Canada's housing affordability crisis may persist for years despite rate cuts
Canada's housing affordability crisis may persist for years despite rate cuts
Buying a house may remain out of reach for many Canadians for the foreseeable future, with mortgage costs unlikely to fall enough to offset lofty home prices and weak spending power, economists and real estate agents say. 0 Even with expectations that Bank of Canada will keep cutting rates in the coming months, the issue of home affordability - which has strangled Prime Minister Justin Trudeau's poll numbers - is unlikely to fade before the next election.
The mandate for the Liberal minority government ends at the end of October 2025, but an election could come well before then, with the Conservative opposition spoiling to end Trudeau's nine-year run at the top.
"You won't get back to an affordable range for housing on a sustained basis for a decade," Tony Stillo, director at forecasting and analysis group Oxford Economics, said last week at a conference.
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It'll persist as long as a significant amount of MPs are landlords and would never vote against their self-interests despite it being the best thing for their constituents.
A majority of their constituents are homeowners and homeowners have been indoctrinated to believe that owning the property you live in is an investment. Which is partially true only under the condition that you downgrade when you sell. So those MPs are effectively voting in the interest of the majority of their constituents. I think this is a much better explanation to the durability of this behavior.
Exactly. This has nothing to do with MPs being landlords. Any government that crashes house values will never be reelected. That's why all measures taken to date have avoided doing that — for example the reintroduction of 30-year mortgages, undoing a change that was introduced to prevent house prices from growing too high. The only long-term solution is of course for prices to come down (which can only be achieved by massively increasing supply) but most homeowners don't want that and will vote against it.
Supply needs to increase, but it can literally never increase enough given its current structure of investors and profiteering.
As long as houses are bought by investors (anyone with two houses), then it means that normal people will be priced out as the investors push prices up higher than they should be. If house prices drop they'll invest in building less housing. This is compounded by most new housing being multi-unit buildings that a single person cannot build on their own. When we had urban sprawl, you could still buy cheap land on the outskirts and build your own house if investors stopped building new developments, but with (very necessary) greenbelt policies, it eliminates that release valve, putting the housing market basically entirely in control of investors who'll keep it inflated to profit themselves.
That release valve you speak of is unsustainable due to infrastructure and transportation costs. It only works up to some level of sprawl.
housing market basically entirely in control of investors who'll keep it inflated to profit themselves
Correct, which is why it has to be public investment. We need massive multi unit buildouts funded by new public spending. All of it durable, cheap affordable housing. This will not only act on prices via increasing supply, it will also act by bidding prices down because the prices will not be maximizing profits. Whoever wants a place to live, should be able to afford one of thes units. Let the market sort out prices and availability of more premium options.
That release valve you speak of is unsustainable due to infrastructure and transportation costs. It only works up to some level of sprawl.
Completely agree. Greenbelt policies are necessary for environmental and infrastructure reasons, they just also cause problems from a housing affordability / market elasticity standpoint, which we haven't addressed at all.
Correct, which is why it has to be public investment. We need massive multi unit buildouts funded by new public spending. All of it durable, cheap affordable housing. This will not only act on prices via increasing supply, it will also act by bidding prices down because the prices will not be maximizing profits. Whoever wants a place to live, should be able to afford one of thes units. Let the market sort out prices and availability of more premium options.
I do generally agree with this approach, though I think that a) as long as units are up for private ownership, it will make sense for investors to buy them up and hold them, you do also need to pair this with both vacant property taxes and ban investors from buying government built housing.
And b) it also won't work if the government only builds out the bottom of the market. Like we're seeing right now with the condo market, if you just build shitty units that people don't actually want to live in, then people won't really consider them part of the same market and any effects their supply has won't spread widely. If the government actually builds out livable Habitat 67 style buildings and units that middle class people would want to live in then it will be most effective.
Oh yes units like this should be non-market or heavily insulated from the market / regulated, etc. Basically all the things you said.
