Why we're excited about this game-changing statement and a recent poll showing homeowners are ready to give up some wealth to improve affordability for others
Sep 21, 2023Liked by Generation Squeeze, Andrea Long
This is a very interesting discussion. I am a boomer who has benefited from purchasing a home decades ago when the earnings to owning housing ratio was reasonable and achievable. I have a daughter who ‘clawed’ into the market and has a mortgage approaching $1m - only possible to manage due to a rental apartment in the basement and roommmates.
While I do think that low interest rates contributed to rising housing prices, I think this was because we witnessed a financialization of shelter. When interest rates were low a lot of Canadians and investors purchased another property (often many) in order to increase wealth. One in seven home owners have a second property or more. Airbnb didn’t help this situation - putting long term renters out in favour of a short term high rent cash grab. When housing becomes a financial instrument rather than shelter we have a serious problem.
Additionally, governments of the past have encouraged home ownership as a type of forced savings plan - a defacto retirement plan. Again, this is a policy failure especially now that interest rates are high and mortgage amortizations are often 30 yrs long. Paying down a mortgage and thereby accruing equity is very difficult now. There will be a lot more interest paid to banks than in the past.
Canadians without generous workplace pensions (the majority of us) are reliant on that home equity as an income source in old age. Governments have counted on that. Governments have not adequately provided public pensions - CPP is under funded which explains OAS (very costly and coming from general tax revenues ie. working people) and GIS.
Having affordable access to a home or apartment whether owned or rented shouldn’t break the bank of working people. It shouldn’t be viewed as an ‘investment’ but as a basic human right.
There should be some golden rules. If average household earnings in Canada are around $80k then obtaining a modest 3 bedroom home should be 5x the avg or $400,000. Rent for a 3 bed apartment should be no more than 30% of monthly household income or $2000/mth.
Housing doesn’t just need to stabilize it needs to drop relative to income. For those already invested at a high cost it may not be possible to bring prices down as the losses would be severe - a fair concern for people like Rebecca and my daughter. But holding prices and allowing incomes to catch up (which may take a long time) may be necessary.
No matter how you slice or dice it housing is too expensive, rental is too expensive relative to Canadian incomes. Some major policy shifts in more than one sphere will be necessary if we’re ever to restore housing to what it should be - affordable shelter for all Canadians.
Now that's a "Golden Rule" I could get behind. We are a long ways from that now. But this past week marked some major incremental progress by having our national leader own up to the hard truth that we no longer want home prices to rise. That is the first step on a long quest to help earnings to reconnect to average housing costs for renters and aspiring owners.
Sep 20, 2023Liked by Kareem Kudus, Generation Squeeze, Paul Kershaw
I think the Prime Minister’s comments were a very big deal. Finally an acknowledgement from someone in charge (and the top person no-less) that housing costs cannot continue to rise indefinitely. This sort of acknowledgment at the top is indicative of a very good thing: government is aware of the problems Canadians are facing. Our stories are getting through to the MPs. And this Liberal government is even signaling that they agree with our message. Follow those comments with policy to remove the GST from new rental construction... I would say that we have the beginnings of a potential resolution to the housing crisis. Now, I will temper my excitement with the acknowledgment that we still need to go a lot further. I think you touched on this a lot in your piece: the general idea that more housing units alone will not be sufficient unless pricing stalls. This is perhaps the only way to cause a natural correction in the housing market without a sudden and abrupt collapse: we have to address the demand side of the equation. I think that if we can make rental units widely available on a massive scale and peg those rents to income we will give Canadians what they desperately need: a choice. The freedom to live where you want and work where you live and to actually be able to pay the rent without relying on credit card debt to pay for food. That’s the dream of many Millennials and Gen Z. I don’t think that’s asking too much of our leaders at all levels of government.
Sep 21, 2023Liked by Generation Squeeze, Paul Kershaw
Appreciated professor. The work that your group has done for years is invaluable. I’m glad to see that you’re making in-roads. I really want to advocate for housing reforms and other policies that affect all Canadians, but especially Millennials and Gen Z. If anything I can do to help, please let me know.
Our power to win policy victories grows with the size of our network. So if you haven't already, please do join our alliance at www.gensqueeze.ca/join. And invite others.
Even more so, keep engaging here in Substack with us. Our power grows not just with our numbers, but when our alliance is also engaged in a lively way. Then talented people like you shape our thinking, as we are trying to shape thinking in the general public, and within the world of politics.
If my story and the stories of the people in my community will help push the solution forward, then I am happy to talk to you. Especially, since so many people that I deliver food for each week from the food bank in Toronto are not able to speak up for themselves.
In June, an elderly man on the food bank delivery program broke down in tears right in front of me as he described how he and his wife waited on the list for affordable housing for over 20 years. They were only approved for the housing shortly after his wife died. This is just one of many stories coming from people in Toronto - the financial capital of Canada. These are first hand accounts. Imagine the stories that are not being told.
Thanks Urich! Yes indeed, this statement was a long time coming. Now we need to organize all federal housing policy around the goal of stalling prices. That will give us a clear trajectory towards restoring affordability. Canadians support politicians to act - our polling indicates that 69% agree that home prices should stall. https://www.gensqueeze.ca/stalling_home_prices_poll
ICYMI, Andrew Coyne also recently wrote a Globe piece in which he talks about the need to address the demand side of our housing system – including the way we tax housing wealth. Check out this excerpt:
“At any rate, supply is only one part of the equation. The Canadian housing market is distorted not only by restrictions on supply, but by subsidies to demand. The most overt of these, such as the tax incentives for first-time home buyers, have lately come under scrutiny as the false solutions that they are. But there are many others, deeply embedded in the housing landscape, of which we are less conscious…
And then there’s the big one: the exemption from tax on capital gains arising from the sale of a principal residence, a tax preference worth more than $6-billion annually. Which, of course, gets capitalized into the value of the house. How much of the current premium on housing prices is explained by that one government intervention – a tax break that pays the most to the owner of the most overpriced house – I will leave to the economists to calculate. But it has to be considerable.”
