The Liberal election announcement on housing on Thursday is a reminder of how we cling to the outdated idea of home ownership for all.
House prices in some of our biggest cities are rising to levels that are unaffordable for a growing cohort of young people. Expect the Liberals to be joined in the days ahead by other parties offering to help these young buyers with measures that are destined to fail in one of two ways – by not making an appreciable difference in affordability, or by helping too well and stimulating demand to a point where it pushes prices higher.
The Liberals say they would expand the First-Time Home Buyer Incentive, which they announced in the budget last spring. The program, targeted at first-time buyers with household incomes of less than $120,000 a year, provides a kind of interest-free loan to bulk up a buyer’s down payment and thereby reduce mortgage costs. The incentive originally set an effective house price limit of about $480,000. Now, homes valued at up to $789,000 would be allowed for Toronto, Vancouver and Victoria alone.
Governments feel they must prop up the dream of home ownership because young adults are desperate to own houses. Of course they are. Their parents can’t stop talking about how much their houses have gone up in value and media is saturated with stories about people buying and fixing up homes. Home ownership is the most Canadian civic value, and the foundation of wealth creation.
But at some point in the past few years, our ideas about home ownership began to peel away from economic reality. As we got more and more enthused about home ownership, rising prices made homes more unaffordable in many cities. We claim to have sophisticated, internationally appealing cities with deservedly high real-estate prices, yet we expect the young people will march into home ownership as they did a generation ago.
The economics of housing make this expectation look ridiculous. Incomes have not increased meaningfully in years, yet house prices have surged in many cities over the past decade. Low interest rates have offset this imbalance, but they can only do so much. Peak housing affordability has come and gone.
Politicians can’t say this out loud because they would be ripped for it by their opponents and voters. Right in there would be a housing industry that is brilliant in the way it pursues its own interests by positioning itself as the buyer’s champion. What politicians can do is work at all levels to get more rental housing built and allow more urban densification through the construction of condos, townhouses.
They can also address the needs of the growing number of people who must rent because they cannot afford to own. A renter’s tax credit would be most welcome in cities such as Toronto, where high housing prices have shrunk the rental vacancy rate and pushed monthly rent costs to levels that are sometimes close to mortgage payments (no, that doesn’t mean you should buy a house – home owners also have to pay for property taxes and home maintenance and upkeep).
There’s some fresh urgency in the problem of housing affordability because the slumping Toronto and Vancouver markets are showing signs of a possible recovery. The average selling price of a home in Toronto rose 3.6 per cent on a year-over-year basis in August to $792,611. Already, prices have crept ahead of the new cap being offered by the Liberals’ First Time Home Buyer Incentive. If the program’s a success, it will help feed still more price gains and work against improved affordability.
Until we all adjust our expectations of home ownership to match the economic reality, politicians will be under pressure to do something to make homes more accessible to aspiring young buyers. Hard as it will be, they need to lay off. This country needs to help renters more than it needs another program to help people buy houses they can’t actually afford.
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