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Josh Gordon is an assistant professor in the Simon Fraser University School of Public Policy.

Vancouver is suffering a severe crisis of housing affordability. The historical standard of housing affordability has been a house-price-to-income ratio of three. At the peak of its housing bubble, the U.S. ratio was around five, where Canada as a whole sits today. Vancouver's ratio currently exceeds 11.

While the existence of this crisis is not up for debate, common misunderstandings about the situation have weakened our political will to act.

Perhaps the most common misunderstanding is that this situation is a significant problem only for first-time buyers. In this view, existing homeowners are laughing all the way to the bank. This results in government inaction, as politicians dance around the mantra of "protecting housing equity." Neither Premier Christy Clark nor Prime Minister Justin Trudeau have been able to resist this dodge, but a dodge it is.

Why? Because the affordability crisis carries four major drawbacks, and most of the purported benefits are short term or illusory. Consider each.

The first major drawback is that a generation is being shut out of home ownership in their own city. Home ownership has a range of benefits, from forced savings to a sense of stability to favourable tax treatment, and these are being denied to most younger Vancouverites. If they do want these benefits, most are forced to live far away from work, families and friends. And while some are able to look forward to a bigger inheritance, it won't benefit them for many years. In the meantime, rents are also sharply increasing.

Second, the crisis has forced first-time buyers to leverage up dangerously in order to get into the market. This is inevitably followed by deleveraging when unrealistic prices stop rising and people scramble to pay down onerous debt. By failing to pop the bubble now, policy-makers are simply setting us up for a worse shock later.

Third, much of the crisis is being driven by foreign money, which is evident to anyone without a vested interest. This has led to weaker communities, as those with little connection to the city make little effort to integrate and foreign investors' homes sit empty.

Finally, the crisis is threatening the region's long-term economic viability, even as it produces a short-term growth boost. Many young professionals are forced to go elsewhere, draining Vancouver of entrepreneurship and talent. Conversely, entrepreneurs have a hard time attracting young talent. As a result, economic activity and investment is pushed into consumption industries, such as luxury goods and high-end restaurants. The productive investment and social infrastructure needed for the city's future are neglected.

These drawbacks are set against the main supposed benefit of this situation: high and rising home equity.

But home equity is not like other types of wealth because housing is a positional good. If your stock portfolio goes up 30 per cent, you can cash it out and spend it. But if your house value goes up 30 per cent, then so do the values of most of the properties around you. If you want to cash out, you have to move to another city where prices haven't gone up. Most Vancouverites don't want to move away – so what have they gained?

In short, the people benefiting from higher home equity are far fewer than commonly assumed. Apart from real estate agents, developers and construction firms, the main beneficiaries are those who want to draw down wealth against a home, those who want to downsize from detached housing to condos (whose prices have gone up less) and those who want to move out of the city altogether.

The first group are reckless, given the fickleness of property bubbles. The second will likely have gained massively from two decades of strong price growth, so a partial correction is no great worry. The third group should not be a significant concern for policy-makers with Vancouver in mind.

This all adds up to a strong case for action. Inaction is the product of political cowardice because provincial and federal leaders have real policy options. Taxes on short-term speculation have been proposed by Vancouver Mayor Gregor Robertson and restrictions on foreign ownership are common in places exposed to large foreign capital flows. In addition, professors at Simon Fraser University and the University of British Columbia have recently recommended a high-end property surtax, deductible against income tax contributions, targeting foreign investors.

Yet politicians are concerned that the short-term hit to economic growth (and tax revenue) will harm their political fortunes. But since when did we ask political leaders to knowingly allow bubbles to inflate, consequences be damned?