I would love to talk to you about health policy Andrea. Sorry to veer off topic but I saw on your link that you have a background in health policy. I'm not sure if Substack has a DM feature...
I feel Rebecca's pain. At issue is the clawing and those are far from seriously being able to claw.
So, something has to give. I think a freeze or stall is reasonable along with cushioning measures.
Governments need to direct the building of affordable housing that the market just won't. Its's a market problem that needs a public policy fix. I thought Paul's letter to the Prime Minster was bang on.
So happy to hear that you think Paul's letter was bang on Glen!
I agree with you, public policy fixes are desperately needed to deal with our broken housing market. I think it's important for us all to keep in mind that the market did not just end up this way by accident, there are numerous policies that incentivized behaviors which led us here. The good news is that if bad policies in the past got us here, better policies can lead us in a better direction in the future.
Glen, I couldn’t agree more. I think a lot of people have a misconception that “the market” is some unbiased, failsafe option that results in good things so long as governments stay out (and businesses dictate) all the rules of engagement. It’s really surprising and even prejudicial. Policy makes sure that we all get home safe. If “insert pizza chain here” (lol) had their way they would allow drivers to race down the road at 200 km/h because it would improve delivery times. lol!
Seeing as I finally clawed my way into the market I don't agree with this. I certainly don't want the value of my home to go down. I'd rather the government stay out of it and focus on making our paychecks go farther.
Hi Rebecca - congratulation on the successful clawing! That is an accomplishment. You're right that those people who recently managed to purchase at very high prices do face particular risks, especially those with large mortgages. Cushioning the impacts of stalling (or falling) home prices is a policy domain that needs further development, as we note in our housing solutions framework (https://www.gensqueeze.ca/housing_solutions). We'd welcome your ideas!
Your situation is a good example of how we are all entangled in a broken housing system that is harming younger people, renters of any age, and newcomers to Canada who can't afford a place to call home - while simultaneously growing the wealth of many (often older) home owners. Stalling prices is an important part of the systemic fix, because we will never restore housing affordability forever so long as real estate is an investment to generate wealth, not creating affordable places for people to call home. Creating more supply will never be enough on its own (see this, for example: https://bcbc.com/insight/ottawa-instigated-an-epic-credit-boom-and-the-party-is-almost-over-its-time-to-focus-on-growing-gdp-per-capita-and-real-incomes/).
Thanks Andrea. I totally understand how challenging this is and I don't think there are any easy solutions. That was a good article about housing that you linked. I agree, there is no shortage in supply and the prices are tied to the interest rates. Keeping the rates so low was a major mistake. I have two years to renewal and I'm planning on moving out and renting my place, because it's going to be so expensive when I remortgage. I'm already maxed out and my income is not keeping pace with the increased costs. I was a renter for a long time and I had to buy in a seriously overpriced competitive market. So, I get it. Trust me. I think the focus needs to be on income, jobs, and reducing taxation. The reality is that housing is affordable if you are working and have certain income level. I'd be fine if I wasn't dealing with high inflation plus the governments latest increase in taxes and pay deductions. It's too much. I'd also be interested in what could be done to improve the practices in the financial and real estate industry. Why can't we have 10, 15, 20 year mortgages like in the states? I think there is a lot of greed and they take advantage of people big time. That could be regulated a lot better. When I bought my place the selling agent drove up the price and tried to squeeze every dollar she could out of me. There is nothing fair about the way real estate works. I've had to accept that. You are never going to restore affordability by interfering in house prices, or controlling rent. You have to focus on jobs, what people make, and allowing people to keep more of what they earn. Life is unaffordable because I am paying so much of my income in taxes. I also think we should have ways to build wealth if we have the financial savvy and put in the effort to do so. Why create more barriers for people to use real estate to build wealth for themselves? If there is an issue with this it would be foreign investors, and criminals. I agree those people should have their properties seized and that real estate should be given back to Canadians.
Hi Rebecca. I think your personal story reveals why younger Canadians need to be at the forefront of breaking our national addiction to high and rising home prices. The struggle and stress you have experienced in paying for housing oozes from your writing. You are keenly aware of the damage done to younger people's personal finances as a result older Canadians like me who have sucked so much wealth from the housing system that we have left little affordability for those who follow.
Yes, I can understand that you too would have every reason to want to benefit from the "gravy train" that is rising home values for home owners. But mathematically, any windfall you now reap will come with a harsh cost for those who follow, because their earnings will fall even farther behind the cost of ownership and renting.
So the hard truth is that we need younger Canadians to "be the change they wish to see in the world" when it comes to fixing the housing system. Those who have scraped and clawed into home ownership absolutely can build equity by paying off their very large mortgages over decades through hard work and sacrifice. But we're going to need you to abandon the hope that your home's value will surge 50%, 100% or more in the coming years.
Is that fair to expect of you? Nope. Not given the wealth people like me, and especially those older than me, have extracted from our housing system. But it is the only path forward by which we can restore what has been lost -- the dream that a good home should be in reach for what hard work can earn, whether as a renter, in a co-op, or as an owner.
In return, we absolutely must ask older Canadians like me to get off the sidelines, and acknowledge our wealth accumulation has caused harm for others in our lives who we love. This will ultimately require older Canadians to be open to contributing more than we do now towards housing solutions that deliver deeply affordable housing for younger Canadians and future generations.
Thanks for sharing so passionately in this dialogue about difficult policy trade-offs. All the best!
