Prime Minister Justin Trudeau uses a hammer before speaking about new housing solutions at the CCAT training centre in Woodbridge, Ont., on April 12.Nathan Denette/The Canadian Press
David Jones is an economics consultant and a fellow at the Canadian Centre for Health Economics.
Federal housing policy – the number one government priority in Budget 2024 – is unequivocal in its approach: supply, supply, supply. And rightly so.
But the ultimate goal is not clear. In a recent interview with The Globe and Mail’s City Space podcast, Prime Minster Justin Trudeau stated that “in the coming years … [young generations] will be able to see the path towards owning a home.”
However, in the same interview, the Prime Minister said that “housing needs to retain its value” and that homeowners shouldn’t need to sacrifice value from their primary asset.
These two goals are seemingly incompatible, and the government should tell us what it thinks success really looks like in the housing sector.
On housing, the government is walking a political tightrope between the voters who brought the Liberal government to power in 2015 (young Canadians) and the group who vote in the largest numbers (older citizens). With low poll numbers, the government can’t afford to alienate either group.
Young voters need lower house prices and rentals. Canada has the second highest ratio of house prices to income among all OECD countries and, in a recent survey, 44 per cent of young Canadian adults have given up on home ownership. Despite housing affordability being a global trend and a multigovernmental issue, the federal government’s popularity has been harmed considerably by the current crisis.
Meanwhile, older generations want to maintain the value of their assets. If house prices fall significantly, this would be extremely unpopular, particularly given cost-of-living concerns and rising poverty rates among the elderly. It would be risky politically to even acknowledge the potential societal upside from falling prices.
But the problem facing the government is that affordability for young people requires cooling the housing market and lower prices.
Royal Bank of Canada estimates that less than 30 per cent of Canadians have sufficient income to buy a single-family home – a figure that drops to around 10 per cent in British Columbia. Analysis by Generation Squeeze estimates that a typical young Ontarian needs to work for 22 years to save a down payment on an average home.
In this context, recent statements by the government have been at best unclear, and at worst contradictory. To appeal to homeowners and housing have-nots, the government’s goals could only be compatible under two conditions, both of which are unlikely.
If incomes were rising significantly, that could erode the affordability gap over time, without housing prices needing to fall. However, Canada’s productivity and gross domestic product per capita have been stagnating, so this catch-up effect would take decades.
If supply of low-cost units could increase rapidly, segmenting the market could minimize the impact on the price of higher-value units. However, rising construction costs and development fees, combined with challenging construction timelines, mean that affordable housing supply will take time to ramp up.
The government can, of course, pursue a middle way. If housing supply expands gradually, the market (and prices) could cool slightly, enough to improve affordability at a future point in time, but not enough to materially dent asset prices. This middle way doesn’t please either group fully, but it may appease them partially, and the government is likely hoping for this.
A half-measure of a political compromise such as that would not be a novel event. Only months ago, faced with a strong political headwind, the government softened its climate commitments by providing an exemption to the carbon price on heating oil, which implicitly favoured Atlantic provinces that usually vote Liberal in federal elections.
A housing sector compromise across young and older generations would have a more principled basis. But compromise or not, citizens deserve to have a transparent assessment of the implications and trade-offs – even if it invites scrutiny.
In recent months, arguably we have seen the government showing more of their true colours. In calling for “fairness for every generation,” Budget 2024 is unashamed in its egalitarian approach.
Yet the specific objectives for housing policy are less clear. What does success look like in practice? House prices rising less quickly? Stable prices? Declining prices? What are the projected impacts on different groups?
Politics is no stranger to compromise. So, if the government is seeking a middle way with its housing policies, it’s fair to explain this to Canadians.
Such unresolved questions will not help to shift the results of a recent Abacus poll, in which 50 per cent of Canadians believe that the Prime Minister hides his true views.