Trudeau Takes First Step To Break Canada’s Addiction To Rising Home Prices

Originally published in The Globe & Mail on September 22, 2023

“One of the things we know is that house pricing cannot continue to go up.” So said the Prime Minister at a recent press conference in London, Ont.

His assertion is a game-changer for the personal finances of younger residents and newcomers of any age. At last, someone from the world of politics is being honest about a pervasive and harmful trade-off. When home prices rise faster than earnings, owners like me gain wealth, while non-owners lose because their incomes fall further behind housing costs.

Rarely, if ever, has a senior politician in Canada been courageous enough to affirm that home prices need to stall if we truly care about affordability. Provincial and federal leaders from all parties have tended to avoid this position – all while lamenting how surging prices lock more young people out of ownership, and into precarious housing.

By disrupting this political pattern, the Prime Minister signals a clarity of purpose for change in our housing system that has not existed in my lifetime. Housing should be for homes first, and investments second.

Hallelujah, I say. Only when we are clear that our goal is for home values to stall relative to earnings can we begin in earnest to break the all-consuming cultural addiction to high and rising home prices that plagues our politics and personal lives. Breaking this addiction will require a comprehensive, multitargeted policy framework that includes, but goes beyond, Ottawa’s current focus on building record levels of supply.

Our politics is addicted to rising home prices because we judge politicians to be strong economic managers when our country’s gross domestic product (GDP) grows on their watch. By doing so, we’ve created a pernicious incentive for elected officials. Real estate, rental and leasing has been the largest contributor to our economy for years. This has entangled our politicians in the misperception that their credibility as managers of the economy depends on their tolerating home values that skyrocket out of reach for young people.

In contrast, when the Prime Minister acknowledges that home prices must stop rising, he better positions our country to enable millions of younger Canadians to thrive economically. Their earnings now have half a chance to reconnect to housing costs, slowly but surely.

Unfortunately, measures of GDP will not capture this economic improvement. In the short term, stalling home prices are likely to slow GDP as the economy recalibrates. But we shouldn’t penalize politicians for this temporary lag as they courageously oversee the transition. The recalibration ultimately will help incentivize investment in industrial sectors other than real estate that have greater potential to increase productivity – which is necessary for wages to grow.

Fortunately, we have resources to guide us to look beyond GDP to other indicators of economic well-being. Work by Statistics Canada to measure and report on Canada’s quality-of-life indicators is an important starting point. Quarterly quality-of-life reporting alongside GDP data would offer us a more comprehensive picture of our country’s performance – economically, socially, and environmentally.

As politicians break their political addiction to rising home values, many homeowners will need to break their personal addiction, too. It has become the expectation (dare I say, hope?) that the value of our principal residences will rise, because their increasing value offers a relatively easy path to financial security and retirement savings.

Since 1977, Canadian homeowners have gained trillions in housing wealth – most of it sheltered from taxation. In the light of such windfalls, it’s not surprising that many of us have come to bank on our home as an investment that will simply keep rising in value.

This expectation has caused us to blur the distinction between building our wealth by paying off a large mortgage versus hoping the value of our residence will grow exponentially.

The former is a strategy to gain equity through hard work and sacrifice over 25-plus years by paying off a large debt. The latter is the over-commodification of housing by which purchasers search for wealth windfalls from housing, which comes at the expense of preserving affordable homes for those who follow. This over-commodification has been normalized in much of B.C. and Ontario for years, and has spread more recently across the country in conjunction with the ultralow interest rates made available during the pandemic.

Now that we are being honest that home prices need to stop rising, people will need to plan differently for financial security in retirement. This may provide reason to demand better pension policies from employers. Some may also need to think more diligently about making investments beyond real estate to build savings for retirement.

Such adaptations will be challenging. It’s unlikely that breaking our cultural addiction to rising home prices will be any easier than breaking an addiction to drugs or alcohol.

But overcoming the addiction will be worth it. Because it offers the only path forward to restore what has been lost from our housing system for so many of our kids and grandchildren: the dream that a good home should be in reach for what hard work can earn, whether as renter, in a co-op, or as owner.