Federal party leaders are pitching their plans to address housing affordability, but according to one economics expert, the key solution is one that wouldn’t be popular among homeowners.
“Canadian housing is not in crisis, it’s where Canadians want it,” said John Rapley, a political economist at the University of Cambridge, noting that Canadians value the gains they’ve made from a soaring housing market.
But in order to make housing more affordable, more homes must be built — and that could mean taking a hit on returns from existing properties, he told Cross Country Checkup.
“You can’t actually just say we’ll build cheap houses here and [have] all the other houses keep their same value. Once you add supply to the market, the price and everything comes down, and that’s not popular.”
With many prospective homebuyers feeling squeezed out of the market, and others struggling to find reasonably priced rent in cities across the country, housing affordability has emerged as a key issue for voters ahead of the Sept. 20 election.
Canada’s major federal parties have shared their visions for making housing accessible, offering up ideas from restrictions on foreign buyers to building more housing.
While he welcomes plans to create more housing stock, Rapley warns that new developments will likely face opposition. Communities may push back against plans to increase a neighbourhood’s density, which could cause projects to move to lower-income areas or the outskirts of cities, adding to urban sprawl.
Ultimately, he believes it won’t be up to governments to decide how to move forward, but rather what Canadian homeowners will allow them to do.
“You have voters with a vested interest in not allowing that to happen,” Rapley said.
Market cooling, but prices remain high
Referencing concerns over limited availability of “deeply affordable” rental housing in Canada, former UN rapporteur on housing Leilani Farha says that the federal government has long prioritized housing as a commodity.
“That’s not just about this election — that’s about our system and the housing system established in Canada for quite some time,” she said.
Housing prices soared in the early months of the COVID-19 pandemic and into this year, with average home prices hitting an all-time high of around $716,000 in March 2021.
Tsur Somerville, a professor at the Sauder School of Business at the University of British Columbia, says that spike is what’s driving parties to pledge support for potential homebuyers. How far their promises will go remains unclear.
“A lot of what they’re talking about are things that are generally good ideas — so trying to create more clarity around purchase and sale of properties I think is a good thing,” Somerville said. “But I don’t know if they move the needle on affordability.”
In recent months, home sales in Canada began to cool, falling by three per cent in July while the average price of a home fell to $662,000. But Somerville cautions that they won’t drop significantly anytime soon.
“One of the problems with housing is that prices go up really easily. They don’t come down easily,” he said.
“A relevant question here is whether or not that price spike was a temporary or permanent change and, depending on what your answer is to that, that would actually affect what type of policies that you’d like to craft.”
More Canadians own than rent
Unlike other countries where renting is more common, nearly two-thirds of Canadian families own a home according to 2016 numbers from Statistics Canada.
Many Canadians, Rapley says, treat home ownership as their main investment which can mean savings and retirement funds are tied up in their home’s value.
“The fundamental problem is, because home ownership is so high, it’s difficult for a party to get the votes to actually do something about it,” he said.
The question is whether Canadians are ready for a redistribution of wealth in order to cool the market. Rapley says that’s an option, but it relies on homeowners willing to take, for example, a five to 10 per cent hit on their home’s value.
“I think probably the best thing that can be done is politicians just address that frankly,” he told Checkup.
“They talk about solutions, but nobody wants to come out and say that’s what it effectively involves.”
Written by Jason Vermes with files from Steve Howard and Kim Kaschor.
View original article here Source