Curly, Larry & Moe

Days ago we talked about inflation. The official number approaches 4%. In real life, it’s higher. Hasn’t been this bad in 20 years, and we’re just coming out of a virus-infused, germy, weird pandemic recession. What happens when the economy fully reopens, wage pressures mount, interest rates plump, taxes push higher and everybody’s back to work (fully vaccinated with fresh shorts)?

An election poll days ago found ‘affordability’ has emerged as the No.1 ballot box issue. Nope, not Covid. Not mandatory vaccinations. Not the deficit, debt, or spendaholic politicians. Not the environment or Indigenous issues. Not even the economy and jobs. This reflects that the largest mass of voters (about 45%) are house-horny Mills and FOMO-afflicted Zs.

As you (painfully) know, this blog has tracked the pathogenic housing market closely. It’s nuts. Never before have we seen such a frenzied level of nesting nor the appetite people have shown for immersing themselves in debt. Prices are a third higher in a year and in many cases 50% above pre-pandemic levels. Most impactful has been the ballooning of values in the burbs and hinterland cities as urban flight took place. Now countless villages, towns and hamlets have Toronto or Vancouver prices but residents will never have GTA or LM incomes, especially as WFH ends.

Okay, so it’s a mess. Voters are becoming woke. What are the politicians doing in response? Will they make it better or, as usual, worse?

Let’s look.

The governing Libs raised the limits for RRSP withdrawals as tax-free house downpayments. That increased demand and prices rose. They brought in a shared-equity mortgage, then sweetened it. Takeup is limited, but that also goosed demand and pushed values higher. Liberals promised to implement a national 1% tax on under-utilized homes owned by foreigners. But offshore buying accounts for less than 2% of Canadian real estate sales, and already-heavy provincial taxes on non-beavers have done diddly. Prices were up. The latest Liberal budget doles out $5,000 to homeowners to finance green renos. These are the people who just won the real estate lottery, while 75% of those without houses feel they’ll never be able to buy. Not much here to inspire the kids.

The Cons?

Give O’Toole some credit for at least thinking about solutions, even if a few are truly dumb. Banning foreign buyers is something Reddit users would come up with, and just as useful. Beyond that the Conservatives would release federal lands for house construction (good), encourage offices to become residential units (not feasible) and try to bring in closed, fixed-rate home loan with terms of five or seven years (the Canada Interest Act will have to be changed first).

Not so hot is the plan to decrease downpayments from 20% on houses selling for over a million (increasing demand) and slashing the requirement for mortgage stress tests (yup, more demand, higher prices). The party wants to make it easier for self-employed workers, small business people, contractors, part-time and casual workers to buy real estate (uh-huh, more demand). And never will they tax windfall, unearned, pandemic-created buckets of homeowner equity.

“Canada’s Conservatives will never tax Canadians’ capital gains on the sale of their principal residence, something many within the Liberal Party are threatening to do.”

The Dippers?

Not surprisingly, the NDP focuses on ‘affordable housing’ aimed at those who will never afford the average home, with a heavy focus on rental accommodation. The party claims it can build fifty thousand units a year (which has never been done) and will throw money into rental co-ops while waiving federal taxes on builders erecting for-lease homes.

Jagmeet Singh also targets foreign buyers (a 20% extra tax), which will not create a single new home, and vows to bring back 30-year mortgage amortizations – repeating a Harper-era disaster which helped to launch Canada’s current residential bubble.

Well, that’s it. For now. Trudeau says he will have more to offer later in the campaign. Let’s see where that goes.

In the meantime we all know way houses cost what they do. Mortgages are too cheap, so rendering them cheaper with extended terms or amortizations makes little sense. Tax-free residential profits encourage over-investment in a single asset class. That leads to historic levels of household debt, at rates which will only rise. Bad policy. Eviction moratoriums and anti-landlord laws in all provinces have driven down vacancy rates and upped rents. Ridiculous downpayments and widespread 20x leverage have made everybody think they should own a house, resulting in excessive borrowing, inflated demand and 30% annual price hikes. And governments at all levels have taxed real estate relentlessly to the point where fees and development costs now exceed the profit on new homes.

There are ways to make real estate cheaper. But nobody would vote for them. So let’s hope the leaders are lying.

About the picture: “This is my daughter’s dog (my grand dog) named Zoey,” writes Michelle. “She’s not a rescue, but was purchased from a breeder pre-covid. She’s just over 2 now. I’m sending some pics of her in hopes you may wish to use one. Daily blog reader. Love the blog and love dogs so I’m hooked.”