.

That is a notion that even Finance Minister Chrystia Freeland would love to endorse. After tabling a budget notionally tasked with combating this housing crisis, Freeland insisted that the current situation was a “shock” and vowed action: “We cannot have the fastest growing population in the G7 without also having the fastest growing housing stock,” she swore, as though she just woke up from a seven-year nap.

But this idea that Ottawa has been, at worst, totally ignorant of the problem and, at best, timid in its response, ignores the reality: The Trudeau government has been in on this scheme all along. They are intimately, specifically, and particularly — though not uniquely — responsible for this housing crisis we find ourselves in.

Unfortunately Gerson, in her quest to indict all boomers in crimes against affordability, let them off the hook.

Let’s start with the first problem: Canada has too few places to live for the number of people who want to live here. 

Ottawa is largely responsible for setting immigration targets, which it has increased year-over-year to address a looming demographic problem, so it was specifically aware of the looming mismatch between supply and demand. More Canadians is good, but they need places to live.

Indicators have been blinking red for some time. Housing prices have been rising since the millennium, with only a slight correction around 2008 — and have been skyrocketing since 2015. But there’s even better indicators to understand just how fucked up that rise is.

A report from Zoocasa took a look at how much homes in Ontario sold for, versus the original list price: In Ottawa, for example, buyers could expect to pay 28 per cent more for a home than the seller is offering. In Oshawa, it’s 15 per cent. In Brampton, it’s only one percent, but that is more stark when you consider the average list price is still over $1 million. 

In a normal market, homes sell for below the asking price. If properties continue going over the asking price, that has a huge effect on prices. Realtors start telling homeowners they can ask for more, and sellers that they should expect to pay more than is being asked. It changes the psychology around the market, which quickens housing inflation.

If you can’t enter that knife-fight of a market, renting isn’t a great option, either: Rental vacancy rates in major cities have gone from bad to worse. From 2015 to 2019, the number of apartments in Halifax that have been available for rent fell from three per cent to one per cent. Montreal went from 4.5 per cent to 1.6 per cent; Ottawa fell 3.9 per cent to 1.8; Moncton plummeted from 7.1 per ​​cent to 1.9 per cent. Even if vacancy rates in some cities have risen again since the pandemic began, that has come with dizzying rises in rents.

So what does Ottawa do?

Not rush to build more housing, that’s for sure.

The Parliamentary Budget Officer found, in 2021, that the Liberals’ $70 billion in promised spending for new housing construction led to a paltry 63,000 new homes over their tenure in power. The report found that Ottawa’s support for affordable and social housing decreased over the Liberals’ tenure.

Their plan, instead, was to, as Gerson succinctly puts it, to “create more buyers' incentives.” That has included shovelling money into the First-Time Home Buyers’ Tax Credit, the First-Time Home Buyer Incentive, and relaxing rules to allow the Canada Mortgage and Housing Corporation to help households with lower incomes buy more-expensive homes. In the 2022 budget, the tax credit has been doubled and a new savings account has been introduced to help finance purchases.

Most people could be forgiven for thinking that these measures are a great way to give people a leg up to access rising housing prices. After all, this isn’t America circa 2007: The likelihood of a housing crunch and mass mortgage defaults is nil! (Right? Right?)

But these programs have directly raised the temperature inside the auction hall.

Without these direct government subsidies, scores of Canadians would be priced out of the housing market. And, indeed, that would be exactly the point. If you have a finite number of goods for a large pool of prospective buyers, then price will rise until the market can no longer bear it. We would be forced to confront the problem of millions of people being legitimately unable to afford a home.

Government subsidies are a way of convincing buyers to continue participating in the market, both papering over the problem and actively making it worse.

These houses will be sold, whether the government intervenes or not. But if it gives $12,000 to prospective homebuyers for their down payments, that simply increases the amount of money chasing after the same number of goods. (For every dollar Ottawa gives to cover a buyer’s down payment, that’s another $3 or $4 added to the total cost of the home, if not more.) That increases the problem of houses selling for over-asking, it increases the incentive for landlords to sell their rental properties, and ultimately continues inflating prices across the board. 

Imagine a particularly-competitive Beanie Baby auction. There are just 500 plushies for 1,000 bidders. As the bid for the first stuffed bear goes up, more and more bidders put their paddles down until the final bid wins. That’s when the doors burst open and Prime Minister Justin Trudeau rushes in with a briefcase full of $100 bills, handing them out to 100 bidders who were priced out of the first round. That $100 won’t mean that those toy aficionados are more likely to win the bidding, it just means that 100 people have $100 more to throw into the bidding war.

If I can put a fine point on this: These programs, heralded as “affordability” measures, are bad. They are pushing households into a market they cannot afford. They are increasing prices. They do nothing to address supply. They are creating a psychological expectation of higher prices. They are wasting taxpayer dollars.

Why? Well that’s where Gerson gets it exactly right: To continue propagating the fundamentally unsustainable asset inflation that has seen boomers and Gen X make off like bandits. Politicians do better creating the illusion of affordability than the reality of it.

The extent to which we millennials will be left holding the bag is staggering.

In a February report, the Parliamentary Budget Officer found that, since 2015, “affordability gaps” have opened across the country, while in key markets like Toronto and Vancouver, the link between housing prices and borrowing capacity have decoupled. In other words: Housing prices are increasingly unsustainably, and not even rising incomes and low interest rates have accounted for that problem in Toronto, Halifax, Ottawa, Hamilton, Victoria and Vancouver.

The report found that decoupling is likely to happen everywhere. Rising interest rates will almost certainly bypass income growth. The Liberals’ solution to that, once again, has been to subsidize households’ entry into a market that is already over-heated.

Gerson is emphatically right: We need to build more housing, now. We need to find a way to tear down vacant one-family homes and put up six-storey buildings. We need to replace vast parking lots with 40-storey high-rises. We need to link good transit to substantial new housing developments in under-utilized areas.

To do that, we’ll need to streamline approval processes like mad. We will need to both create a culture of saying “yes” to developments instead of finding self-serving reasons to say “no,” but also to remove the de facto veto that many residents have over their future neighbours.

That will be easier said than done. Conservative leadership contender Scott Aitchinson has proposed tying federal support to municipalities to their ability to get homes built. Good.

What we need is some politician to start acting like an adult and admit to the country that pitching taxpayer money into the market to subsidize the home bidding Thunderdome is doing harm. We need a politician who will tell us the unpleasant truth that some of the dizzying capital gains realized by Boomer and Gen-X homeowners are unsustainable and need to be slowed significantly, if not marginally reversed. We need a politician who will put the wellbeing of immigrants and young adults ahead of their voters’ sweaty fistfulls of money.

If not, Canada will face labour shortages and brain drain. It will see a slide in purchasing power. We will likely see bankruptcies skyrocket for Millennials, which could precipitate a housing correction that is much worse than anything Ottawa could design.

Gerson is quite right that nobody is going to fix the housing crisis. But we should absolutely demand that they stop making it worse.

Justin Ling is a freelance investigative journalist and author.

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