Douglas Todd: Why Ottawa doesn’t rein in runaway house prices
Analysis: Residential housing makes up the largest chunk of the world's economy. That’s why neo-liberals say the industry is too big to fail, especially in Canada.
Even while some global analysts are noting that house prices are soaring faster in Canada than any other developed country — an average of 25 per cent since February of 2019 — the industry is generally enjoying COVID’s unexpected firing up of the market.
The pandemic’s effect on surging housing prices is being celebrated by many neo-liberal business leaders, bankers, developers and politicians. But while capitalism is a powerful force, often beneficial, this is a time when it is hurting ordinary people.
While home ownership becomes increasingly out of reach of the Canadian middle-class, especially in places such as Vancouver and Toronto, financiers and their allies retain their over-riding rationale for loving it when prices rise. It fits their philosophy.
Residential housing makes up the largest chunk of the world economy. With a global value of about $200 trillion, homes are collectively worth about three times as much as all publicly traded shares. That’s why some say the real estate industry is too big to fail.
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Neo-liberals preach supply and demand too. When something is scarce, prices go up. If you can’t afford something, you should try harder to get it. Or entrepreneurs should build more of it.
The Economist covers the globe with witty writers, sophisticated researchers, and exemplary statisticians. It is explicitly pro-liberty and basically neo-liberal.
Here’s what The Economist had to say in this month’s special feature on the global housing market:
The Economist argues that politicians shouldn’t be too concerned about what it estimates to be an overall five-per-cent increase in housing prices in the world’s 25 most well-off countries during the pandemic, even if it is the quickest rise in a decade.
They believe the run is fuelled by cheap interest rates and fiscal stimulus brought in to combat the pandemic’s potential downturn — as well as by people who have not lost their jobs, can work out of their homes, and want to move into less-congested dwellings. You could call them the “haves”.
The Economist also believes global banks are strong enough to withstand a sudden drop in prices and a jump in mortgage defaults after housing prices crest, which it suggests will be soon. Those outside the market could get their satisfaction, it adds, when developers build more housing supply. While tenants wait, the news outlet says, they should not be coddled with rent controls, because they restrict the free market.
However, even The Economist notes that, out of all well-off countries, danger signs are flashing the most for Canada, as well as for New Zealand and Australia.
One of its charts, titled “Through the Roof,” shows Canadian house prices have grown faster than all the developing countries it ranked — by an astonishing 270 per cent since 2000.
The news magazine even reluctantly noted Canada is one country that could be moving into a dreaded housing bubble, and prices may soon burst. It quotes Bank of Canada Governor Tiff Macklem warning of “excess exuberance.”
Since it serves an international readership, The Economist has an excuse for not explaining more about what is happening to Canadian housing, especially since U.S. housing is up by “only” 11 per cent since February of last year.
The Economist’s financial writers, in addition, are also not concerned that household debt might be growing out of control as many buyers purchase properties they can’t afford, either for themselves or as speculators. But its editors might have missed that household debt in Canada is now twice the average of all G7 countries.