For many, the purchase of a home means they’ve made it. Home ownership is a symbol of full and successful participation within the middle class. It indicates one has worked hard, saved funds, and been responsible. Most of us have been programmed to strive for home ownership and to make the purchase of a home a top priority upon entering the working world. We won’t feel complete without having become a homeowner.
The dream of owning a home isn’t for everybody of course, and there is a good case to be made for renting a home. That dream has been instilled in many of us though, and lately, due to inflation, it has become unachievable for most who aren’t already in the market.
For a first-time home buyer to enter the market, for an average house they will need to save somewhere in the neighbourhood of $56,000 for a down payment on a home and can look forward to mortgage payments of around $4,400 per month for 25 years. This is assuming they have the income and credit rating to qualify for a mortgage, of course. For young people new to the working world, these barriers are insurmountable, particularly if they are starting a family.
We have set up home ownership as being the apex of the national dream, and then let it become impossible to achieve.
The Liberal government has recognized how inflation is pinching Canadians at every level but their solutions regarding housing are unlikely to offer much relief.
One of the most effective tools the government has in the battle against inflation is the central bank. Raising interest rates can cool the economy and slow the rise in costs for consumer goods, including housing. But while prices may stop rising, homes still become even harder to purchase due to the growing interest burden on mortgages.
Another way to stem inflation is for the government to cut back on spending and borrowing. That tactic is clearly not a consideration for the current government in light of the free-spending 2022 budget.
There is only one way to make housing more affordable and that is to increase supply. Canada’s new home construction rates are lagging well behind our population growth rates. If we don’t find ways to speed up the construction of new homes soon, continued spikes in the cost of housing are inevitable. This isn’t a matter of opinion. It is a matter of basic math.
While the 2022 budget mentions housing hundreds of times, the policy proposals are mostly designed to facilitate demand rather than supply.
The housing strategy has $72 billion in spending packed into it that will predominantly go toward rental and affordable housing initiatives. While those dollars will offer some welcome relief for low-income Canadians, they won’t do anything to increase supply. They will only add to government debt, thus contributing to more inflation along with adding to upward pressure on rental prices.
Tax-free savings accounts will be created to aid people in building a down payment for homes. A nice policy but it does nothing to increase the housing supply. People will never be able to save enough to keep up with inflation if the supply isn’t increased.
The housing plan calls for building more affordable homes but then digresses into plans to impose more “green” building standards and urban density conditions which only add to the cost of building new homes. The government just doesn’t get it.
Canada has vast amounts of vacant space that could be developed, and we have abundant natural resources from energy to lumber to minerals. We could construct some of the most affordable housing on earth.
As with so many issues, the best thing the government could do in order to reduce home prices would be to get out of the way. Red tape, regulations, and uncertainty with approvals for housing developments keep the housing supply low and prices high. The free market will fill the void if only it is allowed to do so. Ideologically driven municipal governments fixated upon urban density have been strangling outward development and won’t let the market flow naturally. The federal government is loathe to intervene in that issue.
Canadians who have already gotten into the housing market are benefiting well from rising housing prices. They are counting on rising real estate prices to fund their retirement. The government isn’t eager to alienate that voter demographic by putting real downward pressure upon housing prices. They talk a good game but will continue to do little to ease housing inflation.
Until the government seriously works to increase the housing supply, the dream of home ownership will remain an impossible one for a growing number of Canadians.
