Jen Gerson: No one is going to fix housing
Houses exist to juice the economy and keep the elderly afloat on paper gains well into their retirement years.
Hello fellow home-owning millennials, and the Gen-Z plebians desperate to join us.
I understand house lust. I do. You want an okay spot in the city free of the oppression of the landlord. Or, if you’re at that certain time of life, maybe you want a detached house in a decent neighbourhood. Nothing too fancy, just something big enough to raise the kids, a bit of a yard and still walk to a coffee shop. Or, failing that, perhaps a townhouse. Or, err, a condo, maybe? Maybe you can make a condo work if you convert the office nook into a nursery?
Nevermind, nevermind; the suburbs it is. Who are you kidding. You have kids now and you don't go out anymore without the faint aura of toddler vomit about you anyway.
Except, Jeez, have you done the math on what a house in Barrie is gonna run you? Or Medicine Hat? Or Squamish? Big up and coming spots nowadays and location is king in real estate.
Perhaps this is your dream. Or, if you have obtained that home 90 minutes out from anything resembling a downtown core, perhaps it is your nightmare. You can sell, but then what would you buy? So you're stuck in a box that eats more than half your income with no liquid retirement savings in sight. And that's if you're lucky enough to have grabbed on to this fraying rope in time for the snap.
This is the reality for millions of people who don't fall into the Boomer cohort in Canada, and it's why a lot of young and merely young-ish people are incredibly pissed off. They have a sense, not helped by the pandemic, that this country is a vampiric gerontocracy and that the ladder to long-term wealth, prosperity and security is being rolled up right before their noses.
In fact, the problem is much worse than many of them realize.
Every political party claims to want to fix the "housing problem" but not one has the balls to tell the truth about it. Housing isn't a "problem" in Canada. Housing is an asset class — and one that must be protected and nurtured regardless of the long-term consequences to family formation and social cohesion. No government is ever going to "fix" housing because the whole shady underbelly of our economy needs "housing" to stay exactly as it is: an inflated asset bubble with prices rivalling the most dynamic cities on earth.
The first mistake most of us make is that we think of a house in entirely the wrong way. We imagine that a house is something that contains a few walls and a roof and is a place to live and raise kids in, and host a few family and friends over for dinner. Maybe if we have a "house" we can enjoy a lifestyle that exists as a pale shadow to what the typical middle-class kid enjoyed 30 years ago.
This is wrong. You are wrong.
A house is not a home. It is a legal reality that entitles you to limited use of a particular spot of land. Houses aren’t places to live. They’re an investment. They don't exist to actually shelter people from the cold, they exist to juice the economy and keep the elderly afloat on paper gains well into their retirement years. The shelter part is incidental. You could live in a cardboard box in certain lots in Vancouver and be a millionaire on paper. It’s all the same to the bank and the government.
And as long as this parasitic industry in this youth-crushing country can convince you that you, too, can get rich beyond your wildest expectations simply by working hard, saving up, buying a house, and paying off a mortgage well into your golfing years, the grift isn't going to stop.
Well, I mean, it might; but believe me, if it ever does, it won't be the Boomers left holding the giant bag o'debt on well-situated cardboard boxes.
Take a deep breath. Accept it. Really accept it.
Governments don't want to "fix" the "housing problem." They want to continue to pump this particular asset class and pray that enough Millennials take up the mortgage burden when the Boomers kick off to keep the whole scam rolling into 2050. Canada spends more on the housing sector than on business development. The market is so lucrative that it siphons investment from other industries, ones that might prove more fruitful in the long run. But, hey, money goes where it can get the best return and right now the best return is in marble countertop and farmhouse sinks. Housing is an industry unto itself, and one that makes Canada look very, very rich.
So who wants to end the party, really? Who has the incentive to push the needle in until it bleeds?
Sure, the government probably could do it. The Bank of Canada could jack interest to historical norms, ensuring all that cheap debt doesn't fluff mortgages on houses that can't continue to grow in value at this rate forever. We could fold up the CHMC and force the banks to accept the full liability of their mortgage portfolios without the giant taxpayer-backed hedge. We could tighten mortgage restrictions and debt stress tests. We could ban literally all foreign buyers and crack down on fraud and tax all vacant houses. We could tax capital gains on primary residences when those profits reach exorbitant rates. We could insist that anyone availing themselves of long-term-care facilities pay what they can afford to cover the costs of their care, after housing wealth is factored into the equation. We could implement onerous estate taxes on housing gains.
