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Over the past two weeks, Stephen Harper has made three new housing-related promises on the campaign trail. However, they won't help the crisis of affordability. The pattern is familiar: make things worse and prepare to blame others.
- First, there's the promise to allow first-time homebuyers with RRSPs to take an extra $10,000 out of their retirement savings for a down payment. This will likely have only a small effect, but whatever effect it does have will further heat up the housing market by increasing demand here and there. This makes the housing crisis worse. (Bonus negative effect: it eats into retirement savings.)
- Second, Harper promised to bring back a home renovation tax credit: people who own homes and spend $1000 to $5000 on renovations will be eligible to get 15 per cent back at tax time. Again this isn't much (and it's poor tax policy too), but ultimately it helps drive up property values. This too makes the housing crisis worse.
- Finally, Harper says he would gather data on foreign real estate buyers. While there is certainly lots of capital sloshing around the world and some of it is landing in places like Vancouver and Toronto housing, it's unclear how much of our bubble is due to foreign money and how much of these fears are a xenophobic blame-game. Data will be good, but given how Harper has been blaming all of Canada's economic woes on external factors, this looks more like an exercise in something similar.
It's certain that we are in the midst of a housing unaffordability crisis -- that much Harper gets right. His proposed solutions, however, continue in the pattern of the past few decades, a pattern that has created bubbling housing markets that have left many shut out and scrambling.
Here's how I described what happened in the '90s in a longer article earlier this year:
The federal Liberal governments of the 1990s ended the mission of directly providing public housing, capping funding and offloading responsibilities onto Canada's provincial governments. The number of new units of social housing built sunk from around 20,000 in 1993 to under 2000 in 1998.
New financial products were the wave of the future to which the Liberals harnessed their housing strategy. This included the commercialization of the Canada Mortgage Housing Corporation, greater access to mortgage finance, and increased competition. All of these moves helped lay the foundation for the coming rise in housing prices…
Speaking in front of a Senate committee in 1999, Alfonso Gagliano, minister for housing under Jean Chretien, put it bluntly: "We used to put in money and build houses and distribute them. Nobody is expecting us to do that anymore." All this helped fuel a housing and credit boom that has kept going past the global financial crisis.
Today, the economy is sluggish and the government refuses to do much about it; a bubbling housing market is one of the few "bright" spots. So when the Bank of Canada cuts interest rates to try to stimulate the economy, one of the effects is cheaper finance for real estate speculation. And even as the markets for upscale condos in large cities see more and more towers go up, buyers are seemingly always to be found. Speculative demand today fuel further expectations of gains tomorrow and so the cycle goes, confounding simple supply and demand.
The culprit isn't just some nebulous rich foreigner but a few decades of growing inequality, financialization plus slower investment and productivity growth, in Canada as across the global North. The main problem is the huge accumulation of wealth with few productive outlets. While some of that wealth is coming in from overseas, there's lots of wealth in Canada (and our free trade partner, the U.S.) that's already feeding much of the speculation. Foreign capital plays a role but it isn't the magic bullet.
A tax credit or an RRSP fix isn't going to help here. Nor will ownership data on its own do the trick and seems primed to be a smokescreen. (Though of course, ownership data could be useful for many things, such as taxing wealth, but someone very different from Harper or any of our current crop of politicians would be interested in such "dual use" statistics.)
The solutions need to be bigger: building affordable public housing, regulating rental housing, taxing speculative gains, as well as taxing wealth itself would start to get at some of the problems. Then there is the need to start reversing the trends towards growing inequality and wage stagnation themselves. These solutions aren't on offer today but would do much for the many struggling to make a home for themselves in a what remains a speculator's paradise.
Originally published last week on my blog Political Eh-conomy.
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