A basic fact about the market for homes: the vast majority of homes that will be sold this year, and every other year, already exist. The Canadian Home Builders Association says about three-quarters of all home sales in a given year are existing homes, with about one quarter being new construction. That fraction might be bigger or smaller in any given year but not by a lot. Since resales will make up the large majority of homes that are for sale in the real world, that means a real plan to make real homes more affordable in the real world must, yes, lower the resale prices of existing homes. This is an elementary fact about the housing market, not something that can be obscured by technocratic bafflegab from our elected leaders.
Not that they aren’t trying their damnedest. Vancouver Fraserview—South Burnaby MP Gregor Robertson, only days after being named the new federal housing minister, was asked if home prices need to come down in Canada, and told reporters in Ottawa no.
“No, I think we need to deliver more supply, make sure the market is stable, it’s a huge part of our economy. We need to be delivering more affordable housing. The government of Canada has not been building affordable housing since the 90s, and we’ve created a huge shortage across Canada, and that’s where the big need is right now,” Robertson said.
This is, to put it charitably, nonsense, and Robertson seemed to grasp that much after being roasted for his remarks on social media, responding with a short series of tweets defending and explaining his remarks.
Of course, only one person’s opinion actually matters at the federal level and that’s Prime Minister Mark Carney, who I’m reliably informed was an economist of some note before entering elected politics. Carney didn’t help matters when speaking with reporters over the weekend.
“It means a number of things. One, in the very short term it means getting specific costs out of the price, so for new homebuyers… cutting GST on new homes, and ensuring particularly that younger Canadians will benefit from that,” Carney said before adding that the government is also looking to get municipalities to cut development charges in half. Carney also talked up the government’s measures to increase the productivity of the construction sector to get more homes built.
These are good measures, and measures I’ve supported in my writing here, but let’s be clear about this: they’re only good insofar as they lower the price of both new and existing homes. Otherwise, they simply contribute to the windfall for existing homeowners and new builders.
The point of lowering development charges and cutting HST on new homes isn’t simply to take those costs out of the sticker price for new housing; it’s to lower the threshold for new homebuilding so that more projects are feasible. It’s not just about making the new homes that were already going to be built cheaper, it’s another way of getting a larger volume of new homes built overall.
But we don’t care about new homes for their own sake: we want new homes built so that the owners of existing homes aren’t able to command monopoly prices, as they have been able to for much of the past decade — or, if you live in Toronto, most of the past generation.
The mechanism we’re looking for here isn’t: New homes get cheaper to build, so their sticker price goes down, so new families buy those cheap homes.
Instead, it’s: New homes get cheaper to build, so more new homes get built, so prices for all homes start dropping, inducing more owners to sell to get ahead of falling prices, leading to prices falling even further, and so on.
But just to reiterate: there’s literally no way that we restore any measure of home affordability on a timescale relevant to voters without lowering the price of existing resale homes.
That last point is important here. It’s at least theoretically possible that you could keep home prices stable but grow incomes such that the relative cost of shelter as a proportion of household budgets would fall. The problem is that in our least-affordable markets — the places that have the most need for new housing, and that have effectively turned their local housing crunch into a truly national housing crisis — this strategy would take decades. According to calculations by Mike Moffatt at the Missing Middle Initiative, it would take 40 years to make homes in Oakville affordable by this route. In Toronto, it would take “only” 35. If this is the plan, it would amount to an awfully big bet on the patience of voters not otherwise known for their patience — all in an attempt to escape the inescapable math that yes, home prices need to come down.
It’s understandable that neither Carney nor Robertson wants to say that out loud. Most homeowners who sold after the run-up in prices of the last decade have profited massively, and making voters poorer is generally understood to be bad politics. But the choice here is as stark as it is simple. Either Carney’s housing policies will work at their stated goal of improving housing affordability, in which case they must (by definition) make some homeowners worse off. Alternatively, Carney’s housing policies could fail to meaningfully improve housing affordability and preserve the windfall that homeowners have pocketed in recent years — but at the probable cost of losing the next election.