Thanks Paul, but you are missing the point. Nobody wants prices to go up by leaps and bounds. The Bank of Canada kept interest rates way too low, for too long and they told everyone it would stay that way (bad idea!). At the same time the federal government flooded the economy with cash (another bad idea). Now, interest rates and inflation are correcting the market conditions. What policy interventions are needed to stall prices if they already are stalled? If you want to investigate the profitability, practices and ethics of the financial and real estate industry and eliminate bad actors and policies that take advantage of purchasers that would be useful. Why does no one ever point out how much money the agents, brokers and lenders make? Why are regular people at risk of defaulting at renewal because they were told they could afford a home that five years later they can't refinance, because whoops someone made a mistake and forgot to raise the rates for 22 years? Why do we have 5 year mortgages? Because the lenders want more money. Why are you not targeting them? I do not begrudge anyone who got rich off their home. I am happy for them and I celebrate the wealth they have lucked out to accrue. Personally, in the purchase of my condo I paid for the university tuition of the sellers two daughters. Your welcome. Instead of this message that individuals are "causing harm" by circumstance, why are you not not calling out the appropriate actors who pull the strings and are never at risk of losing? It's not normal working people. Even people like me, who got into the market, we are still in precarious situations. I don't expect to get wealthy off my home. I just hope it doesn't go down in value because of a misguided policy intervention such as you are suggesting. Refocusing on the financing of home purchases (steady interest rates, giving people 20 years mortgages), economic growth so people have good jobs and salaries that go up, and income taxes that are not so punitive, is a more reasonable policy ask.
Thanks for clarifying. For what it is worth, we routinely critique how real estate, rental and leasing is the biggest part of Canada's GDP -- at 14%. But fewer than 2% of Canadians make their living in that industry. What does this mean? Real estate agents and their teams make very good livings -- per your point. Home owners like me have gained windfalls. Everyone else, including you, has had to work far harder to achieve housing security. I think we are one of the loudest voices encourage an alternative vision for creating a thriving economy, which I do think overlaps with the questions you raise about the role of the real estate industry. As an example, see this article https://www.gensqueeze.ca/globe_mail_lend_more_to_business_less_to_homeowners
Hi Rebecca, thanks for your comment. I think we are mostly on the same page!
But I would just like to point out that the factors that led to interest rates staying too low for too long have not been resolved. CPI, which we use to measure inflation, still does not adequately account for home prices.
I think you can see from our focus on policies like the above, that we do indeed try to address the systemic issues causing our problems. However, we also need to focus on the individuals and attitudes that enable these systemic issues to persist.
I'm not so sure that "nobody wants to see the market go up by leaps and bounds", at least this was not the case until very recently. This is why no politician has felt enough to support to make the comments Trudeau did about stalling prices up until now.
Thanks for reading Rebecca. We appericiate you sharing your persepctive, which no doubt is echoed by many recent buyers who struggled to get into the market.
Do you think you could get behind our positon, that the primary goal should be for house prices to stall so that earnings can catch up?
No. Absolutely not. Read the article that Andrea posted, it points out there is no shortage in housing and the reason the prices got so out of control was because of low interest rates. The damage is done and the increase in interest rates is already stalling the price of houses. If the government intervenes in the housing market they are going to make things worse, guaranteed. Sure we might get some low income housing built, which we, the taxpayers shoulder the burden of paying. What they need to do is stop spending so much money, reduce the tax burden on households, acknowledge the role they played in creating this issue and the debt they incurred, and get out of the way of allowing economic development so there are good paying jobs. We should all have the opportunity to build wealth somehow, and real estate is a good option.
The high interest rate is a global issue driven by the pandemic and the war in Ukraine. Every advanced economy raised interest rates. Some economies like Turkey did not raise interest rates and as a result they were not seen as a good place to invest. I agree that normal people will feel the pinch from high interest rates. Hopefully, we can find a way to stabilize house prices so that it is climbing at a rate of 2 or 3 percent a year instead of 30 percent per year.
Isn’t this the crux of the matter. Those who are “in” want the status quo. Those who are not “in” want a collapse so that they can afford to get “in”. I think the government needs to do what government is supposed to do and be the responsible person in the room mediating between different groups and doing right by Canadians - all Canadians.
Yes Kareem, we are a distracted people. The space between stimulus and response is filled with reactions, reactionary responses rather than careful thoughts and actions. Rebecca's posting: "Seeing as I finally clawed my way into the market, I don't agree with this." is reactionary and short sighted. Her sentiments: It was hard for me so why should it be easier for anybody else. The system sucks but I made it! I want my house value to go up...making it that much harder for the next.
The Toronto Star reported yesterday- "Data shows investors took advantage of low interest rates over the pandemic to scoop up large chunks of Canada’s housing supply, owning 10 per cent more of the nation’s mortgaged homes than they did three years ago." This is a huge part of the problem.
Only government policies can go after this! The market sees housing as an investment opportunity. Trying to get our Public-our government to deal with housing as a basic need is the only way out of the crises.
We get the politics that we deserve, and progress requires an engaged and informed public! Participatory democracy demands engaged citizens that don't react in apathy or alienation. David Moscrop, in his book Too Dumb For Democracy?, answers his own question that yes, we are too dumb for democracy unless we actually get engaged. We are a society of screen watchers passively venting in disconnected silos-I wrote earlier this morning.
Thanks Glen, I appericiate your endorsement of that article!
Sounds like an interesting book, I've added it to my list. It reminds me of Amusing Ourselves to Death, by Neil Postman, which was written back in 1985, but explains so well why our policital discourse has devolved over time.
Summary from wikipedia:
"Thus rational argument, integral to print typography, is militated against by the medium of television for this reason. Owing to this shortcoming, politics and religion are diluted, and "news of the day" becomes a packaged commodity. Television de-emphasizes the quality of information in favor of satisfying the far-reaching needs of entertainment, by which information is encumbered and to which it is subordinate."
You can imagine how things have only become more extreme with the rise of social media.
Kareem, I typed my response to you too fast! What I meant was: We are a distracted people of short attention spans. The space between stimulus and response is made an increasingly smaller space with so much distraction, making for reactionary responses- more and more sentiments govern us rather than slow careful connective thinking for wise decisions and actions. That we do not have the time, inclination or thinking skills for connective thinking is the subject of the book I am writing. I am a retired teacher saying we school minds not to think-but to consume.
The issue lies with policies preventing the rapid build of housing (ie. zoning issues and permits) as well as international sales of our housing. Homeowners are not wealthy....many of us have invested into the market to try to secure a future (ie. Retirement). The cost and length of time it takes to zone housing (ie. apartments and low income units) and permits often ends up surpassing an investors 5 year mortgage on the land (meaning the original estimate on the build is no longer accurate and is much higher with inflation) which makes such an investment not attractive as it often results in a massive loss, or the properties, once built, are no longer affordable as the land owner is trying to collect any investment income they lost during the time of zoning/building.
