Evan Siddall is president and CEO of Canada Mortgage and Housing Corp. and an advocate for housing affordability
Matthew Desmond summed it up in his book, Evicted: “without stable shelter, everything else falls apart.” People who live in safe, secure homes have better lives: better health care, more stable employment, better education for their kids, and on and on.
However, the wealthier a city gets, the more expensive its housing becomes. A Canada Mortgage and Housing Corp. (CMHC) study found that economic growth and immigration strongly influence demand for housing. When they exist together with slow housing supply, the problem compounds even further. Opportunistic investors – both domestic and foreign – seize an investment opportunity and prices climb higher still.
Housing affordability has become a headline issue in Canada. Young people can’t afford to buy homes and seniors can’t afford to keep them. People are clamouring for governments to help.
However, price is a function of supply and demand. Making home-buying easier, by easing mortgage eligibility requirements for example, can increase demand; but unless supply keeps up, prices rise even higher. The federal government has therefore made deliberate investments in housing supply.
Yet, residential real estate represents a staggering 7.5 per cent of the Canadian economy, compared with 4.9 per cent in the United States and 4.1 per cent in the United Kingdom; even Australia’s debt-fuelled housing boom comprises only 5.9 per cent of gross domestic product. Simply put, building more single-family homes is not the foundation upon which our economic prosperity will be built.
If we aren’t careful, housing will eventually eat our economic future from within. Canadians spend 50 per cent more on real estate transaction costs (broker fees, land-transfer taxes and legal costs) than we do on research and development. In comparison, our American friends spend 25 per cent more on research and development than they do on real estate transactions.
Besides, we offer lots of help to home buyers already. Government-supported mortgage insurance helps people buy houses with almost no equity. On top of that, people can borrow from their RRSPs and access provincial down-payment programs.
Counterintuitively, if we focus housing programs only on helping people buy homes, we make it harder for people to afford places to live. If more people can afford to spend more to buy houses, prices increase. And higher-priced housing leads to higher rents.
Renters are generally less well off and some face hard choices about whether to pay rent or skip a meal or have warm clothes for their children.
The debate about the mortgage stress test is in some ways therefore an indulgence for wealthier people. If we give people the ability to borrow more money, they bid up house prices and the homeless and underhoused suffer even more. As a result, the gap between rich and poor widens further.
Policies that increase house prices can undermine the inclusiveness of Canadian society. The First Time Home Buyer Incentive, introduced in the 2019 federal budget, will offer shared equity instead of helping people to borrow more. It is a targeted response that helps new home buyers that we estimate will have only a 0.02- to 0.04-per-cent average effect on prices.
Too often, we glorify home ownership and believe that it is the sole path to financial security. Where is the discussion about the risks it entails? This is missing from all of the talk about easing the stress test or permitting 30-year mortgage amortization. Yet, housing has been shown by researchers to be particularly prone to boom and bust cycles, such as we saw 10 years ago in the United States As a result, CMHC is required by law to pay attention to financial stability.
In fact, CMHC’s goal is that “by 2030, everyone in Canada has a home they can afford and that meets their needs.” We know it’s audacious and will be difficult to achieve; but we know that the only way to get closer to that goal is by aiming there.
At CMHC, we want to use the National Housing Strategy’s $55-billion supply centred commitment as a launch pad. We have reorganized our company to do so, putting our diverse clients at the centre of our thinking and we have made a huge investment in technology to accelerate our effectiveness. We are using IT to reduce costs, work more efficiently and to spawn innovation.
In fact, IT offers new hope for housing affordability. Just as technology helped increase utilization of retail inventories (Amazon), film libraries (Netflix), cars (Uber) and housing (Airbnb), startups such as Common, Roost Coliving, Node and Sociable Living are piloting new shared-housing models. A broader conception of how we think of housing is exactly the kind of innovation that CMHC hopes to bring to the challenge of housing affordability in Canada.
Housing matters because it is the “wellspring of personhood,” according to Mr. Desmond. If we all have homes we can afford, stable shelter helps us feel safe and secure. Mr. Desmond adds that home is the “root of human flourishing.” It is a place of dignity and belonging – to a family, a neighbourhood, a country.
CMHC’s goal is to inspire a fully housed Canada where everyone feels that they belong. Our multiculturalism and tolerance make us stand out in the world. At CMHC, we are trying to help build an even better future where everyone in Canada enjoys the dignity of a place to call home.
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