The housing affordability crisis in Canada is a critical social and economic challenge of our time. With home prices continually escalating, the aspiration of owning a home is becoming increasingly unattainable for many Canadians. This complex issue, often oversimplified as a supply and demand imbalance, actually involves a web of economic incentives, societal attitudes, and policy decisions.

The Paradox of High Home Prices

High home prices, while typically indicative of a strong real estate market, are a significant driver of the housing crisis. Many Canadians, especially long-term homeowners, have come to see their homes as financial assets rather than merely places to live. This societal fixation on rising home prices has led to a collective addiction to treating homes as financial investments. This perspective often overshadows the more pressing need for affordable housing. While we continue to hear calls for a focus on increasing housing supply, I believe that collectively we continue to avoid addressing the deeper issue of how we view housing in Canada.

Government announcements of new housing projects are frequent, aiming to showcase efforts to tackle the crisis. However, these measures often divert attention from the more fundamental need to reassess our expectations from the housing market. We need to decide whether our goal is to provide affordable housing for all or to maintain high property values for some. The financial windfall that an average Canadian, and often recent immigrants, seek from their investment in housings is sadly the exact thing that is squeezing out youth and new Canadians from the housing market.

The Role of Investors and Financialization of Housing

The increasing involvement of investors in the housing market has further complicated the affordability issue. Data from the Bank of Canada indicates that investors accounted for 30% of home purchases in early 2023, up from 22% in 2020. This surge has intensified competition, driving prices up and making it harder for first-time buyers to secure homes.

We now know that the market share of first-time homebuyers is increasingly being replaced by investors, who are often local buyers purchasing additional properties to benefit from rising home prices. These investors are not necessarily the stereotypical foreign buyers or house-flippers that the media and politicians in Canada have come vilify. This shift reduces the available housing stock for new buyers, worsening the affordability crisis.

The financialization of housing is a global trend where housing is treated as a financial asset. Deregulation and tax policy changes since the 1970s have deeply intertwined financial markets with real estate. Large institutional investors use sophisticated financial strategies to acquire significant portions of housing stock, driving up prices and reducing affordability.

Different markets exhibit this financialization in various ways. In cities like New York and San Francisco, investors exploit rent regulations to maximize profits, while in regions like Atlanta and Phoenix, they convert foreclosed homes into rental properties under often exploitative terms. This prioritization of investor returns over stable and affordable housing leads to increased rents, poor maintenance, and frequent evictions.

Housing as a Human Right vs. Housing as an Asset

A significant challenge in addressing the housing crisis is reconciling the roles of housing as both a human right and a commodity. For many, housing should be an accessible necessity, but its commodification has turned it into a lucrative investment, often prioritizing profit over people. Upzoning, intended to increase housing density and affordability, frequently results in higher prices and gentrification instead.

Upzoning allows for more and taller buildings in previously restricted areas. While this theoretically increases supply and reduces prices, in practice, it often leads to the development of luxury units that do not meet the needs of low- to moderate-income families. Additionally, upzoning can displace long-term residents through demolition and renovation evictions, further diminishing affordable housing availability.

Government Policies and Their Impact

Government policies aimed at addressing the housing crisis have had mixed results. Prime Minister Justin Trudeau has announced funding measures to increase housing supply and support first-time buyers. I strongly believe that there is little political will to implement measures that would directly lower home prices. Politicians are reluctant to upset homeowners who benefit from high property values. The consequences unfortunately are seen both in terms of personal wealth and property tax revenues.

There is also a societal obsession with home ownership, seen as a key to financial security. This perspective overlooks the viability and benefits of renting, which is common in many other countries. Multiple urban planners that I have engaged are of the opinion that we need to shift our mindset and embrace renting as a legitimate, long-term housing solution.

Economic and Social Implications

High home prices affect more than just the housing market; they impact various segments of society. Rising home prices contribute significantly to the Canadian GDP and benefit existing homeowners financially, but they place a substantial burden on those trying to enter the market. The costs of home ownership now consume over 60% of the median household income, creating financial strain for many families.

Governments benefit from high property values through increased tax revenues, which fund public services and infrastructure. However, this economic benefit comes at a social cost. The lack of affordable housing exacerbates inequality, forcing those unable to buy homes into less secure and more expensive rental markets.

Possible Solutions and Future Directions

Addressing the housing affordability crisis requires a multifaceted approach. Increasing the housing supply is essential but must be accompanied by measures addressing the demand side, particularly the role of investors. One proposed solution is a tax shift targeting housing wealth, especially the most valuable properties, to reduce speculative activity and fund affordable housing initiatives.

Policymakers must also promote a cultural shift towards accepting renting as a viable and desirable option. This involves creating more stable and attractive rental markets with better tenant protections and incentives for long-term leases. Upzoning can help increase housing supply, but it must be accompanied by policies ensuring that new housing stock includes affordable units, social housing, and co-ops protected from speculative investments.

Decommodifying housing requires rethinking how we manage and use housing. Publicly owned land should be used to build housing that meets community needs rather than being sold for private profit. Policies such as primary residency requirements for ownership, speculation taxes on investment properties, and strong rent controls can help mitigate the negative impacts of financialization.

In conclusion, solving the housing affordability crisis in Canada is not just about building more homes. It requires a fundamental reevaluation of how we view and manage housing as a society. By addressing both supply and demand, promoting a cultural shift towards renting, and implementing targeted policies, we can work towards a more equitable and sustainable housing market. This challenge demands bold and thoughtful action from policymakers, stakeholders, and all Canadians.