By Matthew Mendelsohn | Part of our Special Series: Always Canada. Never 51.
Canadians are more vulnerable to Trump’s economic warfare today because our housing system is in crisis and has left many Canadians insecure in their housing. Some of our own bad policy choices have put us in this position of vulnerability. But there are things we can do to rectify this, and I know who I want to hear from.
Mike Moffat and the team at Missing Middle have made a real impact on housing policy in Canada. Their work has helped refocus our discussions on supply and, more recently, on increasing costs caused by things like development charges. They have been a model for how non-partisan, evidence-based research and advocacy can shape public policy. Housing is still a national crisis because governments have made such terrible policy decisions for a very long time, but the team at Missing Middle is making things better.
So, I’d like to raise three housing policy issues that could use more of their attention.
First, the role of Canada Mortgage and Housing Corporation (CMHC) in making housing more expensive. CMHC charges mortgage insurance to new home buyers and makes a large profit. Their philosophical approach to their business is to run themselves like a private–sector mortgage insurer, rather than a public–purpose financial institution. They should stop doing that. Their large profit means they are charging too much. CMHC should be part of the solution, not part of the problem. Their policies make housing more expensive.
Why the government allows this remains a mystery. What say you Nate Erskine-Smith? As we face a declaration of economic war from the American administration, why is CMHC over-charging first-time home buyers?
Second, Missing Middle’s work has downplayed the role of investors in driving up prices. We at SCP have been on this issue for a while, and it seems obvious to us that if first-time home buyers are competing with investors looking for a safe place to park their funds, well, prices will go up and middle-class people will be priced out.
Investors are important for new residential development, but having investors buy existing homes drives up prices. This is true with respect to large residential real–estate investors as well as smaller ones.
We should disincentivize practices that treat real estate as an investment class. The U.K. has just increased its surcharge when you buy a second home, and in Singapore, there are graduated charges if you are buying a second or third home. In Canada we could do that. Dominic LeBlanc and Nate Erskine-Smith, what say you? As we face a full economic assault that will hit working and middle –class people hardest, why are we allowing investors to grow wealthier while families cannot afford a home?
“As we face a full economic assault that will hit working and middle-class people hardest, why are we allowing investors to grow wealthier while families cannot afford a home?“
And third, we need some research on the consolidation of various services in the residential real estate building sector. There is a lot of anecdotal evidence that many of the input costs related to building housing are getting more expensive, beyond what should be expected if markets were working properly. There are lots of factors connected to price inflation, but it appears that prices are going up in part because of market consolidation, private equity roll-ups and a lack of real competition. Many services important to the price of residential housing in some communities are increasingly run like cartels.
We need research on how this lack of competition and oligopolistic behaviour is impacting the price of housing. What say you François-Philippe Champagne and the Competition Bureau? Will you look into this? One way to make life more affordable for Canadians is to have real local competition.
These are just three questions that I think merit more attention. As we face an economic attack from the U.S. administration, there are many other things we can be doing in housing, like financing our non-market sector and approaching housing as strategic industrial policy. Our exporters and manufacturers are looking for new buyers for their products and accelerated investments in housing can help.
I’m curious what Mike Moffat thinks about these issues. I think they need more attention.
There are lots of things in the world we can’t control, but we have to stop sabotaging ourselves on the things Canada can control, like the cost of housing.
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