PM Agrees That Housing Should Be Used As Homes First, Investments Second
Another step toward breaking Canada’s addiction to rising home prices
We are really excited about some recent comments from our Prime Minister. Last week, while discussing the factors that contributed to our housing affordability issues, Justin Trudeau said:
"...one of the factors that is challenging for so many people is the commodification of housing. The fact that people are using homes and houses as an investment vehicle, particularly corporations using homes as an investment vehicle, rather than families using them as a place to live to grow their lives to build equity for their future… housing can and should be owned by people who are living in them."
It’s huge that our PM has recognized that investor demand is driving up prices! Up until now, all of our leaders have primarily focused on a lack of supply as the cause of our unaffordable housing.
Just last week, the Bank of Canada reiterated this idea:
However, it’s clear that there is more to this story than just a lack of homes.
New data from Statistics Canada tells us that investors own over 40% of condos in Ontario and that they have purchased an incredible 57.3% of all condos built in Ontario since 2016. All of this investor demand helps keep home prices high, limiting the impact that building new supply can have on restoring affordability. That’s why we need to break our addiction to high and rising home prices. Until we do, housing wealth windfalls will keep motivating Canadians to view real estate as an investment, rather than as a place to call home.
While it’s a step in the right direction, the PM’s recent statement still falls short. He only calls out big institutional investors – the easy villains that Canadians find convenient to blame for unaffordable housing. But they are only part of the story. Many regular Canadians are also banking on real estate prices continuing to rise. These ‘mom and pop’ investors – including many of the PM’s colleagues in Parliament – are contributing at least as much as corporate investors to our affordability problems.
So long as real estate is viewed as a commodity, rather than a place to call home, added demand from investors will continue to put upward pressure on prices – and politicians will be less likely to risk upsetting voters by curtailing rising prices. If prices stall (or fall), corporate investors tagging along for the ride will be less likely to jump on the housing bandwagon, because real estate will no longer be as attractive an investment strategy.
Paul had the opportunity to brief the Liberal Cabinet at their retreat this summer. It seems unlikely to be a coincidence that since then, the PM has taken quite a few pages out of Gen Squeeze's playbook.
Coming out of the retreat, Trudeau promised younger Canadians that his government would take action to ensure they have the same opportunities as the generations before them – a core principle of generational fairness. More recently, he acknowledged that we cannot allow home prices to rise any further. We have identified this as the right goal for our housing system for years, yet no political leader had ever previously affirmed this in public. It’s encouraging that the PM is now signally his agreement with another key part of our housing policy solutions framework, that we need to put an end to harmful demand from investors.
That’s all for this time, thanks for reading.
We’d love to hear what you think about all of this. See you in the comments section.
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The supply argument is so tricky! Most people have the correct sense that vacancy rates have a lot to do with rental prices, which makes it seem like more construction (of anything) should always be better than nothing. But it was harder for me to see the ways that projects all competing for the same 'stuff' (mostly land but maybe labour too) mean that lots of speculative demand can make it harder to get the right kind and amount of supply in the first place.
I was recently surprised to learn (from a CMHC report) that, despite high rents, purpose built rental doesn't pencil out in many cities mostly because of high land costs. Those land costs are supported by alternative uses like condo construction, with a lot of speculation involved. So I was happy to see some measures (like HST rebates and financing initiatives) to make it relatively more attractive to build purpose-built rentals rather than buy up existing supply, but I'm not sure that aspect has totally made it into the rhetoric about investors. Realistically we need private investment to get enough supply fast enough (although non-market housing is also important). It seems tricky politically to balance the message that we need investment to get market supply built with the message that investment has been really bad for bidding up prices on existing housing (including buying up existing PBR) and even distorting the market for getting new stuff built.
Great post. Trudeau often says the right things. However there is rarely any depth. Canada gave him a super majority in ‘15 because of 4 commits, one of which was solving the escalating cost of housing. Until very recently, he’s done absolutely nothing to address it. In fact, with poorly planned immigration he exasperated it.
I agree, housing should be a savings account not an investment vehicle. Sadly. Canada’s silly approach to mortgaging has created a FOMO market of ‘amateur ’ real estate investors. It sucks people in to aggressive buying and then is used to haul billions out of the economy.
Just remember, actions speak louder than words. So far, his words are rarely backed up with actions and effective consequence planning.
So, when politically expedient statements are made, we must push for details before falling into the ‘15 trap we found ourselves paying for.