That's just the easy stuff. But who the fuck are you kidding?
We're not going to do any of that.
Instead, governments are going to throw a few pennies at the problem by offering taxpayer-subsidized savings schemes to boost down payments. It will double first-time buyers' tax credits and create more buyers' incentives.
You'll notice the common thread behind all of these "affordability" measures — which they are not. Aside from the odd promise of utterly marginal affordable housing investments, few of these feel-good policies address the supply side of the issue. They're all demand-side housing solutions. In other words, these schemes aren't about increasing supply or, God forbid, bringing prices down. They're about providing taxpayer-funded supports to help the youngs keep up with the delusional price increases. They are juicing demand when buyers are already swarming like eager-eyed rats on a lost ship at sea.
This only makes sense if you accept a completely, blindingly obvious truism that has guided several decades of government housing policy.
Nobody actually wants the prices of houses to go down. Nobody.
The government will never, ever let the prices go down. Not only would a serious housing crash destroy one of Canada's most lucrative and prestigious industries, but too many families are now too dependent on the paper wealth stored in their homes. The racket is too big to fail, and so we will do everything possible to continue to prop it up.
Of course, in addition to the perverse policy incentives, we have all the usual physical ones. We aren't building enough houses; we lack the materials and the tradespeople in the quantities required. We are also struggling with restrictive building codes and covenants that protect existing homeowners at the expense of those who would wish to get in. This will preserve lower-density housing blocks in urban areas while pushing the inadequate supply of overpriced new builds ever further to the fringes.
Our Boomer got his and that's what matters. We have an entire government apparatus set up to protect that guy. The guy with the money and the guy who votes. The rich-on-paper people are happy, and as long as everybody gets a seat somewhere on this pyramid, then everybody else should be happy too. Sure, there's a growing financial strain on the poors sitting at the bottom of the "property ladder," but as long as we're keeping those at the top fat, and fed, and their retirement plans solvent, so what? The young chumps at the back will be able to work their way up in time. Probably.
That's how the system works.
And it's why all of those doomsayers who have been predicting a housing collapse forever have been wrong so far. There is absolutely no way that any Canadian government will allow that collapse to come if they can help it, damn the cost. Too many people got too rich on housing for too long, and now we're stuck with it.
What we're left with is a grimmer long-term scenario: one in which the haves and the have-nots in this society are divided by property ownership vs. perpetual rentals. The only people who can afford to buy will be those who are blessed with enough generational wealth enough to cover the table stakes. We are, arguably, already there in some places, which is why houses in Vancouver aspire to command prices on par with homes in New York and Singapore despite being located in a second-rate deadzone of a city. Canada's cities have a bright future as urban island oligarchies: places for rich families to pass on and park money. If you are not so blessed, you may still do fine, of course. If you're lucky, and work very hard, and save a lot of money, you might score a tiny, worthless condo on the edges of a bedroom community that you can use to fool yourself into believing that you've made it. This makes perfect sense in one of the largest countries by landmass on earth, you'll tell yourself. Of course it does.
Remember, housing isn't about finding a place to live. Housing is an asset. And we will pay any cost to ensure it doesn’t fail.
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You have repeatedly used the phrase “vampiric gerontocracy” in a number if your pieces and I’m sick of it. Many of my contemporaries lost their homes in the early eighties, and it took years to rebuild their lives. Many of us helped support our own parents and children simultaneously, and a good many more of us do not have pensions. I’ve been an entrepreneur most of my life, and am one of those people. My home and what investments I’ve managed to accrue are what I hope will allow me to look after myself when I am too old to work. You seem to be under the misapprehension that all Boomers are insanely wealthy. They aren’t. All levels of government have colluded in creating the housing mess, and stoking inter generational warfare is imo entirely unconstructive. Enough with your repetitive “vampiric gerontocracy” nonsense - this is one darling which you should have killed some time ago.
Boy oh boy Jen, that was a joyful read just before the Easter holidays. How about something about the cost of dying for Labour Day. and then the death of Santa Claus in December? It's a good thing you write well.