Commentary
Bank of Montreal economists Doug Porter and Robert Kavcic, in an article titled “Catch-’23: Canada’s Affordability Conundrum,” go into detail about a difficult issue which has been a concern for years, especially in urban and suburban areas.
There seems to be no easy way out of this situation despite the assurances of politicians. Single-family housing in Canada is simply too expensive relative to the income of the majority of residents. Recent interest rate increases have further exacerbated this problem to the point of an economic and social crisis. Porter and Kavcic point out the naiveté of the mainstream explanation that this is just a supply problem.
The simple solution of the left is to merely put up cheap government-funded high-density apartment buildings with yet more debt. They dream of the mythical “15-minute city.” In reality, they will end up with 1970s U.S.-style housing projects which are miserable and unlivable. The right, for their part, believe in allowing the private sector to do its magic. End restrictive regulations and, in Toronto’s case, the Green Belt, and entrepreneurs will create supply and reduce prices.However, both are not feasible. Population growth is too strong in cities like Toronto, Vancouver, and others relative to feasible supply thanks to immigration and Canadians from other parts of the country seeking opportunities. Although prices have come down, the cost of carrying a mortgage along with taxes, maintenance, and insurance is still near 30-year highs relative to income. Only a price correction will improve affordability. Homeowners cannot rely on rates returning to multi-generational lows, as Bank of Canada Governor Tiff Macklem has indicated. Canadians certainly will not enjoy any miraculous increase in average income anytime soon. Even if that happened, speculation might drive prices even higher.