As for the quality of units, when I say cheap I don't mean shitty to live in. For example the current luxury condo units being built are expensive to build but shitty to live in. Money is spent on using flashy materials, trims, ceiling to floor windows that are difficult to insulate and last less. Not on larger units that are comfortable to live in. You get a luxury shoebox. If you look at some buildings from the last century, you can see much simpler construction cheaper materials but 1400 sq ft units that you can raise a family in. I live in one built in the 70s and it's in perfect shape today. Many families with children live here. That's what I mean by cheap and durable construction. I guess I should have added the family-sized qualifier. 😄
That urban sprawl mechanism getting nixed is one of the better things to occur. Since maintaining roads, electric and water lines, fire safety coverage and so on are government expenditures this densifing initiative they have going is actually pretty on point.
Problem is the government doesn't want to upset the applecart for those who invested in the family home by cratering their portfolios so they are doing everything they can to mince around homeowners so the initiative to cool the market is the softest most delicate corrections they can manage. That sort of approach is gunna take a long time to work and is going to be vulnerable as hell to NIMBY counter initiatives. It's good to see the government is getting more creative with time but until everyone recognizes that property investing was built on risks one signed on when you bought the sort of big actions needed aren't going to serve up a fix unless the bubble bursts on it's own.
Supply needs to increase, but it can literally never increase enough given its current structure of investors and profiteering. As long as houses are bought by investors (anyone with two houses), then it means that normal people will be priced out as the investors push prices up higher than they should be. If house prices drop they’ll invest in building less housing.
I'm not sure you're familiar with the way the industry works. Builders and investors are very rarely the same people. Builders don't care if the buyer is going to live there or rent the property. Your theory also doesn't account for the ~80% of housing that is owner-occupied.
This is compounded by most new housing being multi-unit buildings that a single person cannot build on their own. When we had urban sprawl, you could still buy cheap land on the outskirts and build your own house if investors stopped building new developments, but with (very necessary) greenbelt policies, it eliminates that release valve, putting the housing market basically entirely in control of investors who’ll keep it inflated to profit themselves.
This is also quite the take — it's very rare to see anyone advocate for more urban sprawl or suggest that building more housing units drives up prices. If you want to live in an urban area, density is good because it means there's more housing supply. Land is the only finite resource in the equation, so making less efficient use of it in the hope that prices will come down is... Well, I'll need you to explain how that math is supposed to work.
I'm not sure you're familiar with the way the industry works. Builders and investors are very rarely the same people. Builders don't care if the buyer is going to live there or rent the property.
The fact that the entire condo market is built with investor sized units would suggest otherwise (or suggest that builders build what the market demands and if the market is all investors they will build investor focused units).
This is also quite the take — it's very rare to see anyone advocate for more urban sprawl or suggest that building more housing units drives up prices.
I agree, not sure where you saw that. Was it where I said that green belt policies are "very necessary"?
Land is the only finite resource in the equation, so making less efficient use of it in the hope that prices will come down is... Well, I'll need you to explain how that math is supposed to work.
The point is that policies that combat urban sprawl have also increased financialization of the housing market, both my making housing a more limited commodity (which incentivizes investors to buy), and by making it impossible to build a house unless you're a large corporation that can afford to build a multi-tenant building.
We unquestionably need to combat urban sprawl, but we should also be addressing the effects that those corrections are having on the housing market by de-incentivizing investors and profiteering.
The fact that the entire condo market is built with investor sized units would suggest otherwise (or suggest that builders build what the market demands and if the market is all investors they will build investor focused units).
That's still fundamentally a supply (and by extension pricing) issue. Prices are high, therefore small units are the only thing people can realistically afford, therefore that's what developers build.
I agree, not sure where you saw that. Was it where I said that green belt policies are “very necessary”?
Here: "When we had urban sprawl, you could still buy cheap land on the outskirts and build your own house if investors stopped building new developments, but with (very necessary) greenbelt policies, it eliminates that release valve, putting the housing market basically entirely in control of investors who’ll keep it inflated to profit themselves."
The point is that policies that combat urban sprawl have also increased financialization of the housing market
How do you define "financialization" here, especially in the context of non-rental units? If we're talking about REITs, sure, but rentals are only a small part of the picture.
both my making housing a more limited commodity (which incentivizes investors to buy)
It also incentivizes builders to build, so as long as that isn't impeded, prices should stabilize. Unfortunately building is severely impeded, which is what I mentioned in my earlier post.
and by making it impossible to build a house unless you’re a large corporation that can afford to build a multi-tenant building.
