Canadian voters and young people especially are aware that housing is such an important and basic human need that we must strive to develop fair and equitable policies to ensure that all residents of Canada can obtain shelter.
This is not how our two old-line parties choose to approach this issue. Announcements in the last week highlight the flawed and short-term posture of both the Liberal and Conservative parties in respect of helping young people to purchase homes in Canada. Both recent announcements are characterized by appeals to the most backward and regressive type of housing policy and can be interpreted as almost completely driven by the self interest of the real estate/home construction industries, the financial services sector and the asset owners and ‘flippers’ who stand to gain from this approach. This is particularly the case in our larger metropolitan environments where institutional investors, real estate agents, speculators, and arbitrage specialists maximize the attractive quality-of-life characteristics of Canadian cities in order to garner lucrative revenue streams and make unearned profits. These approaches also directly rely upon the support of Canadian taxpayers – the FTHBIP provides down payment assistance via CMHC to assist buyers in the ludicrously overvalued markets in southern British Columbia and the GTA – in what are poorly conceived schemes that are likely to promote further speculation and enhance the risk of financial contagion should one or two base assumptions go awry.
How is this so? Both policies announced by the Liberal and Conservative parties – the First Time Home Buyer Incentive program and the weakening of the Mortgage Stress Test respectively – come straight out of the financially-driven neoliberal playbook that uses cheap financial credit along with a public backstop to prop up real estate prices, sales and the revenue streams of related suppliers. Both main parties are now so deeply accepting and uncritical of the speculative, rentier economy that they routinely comply with its self-serving logic rather than creating an ethical, sustainable and long-term vision for housing and shelter.
In the post 2008 financial crisis era, interest rates have remained at historically low levels and consumer credit has been expanded at unprecedented levels. This is because global debt levels are astronomically high and the only way to prevent a prolonged slump is to keep the flow of cheap money coming to prop up the value of various asset classes, including stocks, real estate, and luxury items. Organic growth in the economy, even using the deeply flawed measure of GDP, is anemic with consumer spending and commercial purchasing well down. Mortgage debt is a highly lucrative revenue source for banks and other lenders and any measure that reduces the risk profile (or enhances the revenue upside through the ‘amount’ of home being bought or the length of the amortization period) of these loans is welcomed eagerly by actors in the real estate complex. The spreads between what banks pay to secure access to public capital and what they charge to borrowers are very healthy. The relatively low rates in historical terms also create the momentary illusion for the borrower that the monthly carrying costs of the mortgage loan are affordable.
Given that the incomes of most young families are modest and their attachment to our volatile labor market is increasingly tenuous, the only way to keep the real estate boom going is to provide government backed incentives to foster the purchase and acquisition of homes or to lessen the stringency of the prudential tests that determine mortgage eligibility.
This is bad public policy for a whole variety of reasons:
- The only way for existing asset (property) owners, including speculators & flippers, to obtain a return on the sale of their property and to exit the market is to attract new guaranteed funding sources;
- The First Time Home Buyers Incentive program encourages young people to leverage up and in so doing, get into homes that are beyond what they can realistically afford, which in turn increases the demand for mortgage finance thereby further hiking the costs of home ownership for everyone;
- Canadian families are already among the most indebted in the western world with the household debt to income ratio at 174% of gross income in 2019;
- The house price disparities between, in this case, Toronto, Vancouver & Victoria, and other regions and cities of Canada, will only grow worse from this measure, which will accentuate resentments among and between Canadians;
- The one-time commissions and fees of real estate agents, brokers, lawyers, and others are supported but the long-term residual economic value of these credit-driven transactions is questionable;
- The approach is critically premised on the assumption of ever-increasing home price values and the attendant faith in effortless, paper-based profits (capital gains) which, in the long run, is unlikely to promote stability and cohesion in our society;
- Any kind of modest increase in the floating/fixed rates charged to mortgage borrowers resulting from increases in the prime rate or, any kind of prolonged erosion in the value of home prices, will trigger huge financial hardship and eventually defaults (and quite possibly, a recession); and
- This approach will encourage many homeowners to believe unwisely that the equity in their homes can only increase and they may, in turn, be tempted to extract it periodically through Home Equity Lines of Credit (HELOCs) or refinancing measures. Over the past six years, Canadians have extracted $475 billion in home equity largely to finance personal consumption expenditure!
What we need to do instead is to embark on a massive scheme of construction of affordable, low income homes and rental units making use of cooperatives or rent-to-own devices that seek to make the provision of shelter a right for all Canadians. Public subsidy when it is used to construct housing and shelter infrastructure for those of modest income or those just getting on to the housing ladder, is far preferable to indenturing young Canadians to private residential real estate developers and their lenders. While these are just some modest thoughts that occur to me, my platform in this election is premised on getting both for-profit commercial undertakings out of the policy process by ending representational and advocacy activities by these same groups, and by convening citizen assemblies made up of ordinary Canadians to debate and discuss on a year-round basis the policies developed and enacted in our collective name. My belief is that presented with the objective facts and guided by considerations of fairness, equity and transparency, Canadians themselves will formulate the kinds of policies we so desperately need now in both housing and numerous other policy areas.