Victory

A certain pathetic blog has argued that building more houses will not make real estate cheaper. It’s impossible. Building and land costs are what they are. Crazy. Look at wages, and the shortage of trades. Nothing here makes sense.

Moreover, all this extra ‘supply’ will be happening over five or ten years – plenty of time for Mr. Market to absorb the additional units and apply market pricing. It would be different if, say, several million new houses just came online at once in March. But that’s not happening. In fact, last year Canada built more houses than ever. And prices went up.

Governments at all levels are blowing smoke up the rears of the house-lusty Mills and Zs. The whole process of opening up protected lands for suburban sprawl, or permitting SFH owners to build laneway houses and duplex units may marginally increase the number of for-sale dwelling units. But none will be priced less than existing suburban properties or urban semis. I mean, have you checked out the cost of laneway homes now sprouting in Vancouver? Yikes.

The only way to seriously and permanently reduce the burden of owned housing is to stop the financialization of real estate in ways suggested here. But nobody has the stones to do that. So they blow smoke. And nothing changes.

But wait. What if (shudder) I’m wrong? What if more supply matters?

Then those who are pushing for construction at all costs (like Mr. Trudeau & Mr. Ford) should have a look at (a) what Canada did when we were in a similar pickle and (b) how we can corral the expectations kiddos have today.

After the Second World War (when we still trusted Russians) the Dominion had a big housing problem. Tons of soldiers settling down. No place to go since pre-war the economy had been in the dumpster and construction was sparse. Besides, during the war thousands had flocked to the cities to work in munitions factories. The need for housing was unparalleled.

When hostilities broke out the feds quickly created The Wartime Housing Corp., which erected scads of single-family houses – framed in wood, two bedrooms, 1.5 storey, unfinished basement, one bathroom, no garage – in cities across Canada to rent to wartime trades workers desperate for accommodation.

When victory came, the pattern was repeated. More than a million “Victory Houses” were constructed, creating permanent rental homes for veterans who were later able to buy them for between $6,000 and $7,000 with the agency (which became CMHC) providing financing.

The key was simplicity, standardization, pre-fabrication and modesty. Many of these homes were thrown up in 36 hours with lumber produced to standardized lengths and widths so it could be shipped anywhere to build copies of the same design.

Of course, thousands still stand. Families live in them yet. Take a look around you.

Says Toronto architect Catherine Nasmith: “It’s the first mass-produced idea of the first little house, on a little lot, with a little garden. It’s a pretty big idea.”

And it is. So what’s stopping this from happening today? And would people buy a modest little house that has zero pretentions, displays no wealth and does nothing but keep you safe? After all, at 900 square feet, a Victory House is barely bigger than a condo, with two bedrooms up and three or four little rooms below. It is efficient, practical – and would likely cost less than $200,000 to raise, plus land.

Now contrast that with what builders are building, and buyers buying.

The size of the average Canadian home is now exactly twice that of a Victory House, at 1,800 square feet. In BC and the GTA, typical houses are greater than 2,000 feet. Growth has been exponential since the 1970s, when the average was just over a thousand feet. We have the third-largest homes on the planet (after the US and Australia), and the second most space allocated, per person (620 feet).

Let’s ask ourselves some hard questions, though.

Is this like WW2, or it today’s ‘housing crisis’ the result of speculation, greed, cheap money, extreme leverage and financial illiteracy? After all, we now have 55% of all net worth in a single asset which provides tax-free gains. So is this a legitimate time to be using billions in public funds to build private residences? Asking for a friend.

Second, how can we have a supply problem when real estate sales have crashed by half in major cities, when inventories of resales are rising and, for example, there are 13,000 newly-built and unsold condo units sitting in Toronto alone? Seems we have a problem with the supply of buyers, not homes.

But we all know this blog is irrelevant. Politicians will continue to get it wrong – even when the past shows the way.

About the picture: “Thank you so much for giving free high-quality financial education to anyone who is willing to learn,” writes Igor. “I hope Karma is real and something good comes back to you. I’ve been reading your blog every day since day 1 after I immigrated to Canada 8 years ago and it helped me a lot! Here is Muffin. He is a Labradoodle, born in Lethbridge. I think he is one of the most travelled 1 year-old puppies. He has travelled by car with me and Mrs. everywhere on the West Coast, from Banff and Port Renfrew to San Diego and Yosemite. Here he enjoys sunsets in Los Angeles and Napa Valley. Too bad he’s not allowed to fly!”