The only way prices will come down is if Trudeau cracks down on money being laundered from China into real estate and increases taxes on investor properties. People buying second/multiple properties as investments should be taxed to the point that it doesn't make sense to do so, then the money would go into the stock market and more properties would come on the market. Air B and B should be banned as well. Trudeau knows these measures would cause prices to drop immediately, that's why he won't enact them.
I completely concur with what Urich said - “People should be investing in companies, green energy. Stock markets, bonds—“ You’re so right about this. We’ve been hearing so much about Canada’s dropping productivity, that our GDP:worker ratio is dropping and dropping. Many commentators have noted that Canadians under invest in companies within Canada. Canadian companies underspend on research and underinvest to grow and expand. We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country. I believe we need to incentivize Canadians to invest in Canadian businesses, in research and development, in green energy. We could de-incentivize investment in real estate and incentivize investment in Canadian stocks and bonds. How? Public sector workers have pension plans where contributions are matched by the employer (the employer being government = taxpayer). Create a pension plan system that provides matching funds when you contribute or at least a significant financial incentive to participate. It would need to be more attractive than leveraging your home to by another home. Humans are naturally greedy, they want to improve their lot in the world and provide security for their kin. Greed is normal, so we need to figure out how to leverage that tendency to create industry and wealth for all. But it would require government action on multiple fronts - on the incentivizing and disincentivizing sides of the equation.
"We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country." So true, what a waste!
I think you're right Mary, it's all about incentives. Your plan to create a pension system that incentivize investment outside of real estate is such an interesting idea, it makes sense to me!
It details how the government has incentivized banks to lend out high-ratio mortgages, which has allowed people to take on massive amounts of leverage, driving up home prices, while diverting funds away from more productive parts of our economy.
Wow, wow, wow.. this is unbelievable Kareem. It explains a lot!! I am a small business owner and I can’t even blink without the bank questioning my financial health. And yet… in the real estate sector banks are laughing, well actually they’re laughing all the way (to the federally backstopped) bank!!
I wonder if a serious tax break or incentive for renters would be useful for tipping the scales on home prices. Rents are unlikely to decrease unless there is an oversupply of long term rental (unlikely in the near to medium term). But if we directed some of the 6 billion currently provided to homeowners through capital gains exemptions and directed it to renters - would that help balance supply and demand? For eg. If renters could claim an income tax deduction on their rent (a significant and meaningful deduction) would more people rent? Obviously this wouldn’t help low income renters as they may not have sufficient income to benefit from the tax break, but maybe people who own homes would elect to rent if the financial incentive were there. And those who currently rent would have a better income to rent per cent age (30% being ideal). Obviously we would need a lot more purpose built rental but if rents remain as high as they are now presumably there’s enough rental money coming in to make rental housing profitable for developers. And we have the GST break for building rental coming online as well.
If retirees had an economic incentive to rent over owning I bet a lot of them would downsize and free up housing which would help the supply side of things for millennials and Gen X. Right now it’s economically smart to stay in one’s house because of the capital gains exemption and rising house values so a lot of older people are over-housed as we know. But if that incentive was reduced and renting made sense due to tax deductions perhaps that would help shift the equation.
Maybe older people who hope to retain the capital gains exemption on principal residence would let go of some of that privilege if they could get tax breaks for renting. After all, retirement homes are usually rental as well.
No matter what housing will require policy changes at the federal level. The feds need to be more creative. A scheme like this might be revenue neutral for government (just slice up the 6 billion differently).
And if boomers don’t like it and want their full capital gains exemption on principal residence they may flood the market with home sales before a new policy takes effect (which could free up housing and reduce prices due to increased supply).
It does seem like some sort of rental incentive would result in more homes for sale by encouraging older homeowners to sell and downsize. But it would likely also add more competition for rentals? Not sure if overall, this would result in more affordable housing?
Either way, I agree with your view that what we really need is policy changes at the federal level. We need some more creative thinking, just like what you have presented here. Thanks for contributing this idea to the discussion!
Words are cheap, our politicians' words are cheaper, and until the GoC itself gets in the business of building homes directly, there is no reason to think that this statement will change anything meaningful. To hell with empty platitudes and to hell with applauding the PM for a basic acknowledgement of reality: give us action, not more meaningless posturing.
I hear your frustration, Gavin. You’re 100% right that we need words to be backed up by action – something that doesn’t always happen in politics (or elsewhere). But I still think that some talk can be game changing. This is the first time a political leader has been brave enough to even raise the prospect of home prices stalling. Decades of rising prices have made many home owners wealthy, so at least some of them won’t be happy to hear that the gravy train is stopping. The PM’s statement also opens the door for stalling prices to become the clear goal for our housing system. It’s difficult to do the hard work of changing systems without clarity of purpose to guide all other federal housing policy decisions (and ideally provincial ones as well).
I appreciate your thoughtful response, but wealthy homeowners know full well (and historically speaking, correctly) that no party in power will actually take measures to seriously affect the value of their homes. Unfortunately for us, a serious correction is the only thing that will help, and until the Liberals shovel some serious money and legislation towards this issue, then I maintain that Trudeau deserves nothing but scorn, and if anything, we should be lambasting him for taking so long. He has shown that he doesn't respond unless it is to seriously negative press, so we shouldn't be crediting him for his posturing, we should be asking him where his head has been buried since 2014 and shaming him into doing more.
This is a very interesting discussion. I am a boomer who has benefited from purchasing a home decades ago when the earnings to owning housing ratio was reasonable and achievable. I have a daughter who ‘clawed’ into the market and has a mortgage approaching $1m - only possible to manage due to a rental apartment in the basement and roommmates.
While I do think that low interest rates contributed to rising housing prices, I think this was because we witnessed a financialization of shelter. When interest rates were low a lot of Canadians and investors purchased another property (often many) in order to increase wealth. One in seven home owners have a second property or more. Airbnb didn’t help this situation - putting long term renters out in favour of a short term high rent cash grab. When housing becomes a financial instrument rather than shelter we have a serious problem.
