Houses are seen in a neighbourhood on the side of a mountain, in Maple Ridge, B.C., in August, 2023.DARRYL DYCK/The Canadian Press
Everybody wants to go to heaven but no one wants to die, as Jean Chrétien used to say.
Update for 2024: Every Canadian politician wants to talk about a euphemism called “housing affordability” – and nobody wants to talk about lower housing prices.
In a recent interview with The Globe’s City Space podcast, Prime Minister Justin Trudeau was asked whether making housing less unaffordable would mean current homeowners accepting a reduction in the value of their homes.
For affordability to go up, do home prices have to come down?
“No,” said the PM. “I think housing prices and houses will always be valuable in this country,” but “anyone who hopes for housing prices to remain on the kind of trajectory they’ve been on over the past decade or two should maybe think about what kind of society or world they want to live in.”
On the other hand, he said, “housing needs to retain its value,” because “it’s a huge part of people’s potential for retirement and future and nest egg.” And so, the PM concluded, “we need to keep housing stable and valuable, but have to make sure more people can get into it.”
To cut Mr. Trudeau some slack for the muddle of an answer, this isn’t an easy question for any politician. The math isn’t hard; the politics are. Conservative Leader Pierre Poilievre’s slogan is “build the homes,” not “lower the price of homes by building more of them.” For obvious reasons.
Politicians are generally not in the business of saying things that voters don’t want to hear. Truth meets the intruder’s welcome, as Charles Mackay put it two centuries ago in Extraordinary Popular Delusions and the Madness of Crowds. Don’t hold your breath for all of the parties to admit that, to get to affordability heaven, some current homeowners will have to pay a price.
The rise in mortgage rates since 2022 helped write the latest chapter of Canada’s housing unaffordability saga, but that came after three decades of rising home prices. Interest rates were long on a downward escalator, which repeatedly raised the size of the mortgages people could afford, thus raising housing prices. Construction also didn’t keep up with population growth, further fuelling prices.
Ultralow interest rates during the pandemic pushed high prices to new records, and in the past two years, an unprecedented immigration boom has added even more housing demand.
In Toronto, average home prices are up nearly fivefold since the summer of 1999, according to the Teranet-National Bank house price index. Prices in Vancouver are 5½ times higher.
Those figures cover not just the cities but the broader metropolitan areas, including the 905 belt around Toronto. And the high prices extend far beyond.
Since 2005, home prices in Hamilton have risen faster than those in Toronto, according to Teranet-National Bank. That’s also true in Oshawa, Kitchener-Waterloo and Guelph. Barrie and Niagara region prices have increased at an only slightly slower pace than those in Toronto.
It’s a similar story in Abbotsford-Mission, B.C. Home prices there are up 254.9 per cent since 2005, just shy of Vancouver’s 267.7-per-cent rise.
The median income needed to quality for a mortgage on the average home – that’s a house, townhouse or condo – in still-affordable Edmonton is $109,000, according to National Bank. In Calgary, it’s $150,000. But in the Toronto region, it’s $243,000. And in Metro Vancouver, the minimum income to buy the average home is $260,000 – and $347,000 for a house.
Lower mortgage rates, if and when they come, will make each dollar of mortgage more affordable. But that will also tend to push up prices. It’s a big part of the story of the past three decades. We can hope for a future of rising wages – but all else equal, that also will tend to push up prices.
To raise housing affordability, we have to lower prices, or at least get price increases consistently below the rate of inflation. To the extent that we grow housing supply faster than demand – or lower population growth to below growth in housing supply – prices will tend to go down.
I get why politicians don’t want to spell that out.
But if you’re a homeowner worried about a future where the value of your home falls, or at least doesn’t appreciate at anything like the pace of the past three decades, I have good news for you. There’s not much reason to expect housing affordability to arrive any time soon.
As I’ve written, the Trudeau government’s plan to double home construction is not achievable, and they know it. As for the government’s promises to rein in the temporary immigration boom that they encouraged, so far that, too, is mostly talk.