Soaring home prices created seething resentments. Falling prices have made things worse.
With interest rates rising, housing is in a readjustment period that may bring us to a better place for affordability. For now, though, people are angry on all sides of the housing market. Buyers feel priced out, while some owners feel crushed by rising mortgage costs.
Mistakes were made by policy makers on the way to where we are now in housing. Those mistakes need to be understood and rectified so that housing doesn’t reignite as soon as interest rates come back to more normal levels. But Canada’s housing affordability crisis can’t be explained by one party’s errors and omissions. The housing mess is a group failure.
The hunger to lay blame for what happened in housing is on display in an Ask Me Anything forum I did on Reddit earlier this week. Politicians, the Bank of Canada and the mainstream media were all blasted by people who are angry and frustrated about the housing market.
The anger is justified. The first rule of being a Canadian adult is that you need to own a house, yet the cost of getting into the real estate market is in some cities insurmountable for people with middle-class incomes and no parental wealth to help with down payments. Those who battled their way into the market feel abused by interest-rate hikes that blow up their household finances.
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On the Reddit forum, people blamed governments for allowing the price of houses to surge way beyond growth in incomes. Also, for allowing investors and speculators to dominate the market and for not building enough new houses.
What these criticisms overlook is that the housing policies in place in recent years served a lot of people just fine. One of the most striking things about the real estate boom was the sense of entitlement people felt about the rising value of their homes. It’s not surprising politicians were afraid to do anything that would anger people rich in home equity.
The media was criticized on Reddit for being a housing-market cheerleader and for not reporting with enough critical scrutiny on topics such as the involvement of investors in the market and zoning laws that discourage construction of new housing.
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No doubt, there was an uncritical, “Can you believe this?” quality to some reporting on housing. But the pages of this newspaper have been full of analyses on all aspects of housing, from taxation of houses to the role of speculators and the growing chasm between growth in incomes and rising house prices. Back in April, 2021, I wrote an opinion piece headlined: ”The housing boom is ripping apart the financial fabric of Canadian life.”
Also critiqued on Reddit was the Bank of Canada’s handling of the housing market. The central bank was portrayed by one Reddit participant as contributing to unaffordable housing by keeping interest rates low for too long. In retrospect, soaring house prices were a sign of an inflation problem that ultimately turned into an economic emergency requiring big rate hikes.
It’s not just people shut out of housing who are angry with the Bank of Canada. The bank’s policy of raising rates to cool inflation has resulted in big increases in mortgage payments for some owners. They feel that if the bank had acted sooner, their burden would now be lighter.
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But the central bank’s job is to manage the entire economy, not just housing. One wishes the bank would articulate this better, but the conclusion to be drawn from its policies over the past two years is that the greater good for the economy was served by keeping rates low and letting housing run hot.
We’re now in a transitional phase for housing from speculative froth to something else. We don’t yet know what – a prolonged slump, a quick bounce-back or a normal market in which prices rise by an average annual rate in keeping with inflation.
What we do know is that there’s a lot of anger about housing. People are mad about quite a lot of things today, and there’s nothing unique about expressing this online in forums such as Reddit.
But housing seems different. Would-be buyers feel they’ve been denied access not just to home ownership, but to a prosperity enjoyed by everyone around them. Resentments are building. Addressing this is job No. 1 for housing policy.
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Rob Carrick