Additionally, governments of the past have encouraged home ownership as a type of forced savings plan - a defacto retirement plan. Again, this is a policy failure especially now that interest rates are high and mortgage amortizations are often 30 yrs long. Paying down a mortgage and thereby accruing equity is very difficult now. There will be a lot more interest paid to banks than in the past.
Canadians without generous workplace pensions (the majority of us) are reliant on that home equity as an income source in old age. Governments have counted on that. Governments have not adequately provided public pensions - CPP is under funded which explains OAS (very costly and coming from general tax revenues ie. working people) and GIS.
Having affordable access to a home or apartment whether owned or rented shouldn’t break the bank of working people. It shouldn’t be viewed as an ‘investment’ but as a basic human right.
There should be some golden rules. If average household earnings in Canada are around $80k then obtaining a modest 3 bedroom home should be 5x the avg or $400,000. Rent for a 3 bed apartment should be no more than 30% of monthly household income or $2000/mth.
Housing doesn’t just need to stabilize it needs to drop relative to income. For those already invested at a high cost it may not be possible to bring prices down as the losses would be severe - a fair concern for people like Rebecca and my daughter. But holding prices and allowing incomes to catch up (which may take a long time) may be necessary.
No matter how you slice or dice it housing is too expensive, rental is too expensive relative to Canadian incomes. Some major policy shifts in more than one sphere will be necessary if we’re ever to restore housing to what it should be - affordable shelter for all Canadians.
Now that's a "Golden Rule" I could get behind. We are a long ways from that now. But this past week marked some major incremental progress by having our national leader own up to the hard truth that we no longer want home prices to rise. That is the first step on a long quest to help earnings to reconnect to average housing costs for renters and aspiring owners.
I think the Prime Minister’s comments were a very big deal. Finally an acknowledgement from someone in charge (and the top person no-less) that housing costs cannot continue to rise indefinitely. This sort of acknowledgment at the top is indicative of a very good thing: government is aware of the problems Canadians are facing. Our stories are getting through to the MPs. And this Liberal government is even signaling that they agree with our message. Follow those comments with policy to remove the GST from new rental construction... I would say that we have the beginnings of a potential resolution to the housing crisis. Now, I will temper my excitement with the acknowledgment that we still need to go a lot further. I think you touched on this a lot in your piece: the general idea that more housing units alone will not be sufficient unless pricing stalls. This is perhaps the only way to cause a natural correction in the housing market without a sudden and abrupt collapse: we have to address the demand side of the equation. I think that if we can make rental units widely available on a massive scale and peg those rents to income we will give Canadians what they desperately need: a choice. The freedom to live where you want and work where you live and to actually be able to pay the rent without relying on credit card debt to pay for food. That’s the dream of many Millennials and Gen Z. I don’t think that’s asking too much of our leaders at all levels of government.
Brilliantly said Urich!
Appreciated professor. The work that your group has done for years is invaluable. I’m glad to see that you’re making in-roads. I really want to advocate for housing reforms and other policies that affect all Canadians, but especially Millennials and Gen Z. If anything I can do to help, please let me know.
Our power to win policy victories grows with the size of our network. So if you haven't already, please do join our alliance at www.gensqueeze.ca/join. And invite others.
Even more so, keep engaging here in Substack with us. Our power grows not just with our numbers, but when our alliance is also engaged in a lively way. Then talented people like you shape our thinking, as we are trying to shape thinking in the general public, and within the world of politics.
If my story and the stories of the people in my community will help push the solution forward, then I am happy to talk to you. Especially, since so many people that I deliver food for each week from the food bank in Toronto are not able to speak up for themselves.
In June, an elderly man on the food bank delivery program broke down in tears right in front of me as he described how he and his wife waited on the list for affordable housing for over 20 years. They were only approved for the housing shortly after his wife died. This is just one of many stories coming from people in Toronto - the financial capital of Canada. These are first hand accounts. Imagine the stories that are not being told.
Thanks Urich! Yes indeed, this statement was a long time coming. Now we need to organize all federal housing policy around the goal of stalling prices. That will give us a clear trajectory towards restoring affordability. Canadians support politicians to act - our polling indicates that 69% agree that home prices should stall. https://www.gensqueeze.ca/stalling_home_prices_poll
You’re right that supply isn’t enough. Gen Squeeze founder Paul Kershaw just wrote a column for the Globe & Mail on this very point. Here’s the link – and it will also be available for free on our website shortly. https://www.theglobeandmail.com/investing/personal-finance/young-money/article-we-need-a-clear-goal-for-home-prices-not-just-a-target-for-new-builds/
ICYMI, Andrew Coyne also recently wrote a Globe piece in which he talks about the need to address the demand side of our housing system – including the way we tax housing wealth. Check out this excerpt:
“At any rate, supply is only one part of the equation. The Canadian housing market is distorted not only by restrictions on supply, but by subsidies to demand. The most overt of these, such as the tax incentives for first-time home buyers, have lately come under scrutiny as the false solutions that they are. But there are many others, deeply embedded in the housing landscape, of which we are less conscious…
And then there’s the big one: the exemption from tax on capital gains arising from the sale of a principal residence, a tax preference worth more than $6-billion annually. Which, of course, gets capitalized into the value of the house. How much of the current premium on housing prices is explained by that one government intervention – a tax break that pays the most to the owner of the most overpriced house – I will leave to the economists to calculate. But it has to be considerable.”
The full article is here: https://www.theglobeandmail.com/opinion/article-many-of-the-so-called-solutions-to-canadas-housing-mess-are-merely/
I would love to talk to you about health policy Andrea. Sorry to veer off topic but I saw on your link that you have a background in health policy. I'm not sure if Substack has a DM feature...
Sure, sounds good! You can contact me directly here: andrea@gensqueeze.ca.
I certainly will.
I feel Rebecca's pain. At issue is the clawing and those are far from seriously being able to claw.
So, something has to give. I think a freeze or stall is reasonable along with cushioning measures.
Governments need to direct the building of affordable housing that the market just won't. Its's a market problem that needs a public policy fix. I thought Paul's letter to the Prime Minster was bang on.
