Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on Twitter, Facebook, Instagram, and subscribe to Paul’s Hard Truths podcast.
There is no solving housing unaffordability in Canada until we are clear about when the housing market is healthy, and when it is not.
Too often industry and media portray the housing market as “strong” when prices rise, and “weak” when they stall. Such descriptions only make sense if we view housing primarily as an investment, rather than a place to call home. But too many Canadians, especially younger folks, are unable to afford homes whether as owners or renters.
So, we should be describing the housing market as strong when prices don’t rise, and weak when they do.
We should also give credit where credit is due. Since many of us blame politicians for failing to manage the housing market when prices skyrocket out of control, we ought to give them partial credit when prices stall – as they have done nationally for more than a year now.
A quick review of this summer’s reporting reveals the problem.
“Canada’s housing market saw some early signs of renewed life,” reported the Canadian Real Estate Association (CREA) in July. Renewed life, because sales climbed 3.7 per cent and its home price index edged up 0.1 per cent month over month. By August, CREA reported “Fledgling Canadian housing market momentum hits pause” because sales dipped, as did annual average prices. In other words, CREA thinks the housing market is healthy when prices rise.
Conversely, in Alberta, where home prices haven’t stalled, the Alberta Real Estate Association described some of the “strongest growth” in Calgary, where annual median prices rose 14 per cent.
Media should be careful not to echo these industry news releases.
Our economy is not strong when residential real estate absorbs a growing share of our gross domestic product (GDP). Productivity is driven by investment in machinery, equipment and intellectual property. It is not driven by borrowing to bid up the price of already-built homes, as Alberta Central has shown in its comparisons of U.S. and Canadian investment patterns since the late 2000s.
So long as Canada’s cultural addiction to investment in existing residential real estate drains investment from other industries, we can expect our GDP growth per capita to remain near the bottom of OECD countries.
Sure, many homeowners may think the housing market is “strong” when prices rise. I have regularly shared that my home has increased in value by more than a million dollars, improving my personal finances tremendously.
But this windfall is an example of lazy wealth accumulation. The increase in my home value is due little to my hard work, and much more to my timing of birth (1974) and entry into homeownership (2004).
Since gains like mine come at the cost of housing insecurity for many equally hard-working folks who follow in our footsteps, Canadian voters must signal once and for all that we have a single mission for home prices. We don’t want them to rise any longer, and we will celebrate when prices stall.
Such clarity is critical to making it politically safe for politicians to continue to implement housing policies that will help slow down home prices, and give earnings a chance to catch up over the long term.
So, let’s celebrate that 2023 was a relatively strong year for the housing system. CREA data show that average home prices fell nationally by 4 per cent, with average values now below what they were in 2021. That’s good news.
In Ontario, provincial and Toronto real estate prices are now lower than they were in 2021. While Ontario prices are still up 52 per cent since Premier Doug Ford took office in 2018, the flatline in values over the past few years is better than the soaring home prices experienced during his initial time in office.
Similarly, in B.C., there is no denying that average home prices are up 37 per cent since the NDP took power in 2017. But they have dipped 3 per cent since David Eby became Premier in late 2022. I say yay!
Stalling, or even moderately falling, home prices aren’t signs of weakness. They are signs of incremental success as politicians across federal, provincial and municipal jurisdictions wisely use an increasing number of policy tools to rein in home values, along with the Bank of Canada reducing access to cheap credit that fuelled bidding wars.
Only if we continue in this direction will our kids and grandchildren judge that we are strong stewards of the housing system. Their affordability depends on our being crystal clear about what constitutes a healthy housing market.