Again, this is a land value issue, not one of construction costs. Of course land is going to be expensive in an urban centre, as it should be! It's a very limited resource. it makes much more sense to have two hundred people living on a building lot rather than four. Hence my confusion about your desire to reduce supply even further in order to reduce the price of housing.
Not OP, but you keep hinging on the supply reduction that OP supposedly said (which he did not). He just explained the context of today vs the period of urban sprawl where land was cheap.
He is right that reducing urban sprawl and setting limits on what can be build where put upwards pressure on the existing land price, and that only corpos can afford to buy land to build multi-units.
The policies that densify urban region are good and necessary, but we have to make sure that the pressure it creates on land price is somewhat controlled.
... but most homeowners don't want that and will vote against it
... preferring instead to bitch and complain about the unhoused population making a mess of their cities.
You'd be amazed how many people don't understand that causation. For example, most people I talk to IRL about this don't know that most homeless drug users started using after they became homeless. Instead, they think the homeless became addicts first and spent their rent money on drugs. Once they're made aware of that and the fact that a housing-first approach is actually less expensive than the costs of homelessness (shelters, law enforcement, etc.) almost everybody I've discussed this with agrees that ensuring everybody has housing is the best approach. Mind you, they will rarely agree that everybody's house value needs to come down, but it's a start.
That's a relatively small problem (in terms of how many housed people are acutely impacted or even aware) in large sprawled cysts like the GTA. The unhoused population is visible in small localized spots. The vast remainder wouldn't even hear about it if they didn't read the news or don't have to go to those spots. The very large city of Mississauga for example hasn't heard or seen a peep about unhoused people. It's only stories by the few that work specifically downtown. The backyards are as clean as ever and the birds are singing. I wish everyone was acutely aware.
Technically true. I would argue that the fact that considering home ownership and affordability is a top concern for voters and little to no meaningful legislation has been proposed to fix it on any level of government that our government is intentionally ignoring the problem for their own interests.
Indoctrination is a weird word to use here. It’s limited supply meeting increasing demand. When people see which way the wind is blowing, they see an opportunity.
I am a fan of classic video games from my childhood (NES, SNES, etc). A lot of people are fans of the games from this era. So some people saw this as an opportunity and began buying up a lot of the limited supply of these old games. Now many of these games go for thousands of dollars.
Do I like that my favourite childhood games are now unaffordable? No. Was I indoctrinated to see these games as an investment? Also no. I wish they weren’t so expensive but that’s the reality of it. At least ROMs are freely available, however, whereas with housing there is no way to bypass that issue.
Imo indoctrination is the appropriate word to use. I'm old enough to remember when food, water and shelter were considered a critical necessity for people to live. Back in the 60s and 70s it was rare to see unhoused people in the cities I grew up in, as we still had a large population of residents who grew up in the Dirty 30s and knew what it was like.
Empathy has been overridden by greed, brought on by capitalism's indoctrination that money is more important that human being's welfare.
Oh yeah, the whole "greed is good, people are absolutely selfish" is another level of indoctrination. There's so many counterexamples but you need it for the theories based on these axioms to sound plausible.
Capitalism didn’t invent greed. Humans have been killing each other and stealing each other’s resources for tens of thousands of years. Greed isn’t even exclusive to humans. If you’ve ever seen what foxes or weasels can do to a henhouse, or what giant Asian hornets can do to a beehive, then you’ll see what I mean.
Capitalism is just the idea that competition leads to better outcomes for everyone and that the best competitors are people who put their own resources on the line (rather than someone else’s). What we’re seeing today is consolidation and centralization of wealth and power, the exact opposite of competition. Anyone celebrating this is not a capitalist, they’re a (wannabe) oligarch.
As for empathy, I think the only way to build that is to work directly with people and try to make a difference in their lives. Economic planning and policy making does not achieve empathy, you have to already have empathy going into it.
