June 3, 2024 | No Panacea

Happy Monday morning!

Housing affordability, or lack thereof, is all the rage these days. Politicians from every colour of the political rainbow are rallying around restoring some semblance of price stability, or so they say.

They’ve been working hard lately, through mass rezoning, tax breaks on new rental construction, and even housing catalogues. In fact, billions of dollars are being thrown at the problem.

How will we know if any of it worked? For most people they’d tell you housing affordability will have been achieved when prices are lower.

However, in a recent podcast interview with The Globe & Mail, Trudeau said the quiet part out loud.

For affordability to improve, do home prices have to come down?

“No. I think housing prices and houses will always be valuable in this country,” but “anyone who hopes for housing prices to remain on the kind of trajectory they’ve been on over the past decade or two should maybe think about what kind of society or world they want to live in.”

On the other hand, “housing needs to retain its value,” because “it’s a huge part of people’s potential for retirement and future and nest egg.”

In other words, everyone wants affordable housing but nobody wants their house to become affordable.

Trudeau just reiterated what we already knew. Housing is politically backstopped, and we must not jeopardize the 30 year bull market. After all, the tax free primary residence has become the defacto retirement plan for most boomers.

Inflating home prices have also been a boon for government coffers. The tax revenues derived from housing via capital gains taxes, property transfer taxes, development fees and property taxes are what underpin the entire system.

Trudeau’s freudian slip was an admission of what we already knew, maintaining home prices is a matter of national security.

So how else do we achieve housing affordability? We are told we can build our way out, yet housing starts are crashing as we speak, despite billions being thrown at municipalities to unlock zoning.

Over in the orange corner, Jagmeet says we should build affordable housing on all federally owned land. However, an analysis from the Globe & Mail this week highlights the grim reality.

Using the government’s federal registry of properties, The Globe identified federally-owned land that is at least half an acre in size, sitting vacant or occupied by a building not more than two storeys, and located in municipalities with at least 10,000 people.

After a months-long analysis, The Globe found 613 pieces of lazy land in cities and towns across the country – a collection of federal real estate large enough to create about 288,000 new housing units.

In other words, if we took all the under utilized federally owned land and redeveloped it for affordable housing we would create 288,000 new housing units which is the equivalent to just over a years worth of completions in any given year.

So now what?

If we could get incomes to rise faster than house prices, over a long enough period of time, housing could slowly get more affordable. But that is no quick fix, and everyone is looking for quick fixes.

The fact that real GDP per capita has now been declining for seven consecutive quarters isn’t helping that idea either. According to RBC we are now marred in what appears to be a lost decade.

People don’t like to hear this but there really is no panacea for housing in this country. This is just the uncomfortable truth.

Housing affordability will ultimately be achieved through some form of an exogenous shock outside of the governments control, creating a temporary over supply of housing and lower prices. Kind of like what we’re experiencing now with an inflationary shock that ripped interest rates higher and will probably keep them there for the foreseeable future, regardless of what the BoC does this week.

Steve Saretsky June 3rd, 2024

Posted In: Steve Saretsky Blog

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