So happy to hear that you think Paul's letter was bang on Glen!
I agree with you, public policy fixes are desperately needed to deal with our broken housing market. I think it's important for us all to keep in mind that the market did not just end up this way by accident, there are numerous policies that incentivized behaviors which led us here. The good news is that if bad policies in the past got us here, better policies can lead us in a better direction in the future.
I wrote an article on this topic for Generation Squeeze a while back, thought you might find it interesting: https://www.gensqueeze.ca/kareem_kudus_first_year
Glen, I couldn’t agree more. I think a lot of people have a misconception that “the market” is some unbiased, failsafe option that results in good things so long as governments stay out (and businesses dictate) all the rules of engagement. It’s really surprising and even prejudicial. Policy makes sure that we all get home safe. If “insert pizza chain here” (lol) had their way they would allow drivers to race down the road at 200 km/h because it would improve delivery times. lol!
Seeing as I finally clawed my way into the market I don't agree with this. I certainly don't want the value of my home to go down. I'd rather the government stay out of it and focus on making our paychecks go farther.
Hi Rebecca - congratulation on the successful clawing! That is an accomplishment. You're right that those people who recently managed to purchase at very high prices do face particular risks, especially those with large mortgages. Cushioning the impacts of stalling (or falling) home prices is a policy domain that needs further development, as we note in our housing solutions framework (https://www.gensqueeze.ca/housing_solutions). We'd welcome your ideas!
Your situation is a good example of how we are all entangled in a broken housing system that is harming younger people, renters of any age, and newcomers to Canada who can't afford a place to call home - while simultaneously growing the wealth of many (often older) home owners. Stalling prices is an important part of the systemic fix, because we will never restore housing affordability forever so long as real estate is an investment to generate wealth, not creating affordable places for people to call home. Creating more supply will never be enough on its own (see this, for example: https://bcbc.com/insight/ottawa-instigated-an-epic-credit-boom-and-the-party-is-almost-over-its-time-to-focus-on-growing-gdp-per-capita-and-real-incomes/).
Thanks Andrea. I totally understand how challenging this is and I don't think there are any easy solutions. That was a good article about housing that you linked. I agree, there is no shortage in supply and the prices are tied to the interest rates. Keeping the rates so low was a major mistake. I have two years to renewal and I'm planning on moving out and renting my place, because it's going to be so expensive when I remortgage. I'm already maxed out and my income is not keeping pace with the increased costs. I was a renter for a long time and I had to buy in a seriously overpriced competitive market. So, I get it. Trust me. I think the focus needs to be on income, jobs, and reducing taxation. The reality is that housing is affordable if you are working and have certain income level. I'd be fine if I wasn't dealing with high inflation plus the governments latest increase in taxes and pay deductions. It's too much. I'd also be interested in what could be done to improve the practices in the financial and real estate industry. Why can't we have 10, 15, 20 year mortgages like in the states? I think there is a lot of greed and they take advantage of people big time. That could be regulated a lot better. When I bought my place the selling agent drove up the price and tried to squeeze every dollar she could out of me. There is nothing fair about the way real estate works. I've had to accept that. You are never going to restore affordability by interfering in house prices, or controlling rent. You have to focus on jobs, what people make, and allowing people to keep more of what they earn. Life is unaffordable because I am paying so much of my income in taxes. I also think we should have ways to build wealth if we have the financial savvy and put in the effort to do so. Why create more barriers for people to use real estate to build wealth for themselves? If there is an issue with this it would be foreign investors, and criminals. I agree those people should have their properties seized and that real estate should be given back to Canadians.
Hi Rebecca. I think your personal story reveals why younger Canadians need to be at the forefront of breaking our national addiction to high and rising home prices. The struggle and stress you have experienced in paying for housing oozes from your writing. You are keenly aware of the damage done to younger people's personal finances as a result older Canadians like me who have sucked so much wealth from the housing system that we have left little affordability for those who follow.
Yes, I can understand that you too would have every reason to want to benefit from the "gravy train" that is rising home values for home owners. But mathematically, any windfall you now reap will come with a harsh cost for those who follow, because their earnings will fall even farther behind the cost of ownership and renting.
So the hard truth is that we need younger Canadians to "be the change they wish to see in the world" when it comes to fixing the housing system. Those who have scraped and clawed into home ownership absolutely can build equity by paying off their very large mortgages over decades through hard work and sacrifice. But we're going to need you to abandon the hope that your home's value will surge 50%, 100% or more in the coming years.
Is that fair to expect of you? Nope. Not given the wealth people like me, and especially those older than me, have extracted from our housing system. But it is the only path forward by which we can restore what has been lost -- the dream that a good home should be in reach for what hard work can earn, whether as a renter, in a co-op, or as an owner.
In return, we absolutely must ask older Canadians like me to get off the sidelines, and acknowledge our wealth accumulation has caused harm for others in our lives who we love. This will ultimately require older Canadians to be open to contributing more than we do now towards housing solutions that deliver deeply affordable housing for younger Canadians and future generations.
Thanks for sharing so passionately in this dialogue about difficult policy trade-offs. All the best!
Thanks Paul, but you are missing the point. Nobody wants prices to go up by leaps and bounds. The Bank of Canada kept interest rates way too low, for too long and they told everyone it would stay that way (bad idea!). At the same time the federal government flooded the economy with cash (another bad idea). Now, interest rates and inflation are correcting the market conditions. What policy interventions are needed to stall prices if they already are stalled? If you want to investigate the profitability, practices and ethics of the financial and real estate industry and eliminate bad actors and policies that take advantage of purchasers that would be useful. Why does no one ever point out how much money the agents, brokers and lenders make? Why are regular people at risk of defaulting at renewal because they were told they could afford a home that five years later they can't refinance, because whoops someone made a mistake and forgot to raise the rates for 22 years? Why do we have 5 year mortgages? Because the lenders want more money. Why are you not targeting them? I do not begrudge anyone who got rich off their home. I am happy for them and I celebrate the wealth they have lucked out to accrue. Personally, in the purchase of my condo I paid for the university tuition of the sellers two daughters. Your welcome. Instead of this message that individuals are "causing harm" by circumstance, why are you not not calling out the appropriate actors who pull the strings and are never at risk of losing? It's not normal working people. Even people like me, who got into the market, we are still in precarious situations. I don't expect to get wealthy off my home. I just hope it doesn't go down in value because of a misguided policy intervention such as you are suggesting. Refocusing on the financing of home purchases (steady interest rates, giving people 20 years mortgages), economic growth so people have good jobs and salaries that go up, and income taxes that are not so punitive, is a more reasonable policy ask.