That's not what capitalism is. Competition is one component that's observed in capitalist systems and it isn't strictly required, nor necessarily the natural course of capitalism. There are well established examples in capitalist economies where competition cannot exist naturally. Then you have the history of capitalist economies rife with consolidation, only sometimes impeded by intervention. I'd invite you to consider what happens to the losers in a best case scenario competitive market. What happens with their machinery, workers, brands, market share, etc. once they're our of business. I'll say it since I want to draw a conclusion - they typically get absorbed by the successful competitors. Repeat this cycle enough and you get the consolidation we see all around us. What we live in isn't not capitalism. It's just a ..late.. stage of it. The perfect competition model doesn't prove that it's a natural or a likely model of economies, there's no good evidence that competitive equilibria are likely or stable. If reality is any guide, it's the opposite.
No, of course not. Competition needs to be preserved through strong antitrust laws. The US used to have a very active FTC which sued to prevent mergers and attempted to break up monopolies in order to preserve competition. Then it went through a long period of inactivity due to monopoly-friendly governments.
Now, the Biden administration and their appointee, Lina Khan, have resumed this important work. Of course, this could all be jeopardized if Trump wins the election, but so could a lot of other important things.
As for Canada, we favour oligopolies under a misguided theory that large Canadian businesses will protect Canadians from foreign competitors to the south. We’re paying the price for having no trustbuster with teeth, like Lina Khan.
The home you live in is not an investment if you aren't willing to downgrade. If you live forever in your home, you can't spend the money you'd get if you sold it because you won't sell it till you die. If you decide to sell it, and decide you won't downgrade, that you want an equivalent home, that home will cost approximately the same as what you sold yours for as it would have appreciated in value just like yours. In fact you'd lose the transaction fees. If you wanted to make money you have to buy a cheaper home. That typically means some form of downgrade. Size, type, location, etc. Yet many people don't understand this and believe that the home they own is an investment and that it going up in price is good for them. All the while their taxes go up with its price along with everything else they buy because everyone else also has to pay higher housing costs. It's irrational to believe this because it's simply not true. Therefore I say people believe this due to indoctrination. The process of learnint to believe something without critical examination of its validity. I'm just using the term because I think it fits the bill.
The home you live in is only an investment if you're willing to downgrade and you can only collect the upside on the difference in price between what you sell and what you move into. Secondary units are an investment proper. The scenario with classic games is like a secondary property because you don't need to buy an equivalent in price cartridge when you sell one you have.
That’s not true at all. If you own your home outright (paid off your mortgage) or even if you’ve only paid off part of it, you can use it as leverage to borrow money you otherwise would not have access to. A common loan of this type is called a home equity line of credit.
Another thing you can do is what is called a reverse mortgage. This is where you effectively sell your house back to the bank but continue to live there rent-free. In exchange, the bank gives you a monthly payment based on the value of the home. You can often see TV ads for this sort of financial instrument. They’re very popular with retired folks who would like some extra money to travel or take up new hobbies.
Is the HELOC free? Are the reverse mortgages free? Aren't they just swapping downgrading your living conditions with making less money than you could have? I think you're just presenting another alternative to capitalize some of your primary home, not really disproving the general point.
You said you had to buy a cheaper home to make money from the equity in your home. That is not true, and the examples I have showed how.
As for “free”, what is free is the increase in value of your home over time. That’s the investment part. There are people who bought homes in San Francisco back in the 1970’s who are now multi-millionaires simply due to the many-fold increase in the value of their home. With a HELOC or a reverse mortgage they can gain access to some or all of that money without needing to move to a cheaper house.
The home you live in is not an investment if you aren't willing to downgrade
That’s not true at all. A house owned in an appreciating neighborhood or that is thoughtfully invested in (appropriate upgrades) can increase in value over time. Moving to a different neighborhood or selling and buying under different market conditions can allow regular people to realize real gains.
If the market conditions are different, your house is very likely going to be subject to them as well. Different neighbourhood falls under downgrade.
That’s a ridiculous oversimplification but it seems to make you happy.
The indoctrination part is that housing is an investment that will/should always go up. So yeah, you pay 700k now, but when you sell, it will be worth more.
And the big difference is that you could go on with your life never owning an old game and it wouldn't matter. Housing is a basic human right. We are in a supposedly modern society, but increasingly more people are getting homeless because they simply cannot afford a basic human right. That's fucked up.