Listening to Canadian politicians, the solution to the housing crisis appears to be a combination of immigration reform and a massive national construction effort.
But Paul Kershaw, a public policy professor at the University of British Columbia and founder of the Affordability Advocacy Group, said: generation squeezesays that the focus on increasing housing supply obscures issues that politicians are unlikely to address.
It’s that we, as a country, are addicted to ever-increasing housing prices. This is largely because we have been conditioned to view housing as a financial asset.
“There are many things that need to be done [to reduce prices]Increased supply is one of them,” Kershaw said. Announcing funding for construction projects This is a way to organize concerns about the housing system so that we don’t have to… look in the mirror and say, especially to people who have been homeowners for a long time, You don’t have to say, ‘How are we getting involved?’
He said the current system encourages extracting profits from real estate rather than prioritizing universal access to affordable shelter.
“You need to be clear about what you want in a home,” Kershaw says. “And that has to start with saying, “We don’t want prices to rise any further.”
Asked about Alberta’s bill that would prevent the federal government from sending money directly to cities, Prime Minister Justin Trudeau said provinces that don’t want to solve their housing crisis should “just get out of there.”
speculative effect
Home price trends are well known to most Canadians. According to the Canadian Real Estate Association, the average home sold for $241,000 in January 2005. By February 2022, it had more than tripled, and by February 2024 it had fallen slightly to $719,400.
On Friday, Royal Lepage released a forecast that suggests total Canadian home prices will rise 9% year over year in the fourth quarter of this year.
Meanwhile, incomes in Canada lag far behind housing costs, with average home ownership costs accounting for more than 60% of median household income. According to a recent RBC report.
At first glance, the lack of affordable housing appears to be a supply problem. If we build more homes to meet demand, prices will go down.
But part of the problem lies at the root of that demand: increasingly investors.
The Bank of Canada revealed that investors accounted for 30% of home purchases in the first three months of 2023. This is up from 28% in 2022 and 22% in 2020.
The report also found that the proportion of first-time home buyers fell from 48% in the same three months of 2020 to 43% in the first quarter of 2023.
“What’s happened over the past decade is that the share of homes purchased by first-time buyers has declined, and that market share has primarily gone to investors,” said John Passalis, president of Toronto-based Realosophy Realty. It means that they are being robbed.”
The Bank of Canada’s definition of an investor is a buyer who takes out a mortgage to purchase a property while maintaining a mortgage on another home.
“During a housing boom, investor demand increases, bidding pressure increases, and price increases may intensify,” the central bank said.
Who is investing?
At the beginning of the COVID-19 pandemic, we saw an increase in people buying second properties.
Robert Hogue, assistant chief economist at RBC, said the low interest rates at the time and the fact that many people were saving large sums of money “encouraged speculative activity.”
However, he does not believe that the current high prices are “only a matter of speculative activity.”
Home showrunners and foreign buyers are often cited as key drivers of real estate speculation, and various jurisdictions in Canada have introduced legislation to neutralize this type of investment.
But Passaris said these types of buyers haven’t had a big impact on prices. Domestic investors in the low-rise housing market have much more influence.
He said they typically fall into two categories: those who buy directly from developers and those who move but decide to continue living in their first home.
“If they’re expanding or moving out of state or out of the country, the first question we get is, ‘Can I keep my current home as a rental?'” Passaris says.
“They’re not like active investors. They’re just watching the market and seeing how fast house prices are going to go up. Everyone thinks that housing is a decent investment. Everyone thinks, “Why should I sell it?”
That’s one reason why the supply of entry-level housing is low.
The federal government allows first-time buyers who take out an insured mortgage on a new home to extend their mortgage repayment term. Andrew Chan examines the pros and cons of 30-year depreciation versus his traditional 25-year rule for prospective homeowners. Correction: He miscalculated at 1:38 in this video that his 20% of $500,000 was $125,000. It’s $100,000. Edited for clarity.
historical issues
There are many benefits to buying a home. It gives many people a sense of accomplishment and peace of mind that they won’t be evicted. You can also accumulate assets, which can be useful for renovations, moving to another home, or even as a retirement fund.
Home ownership becomes something of an emotional investment as many families pass their wealth on to the next generation.
Rising prices allow existing homeowners to leverage more of their home equity and earn a greater profit if they decide to sell.
Diana Mok, an associate professor of real estate at the Lang School of Business and Economics at the University of Guelph in southern Ontario, said governments are also interested in high property values because they lead to higher tax revenues. He said that
Not only that, but real estate is the single largest contributor to Canada’s GDP, according to Statistics Canada.
“The housing market includes very diverse sectors. Think real estate agents, lawyers, construction, etc.,” Mok said. “Not only all sales and purchases, but all labor contributes to the economy.”
While Prime Minister Justin Trudeau has publicly lamented high housing prices, Hogue said, “I can’t imagine a government intervening with the purpose of bringing down housing prices. From a political perspective, that would be a winner.” I don’t think so,” he said.
We lowered the price
Part of the problem is society’s obsession with homeownership, says Naama Bronder, an architect and urban planner with Toronto-based Smart Densities.
“I think many Canadians think that when we talk about the affordability crisis, we’re talking about the ability to own a home with a backyard.
“For them, ‘We have an affordability crisis and we need to solve it because it costs money to own a home.’ I have news for you…What worked for our parents , it’s not going to be a model for us,” Blonder said.
“No politician is bold enough to say, ‘Rental is good enough.'”
The next federal budget, to be announced on Tuesday, will undoubtedly include a number of measures to address the housing shortage. Recent funding announcements respond to calls for more rental housing, but the scale of the need is daunting.
Canada Mortgage Corporation stated in its 2024 report that despite a record number of projects being launched from 2021 to 2023, “this increase is not meeting the growing demand. As a result, the rental market “Prices will continue to be tight, especially in high-cost areas.” Canada. “
Passaris said despite all the hand-wringing over home prices, he doesn’t believe there is political will to rein in investors. And he’s also skeptical of the federal government’s recently announced financial incentives to help first-time buyers get into the market.
Pushing young people further into debt is “not the way to make housing more affordable,” he said.
Generation Squeeze’s Kershaw says a broader “tax shift” is needed. He said one way to curb home prices and at the same time raise money to invest in affordable housing is a “housing wealth initiative” targeted at owners of 10 per cent of Canada’s most valuable homes. advocates an annual tax on
“What started happening in British Columbia and spread across the country is that we weren’t satisfied with just paying off the mortgage to build equity. We’re saying, ‘You know what? I want to double, triple, quadruple the price of this house.”
When existing homeowners want prices to rise faster than incomes in the local economy, “this is the moment when we want windfall wealth for those who own now; It comes at the expense of affordability for those who follow,” Kershaw said. .
“That’s the problem we’ve gotten ourselves into. And if we can’t have that conversation, we’ll never solve the housing affordability crisis.”