Thanks for clarifying. For what it is worth, we routinely critique how real estate, rental and leasing is the biggest part of Canada's GDP -- at 14%. But fewer than 2% of Canadians make their living in that industry. What does this mean? Real estate agents and their teams make very good livings -- per your point. Home owners like me have gained windfalls. Everyone else, including you, has had to work far harder to achieve housing security. I think we are one of the loudest voices encourage an alternative vision for creating a thriving economy, which I do think overlaps with the questions you raise about the role of the real estate industry. As an example, see this article https://www.gensqueeze.ca/globe_mail_lend_more_to_business_less_to_homeowners
Cheers.
Hi Rebecca, thanks for your comment. I think we are mostly on the same page!
But I would just like to point out that the factors that led to interest rates staying too low for too long have not been resolved. CPI, which we use to measure inflation, still does not adequately account for home prices.
You can read more about this here: https://www.gensqueeze.ca/straddling_the_gap_2022_housing_affordability
I think you can see from our focus on policies like the above, that we do indeed try to address the systemic issues causing our problems. However, we also need to focus on the individuals and attitudes that enable these systemic issues to persist.
I'm not so sure that "nobody wants to see the market go up by leaps and bounds", at least this was not the case until very recently. This is why no politician has felt enough to support to make the comments Trudeau did about stalling prices up until now.
Thanks for reading Rebecca. We appericiate you sharing your persepctive, which no doubt is echoed by many recent buyers who struggled to get into the market.
Do you think you could get behind our positon, that the primary goal should be for house prices to stall so that earnings can catch up?
https://www.gensqueeze.ca/straddling_the_gap_2022_housing_affordability
No. Absolutely not. Read the article that Andrea posted, it points out there is no shortage in housing and the reason the prices got so out of control was because of low interest rates. The damage is done and the increase in interest rates is already stalling the price of houses. If the government intervenes in the housing market they are going to make things worse, guaranteed. Sure we might get some low income housing built, which we, the taxpayers shoulder the burden of paying. What they need to do is stop spending so much money, reduce the tax burden on households, acknowledge the role they played in creating this issue and the debt they incurred, and get out of the way of allowing economic development so there are good paying jobs. We should all have the opportunity to build wealth somehow, and real estate is a good option.
The high interest rate is a global issue driven by the pandemic and the war in Ukraine. Every advanced economy raised interest rates. Some economies like Turkey did not raise interest rates and as a result they were not seen as a good place to invest. I agree that normal people will feel the pinch from high interest rates. Hopefully, we can find a way to stabilize house prices so that it is climbing at a rate of 2 or 3 percent a year instead of 30 percent per year.
Isn’t this the crux of the matter. Those who are “in” want the status quo. Those who are not “in” want a collapse so that they can afford to get “in”. I think the government needs to do what government is supposed to do and be the responsible person in the room mediating between different groups and doing right by Canadians - all Canadians.
Yes Kareem, we are a distracted people. The space between stimulus and response is filled with reactions, reactionary responses rather than careful thoughts and actions. Rebecca's posting: "Seeing as I finally clawed my way into the market, I don't agree with this." is reactionary and short sighted. Her sentiments: It was hard for me so why should it be easier for anybody else. The system sucks but I made it! I want my house value to go up...making it that much harder for the next.
The Toronto Star reported yesterday- "Data shows investors took advantage of low interest rates over the pandemic to scoop up large chunks of Canada’s housing supply, owning 10 per cent more of the nation’s mortgaged homes than they did three years ago." This is a huge part of the problem.
Only government policies can go after this! The market sees housing as an investment opportunity. Trying to get our Public-our government to deal with housing as a basic need is the only way out of the crises.
Beautifully written Kareem. I recommend that everybody reads Kareem's article. https://www.gensqueeze.ca/kareem_kudus_first_year
We get the politics that we deserve, and progress requires an engaged and informed public! Participatory democracy demands engaged citizens that don't react in apathy or alienation. David Moscrop, in his book Too Dumb For Democracy?, answers his own question that yes, we are too dumb for democracy unless we actually get engaged. We are a society of screen watchers passively venting in disconnected silos-I wrote earlier this morning.
Thanks Glen, I appericiate your endorsement of that article!
Sounds like an interesting book, I've added it to my list. It reminds me of Amusing Ourselves to Death, by Neil Postman, which was written back in 1985, but explains so well why our policital discourse has devolved over time.
Summary from wikipedia:
"Thus rational argument, integral to print typography, is militated against by the medium of television for this reason. Owing to this shortcoming, politics and religion are diluted, and "news of the day" becomes a packaged commodity. Television de-emphasizes the quality of information in favor of satisfying the far-reaching needs of entertainment, by which information is encumbered and to which it is subordinate."
You can imagine how things have only become more extreme with the rise of social media.
Exactly, Urich! Government Setting limits-guidelines rules is essential. The market is particularly good at MARKETING myths and lies.
Kareem, I typed my response to you too fast! What I meant was: We are a distracted people of short attention spans. The space between stimulus and response is made an increasingly smaller space with so much distraction, making for reactionary responses- more and more sentiments govern us rather than slow careful connective thinking for wise decisions and actions. That we do not have the time, inclination or thinking skills for connective thinking is the subject of the book I am writing. I am a retired teacher saying we school minds not to think-but to consume.
