Op/ed: The free market will not fix our housing crisis
Canada’s distorted debate about housing risks costing the public far more than most of us realize.
Nearly all attention is placed on the supposed lack of supply, which has enabled right-wing politicians and pundits to falsely blame the crisis on excessive “red tape,” foreign students, new Canadians, or some combination thereof.
Polls over the summer showed that Conservative Party Leader Pierre Poilievre would become the next Prime Minister, largely because he has managed to bottle Canadians’ anger about lack of housing affordability and package himself as someone who understands the issue and will do something about it.
Of course, he does not understand the issue, and what he plans to do will make matters worse. With so much at stake, social justice movements could use some solid footing to help re-orient national housing policy and build winning coalitions.
In a recent online post, Poilievre supported his focus on supply by pointing out that the same number of houses per year are built in Canada today as in the early 1980s, despite the significant increase in population.
That is true in part, but it completely overlooks the much more dramatic change in the role of the public sector.
In the early 1980s, the federal government’s involvement in housing construction was already past its peaks of the late 1960s and early 1970s, but federal financing still helped complete between 15,000 and 20,000 social housing units per year (Figure 2, here) – that represented more than 10% of the total housing stock built in the early 1980s.
Today’s National Housing Strategy (NHS) aims to build 160,000 new affordable units over 10 years. In raw numbers, that is a bit less than what the public sector used to contribute in the early 1980s, but we have a larger population now, smaller household sizes, and a larger economy with more private housing starts.
Moreover, as the Parliamentary Budget Office has pointed out, the NHS also offers much shallower levels of affordability than the federal government did in the 1980s. Most federal funding today defines affordability in ways that are not affordable to the majority of rental households, and so-called affordable units revert to market rents after a period of 10 or 20 years. By contrast, most of the social housing built in the '80s remains genuinely affordable, and is owned by either provincial or municipal governments, or by non-profits.
Canada has a long history of leaving housing to the market, but the social housing financed by the federal government between 1964 and 1993 remains the backbone of the country’s affordable housing stock.
The source of our housing crisis is not “red tape,” and it certainly is not whatever marginalized populations certain politicians are choosing to blame today. It is that the federal government divested itself from funding housing after 1993, pretending that it was no longer an issue of national importance.
In the 1990s, public debate in Canada focused on fighting deficits.
When the economy recovered from the recession of the early 1990s, and the deficit turned into massive surpluses, rather than returning public funding to housing and other social programs that had been cut, finance minister Paul Martin convinced his party to cut taxes instead—to the tune of $58 billion, which disproportionately benefitted high income earners and corporations.
Paul Martin’s fiscal largesse for those with high incomes was cheered on by the country’s corporate classes and its media. Provincial governments tripped over one another to copy Martin throughout the 2000s.
Not only did those tax cuts enrich the wealthiest Canadians, but they deprived everyone else of public resources that were badly needed. Purpose-built affordable housing languished. The housing market did not build housing for moderate income Canadians, but instead has largely catered to those with more money.
For almost 20 years after Jean Chrétien came to office, the market was still over-building McMansions relative to multi-family projects, and taking up huge amounts of space and resources that would soon be needed for a growing population.
Urban plans, misinterpreting market signals for public good, allocated space to urban forms that are costly, inconvenient, and high carbon (and therefore incompatible with a livable planet).
Those who benefitted privately from all the tax cuts often invested their savings in mutual funds, whose revenues derived in part from growing institutional investment in housing-related incomes in the 2000s and 2010s.
Wealthy Canadians with excess savings, shielded in Paul Martin-approved TFSAs, saw more of their returns coming from mortgage-backed securities (MBS) and real estate investment trusts (REITs), or other private real estate-related investment schemes, than ever before.
These companies hold a vested interest in seeing housing increase in value—as it has exponentially since the late 1990s, completely out of sync with wages. Real estate investment is about “repositioning” housing stock to generate higher incomes from it, and to use the higher incomes to justify higher property appraisals. This allows investors to take on more debt to buy even more housing revenue streams.
This process, called the financialization of housing, results in bilking tenants for higher rents – their savings and incomes are hoovered up by the investor classes.
Even as interest rates have risen, investors are buying up more single-family homes (30% of all home sales in the first quarter of 2023) and have continued to earn strong returns on rental properties.
Rather than regulate this anti-social, speculative use of housing, the federal government has often promoted it—whether under the Conservatives or the Liberals.
Somehow, mainstream conversation about our national housing crisis has focused on a lack of supply, and not the structural changes and lack of public investment that have created an affordability crisis.
The market, Poilievre tells us, will fix the housing shortage, if only government would “get out of the way.” Canadians with longer memories have heard it all before.
Fealty to free market platitudes is exactly what got us into this national housing mess in the first place—and it is really no different from the Liberal government’s NHS.
The faster Canadians learn about our country’s housing history, its over-reliance on market forces, and the desperate need for sustained federal government investment in non-profit housing, the faster we can find pragmatic solutions to the greatest policy crisis facing government in the post-pandemic era.
The right thing to do here involves taxing those from the investor classes who benefitted most from the Chrétien-Martin-Harper tax cuts, and redistributing it to those who have seen their housing options evaporate in recent years, as investors “reposition” thousands of homes that were more affordable at market prices than the current NHS’s subsidized units.
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