Fix the Canadian Housing Market by Cutting Out Half the Homeowners
The Financial Post ran a piece by Lawrence Solomon recently that rightly counters the common criticisms of government policy changes in the housing market. Many people complain that the government is unfairly restraining the market and interfering with people’s freedom, when in fact it is only withdrawing some incentives that distorted the market while continuing to leave others in place.
Solomon looks to true free markets in Europe to show that homeownership rates in a free market can range from 30-50% compared to the current 70% here. That also compares to a rate in the mid-to-high 60s in the US (once again we’re beyond their peak). However there are also countries in Europe with homeownership rates of around 80%. I don’t know the reasons for that but 70% isn’t an absolute limit.
I don’t look at homeownership rates as much as affordability. Too many government policies try to help people pay for homes, only to drive up the prices and make everyone worse off. The end result in a Ponzi scheme where you have to help individuals by making the market worse, which requires more help for individuals. At some point this can’t continue.
I wouldn’t draw too many comparisons to Europe since this is the place where some people have to take on inter-generational mortgages due to high prices. Unlike Europe we shouldn’t have a scarcity of land for building. Some cities are sensibly restraining land expansion to promote denser development but overall the majority of Canadians should be able to enjoy a relatively low real estate cost. Overall the market could be worse and maybe the current home prices are just foreshadowing general inflation that will make them more affordable.
However if Solomon’s claim that the rental market is restrained by government policy is true then there could be a lot of potential for a true free market. This would involve stricter conditions for buying, lower homeownership, more renters, and more rentals operated by professionals with a long-term view rather than speculators who got caught. Overall a free market like this could reduce costs for everyone. Who could complain about that? (other than the realtors)