The issue lies with policies preventing the rapid build of housing (ie. zoning issues and permits) as well as international sales of our housing. Homeowners are not wealthy....many of us have invested into the market to try to secure a future (ie. Retirement). The cost and length of time it takes to zone housing (ie. apartments and low income units) and permits often ends up surpassing an investors 5 year mortgage on the land (meaning the original estimate on the build is no longer accurate and is much higher with inflation) which makes such an investment not attractive as it often results in a massive loss, or the properties, once built, are no longer affordable as the land owner is trying to collect any investment income they lost during the time of zoning/building.
The only way prices will come down is if Trudeau cracks down on money being laundered from China into real estate and increases taxes on investor properties. People buying second/multiple properties as investments should be taxed to the point that it doesn't make sense to do so, then the money would go into the stock market and more properties would come on the market. Air B and B should be banned as well. Trudeau knows these measures would cause prices to drop immediately, that's why he won't enact them.
Looks like the leaders out in BC are listening to you Tim :)
I completely concur with what Urich said - “People should be investing in companies, green energy. Stock markets, bonds—“ You’re so right about this. We’ve been hearing so much about Canada’s dropping productivity, that our GDP:worker ratio is dropping and dropping. Many commentators have noted that Canadians under invest in companies within Canada. Canadian companies underspend on research and underinvest to grow and expand. We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country. I believe we need to incentivize Canadians to invest in Canadian businesses, in research and development, in green energy. We could de-incentivize investment in real estate and incentivize investment in Canadian stocks and bonds. How? Public sector workers have pension plans where contributions are matched by the employer (the employer being government = taxpayer). Create a pension plan system that provides matching funds when you contribute or at least a significant financial incentive to participate. It would need to be more attractive than leveraging your home to by another home. Humans are naturally greedy, they want to improve their lot in the world and provide security for their kin. Greed is normal, so we need to figure out how to leverage that tendency to create industry and wealth for all. But it would require government action on multiple fronts - on the incentivizing and disincentivizing sides of the equation.
"We have trillions of dollars tied up in real estate where it sits there doing nothing for the economy and our country." So true, what a waste!
I think you're right Mary, it's all about incentives. Your plan to create a pension system that incentivize investment outside of real estate is such an interesting idea, it makes sense to me!
While we are on the topic of inventives and real estate investment, I think you might find this article I wrote a little while back to be interesting: https://kareemk.substack.com/p/how-a-promise-from-our-government
It details how the government has incentivized banks to lend out high-ratio mortgages, which has allowed people to take on massive amounts of leverage, driving up home prices, while diverting funds away from more productive parts of our economy.
Wow, wow, wow.. this is unbelievable Kareem. It explains a lot!! I am a small business owner and I can’t even blink without the bank questioning my financial health. And yet… in the real estate sector banks are laughing, well actually they’re laughing all the way (to the federally backstopped) bank!!
It is unbelivable isn't it! Thanks for reading Mary
I wonder if a serious tax break or incentive for renters would be useful for tipping the scales on home prices. Rents are unlikely to decrease unless there is an oversupply of long term rental (unlikely in the near to medium term). But if we directed some of the 6 billion currently provided to homeowners through capital gains exemptions and directed it to renters - would that help balance supply and demand? For eg. If renters could claim an income tax deduction on their rent (a significant and meaningful deduction) would more people rent? Obviously this wouldn’t help low income renters as they may not have sufficient income to benefit from the tax break, but maybe people who own homes would elect to rent if the financial incentive were there. And those who currently rent would have a better income to rent per cent age (30% being ideal). Obviously we would need a lot more purpose built rental but if rents remain as high as they are now presumably there’s enough rental money coming in to make rental housing profitable for developers. And we have the GST break for building rental coming online as well.
If retirees had an economic incentive to rent over owning I bet a lot of them would downsize and free up housing which would help the supply side of things for millennials and Gen X. Right now it’s economically smart to stay in one’s house because of the capital gains exemption and rising house values so a lot of older people are over-housed as we know. But if that incentive was reduced and renting made sense due to tax deductions perhaps that would help shift the equation.
Maybe older people who hope to retain the capital gains exemption on principal residence would let go of some of that privilege if they could get tax breaks for renting. After all, retirement homes are usually rental as well.
No matter what housing will require policy changes at the federal level. The feds need to be more creative. A scheme like this might be revenue neutral for government (just slice up the 6 billion differently).
And if boomers don’t like it and want their full capital gains exemption on principal residence they may flood the market with home sales before a new policy takes effect (which could free up housing and reduce prices due to increased supply).
That's an interesting idea Mary!
It does seem like some sort of rental incentive would result in more homes for sale by encouraging older homeowners to sell and downsize. But it would likely also add more competition for rentals? Not sure if overall, this would result in more affordable housing?
Either way, I agree with your view that what we really need is policy changes at the federal level. We need some more creative thinking, just like what you have presented here. Thanks for contributing this idea to the discussion!
Words are cheap, our politicians' words are cheaper, and until the GoC itself gets in the business of building homes directly, there is no reason to think that this statement will change anything meaningful. To hell with empty platitudes and to hell with applauding the PM for a basic acknowledgement of reality: give us action, not more meaningless posturing.
I hear your frustration, Gavin. You’re 100% right that we need words to be backed up by action – something that doesn’t always happen in politics (or elsewhere). But I still think that some talk can be game changing. This is the first time a political leader has been brave enough to even raise the prospect of home prices stalling. Decades of rising prices have made many home owners wealthy, so at least some of them won’t be happy to hear that the gravy train is stopping. The PM’s statement also opens the door for stalling prices to become the clear goal for our housing system. It’s difficult to do the hard work of changing systems without clarity of purpose to guide all other federal housing policy decisions (and ideally provincial ones as well).
I appreciate your thoughtful response, but wealthy homeowners know full well (and historically speaking, correctly) that no party in power will actually take measures to seriously affect the value of their homes. Unfortunately for us, a serious correction is the only thing that will help, and until the Liberals shovel some serious money and legislation towards this issue, then I maintain that Trudeau deserves nothing but scorn, and if anything, we should be lambasting him for taking so long. He has shown that he doesn't respond unless it is to seriously negative press, so we shouldn't be crediting him for his posturing, we should be asking him where his head has been buried since 2014 and shaming him into doing more.