This guest post is written by Kate Harveston, a writer and political activist from Pennsylvania. She blogs about culture and politics, and the various ways that those elements act upon each other. For more of her work, you can follow her on Twitter or subscribe to her blog, Only Slightly Biased.
Goldman Sachs gives Canada’s housing market a one in three chance of crashing soon. At the same time, more Canadians than ever are migrating to urban areas, driving up the need for affordable housing.
It’s a trend that isn’t sustainable. The average price of a home in Canada is increasing at nearly twice the rate of the United States, but wages for Canadians are not increasing. More people and lower income in a market with rising prices is a recipe for disaster, and if Canada can’t find a solution to the problem, that’s exactly what this crisis will become.
A chain reaction
Canada is often considered to be one of the more affordable places to live when compared to other western nations that offer a comparably high standard of living. Curiously, while we usually think of a housing crisis being driven by high rental prices, Canada's is a product of drastically increasing mortgage prices.
Part of the issue is that Canadian homes aren’t being purchased with Canadian money. In urban centres like Vancouver, up to 5% of all housing purchases are being made by foreign investors. With surplus cash to spend on housing, Chinese and other foreign nationals are buying up housing at prices higher than Canadians can afford.
This influx of new buyers leads to higher average housing costs, as new developments aren’t aimed at lower-class renters, but instead at upper-class buyers. Middle-class people who might have been buyers before are being pushed out and forced into the rental market — where they in-turn displace working-class families.
The Canadian short
Adding fuel to the fire, Canadian lenders are creating a microcosm of the United State’s housing crisis by doling out sub-prime loans. In early 2017, Home Capital Group, one of Canada’s largest publicly-traded lenders, saw its stock plummet so drastically, the company was forced to take out a $2 billion line of credit.
Many middle-class families who can’t afford to take out a prime loan rely on options like Home Capital Group. When investors withdraw the backing these companies count on, it negatively impacts the prospects of middle-class Canadians to purchase a home. Once again, you have people entering the rental market and displacing would-be affordable housing renters.
Canada’s national housing strategy
The government may have lounged on this issue for some time, but Justin Trudeau and Canada’s liberal party are making an effort to right the ship. Their plan? A national housing plan that they hope will reduce homelessness in the country by 50%.
The plan centres on the development of new affordable housing units and providing financial assistance for families in danger of losing access to living quarters for economic reasons. Additionally, the plan proposes to invest in Canada’s existing affordable housing so that it can continue to provide benefits for those it was built to serve.
Under the national housing plan, 300,000 existing affordable housing units would be renovated using government funds.
Best of all, the majority of the funding needed to support this effort is already in place for Canada’s 2018 budget. About half of the $4 billion allocated to the plan between now and 2028 would come from Canada’s provinces, with the other half coming from federal government funds.
Trudeau faces pushback
In politics, there are always two sides, and the new housing plan has received criticism from many of Canada’s politicians.
Jagmeet Singh, leader of the NPD, has directed criticism at the plan for the way that it puts off spending until after the next election. He insists that this is a crisis now, and Canada should deal with it now, not wait until someone who may not share Trudeau’s conviction for providing housing to the poor arrives.
More brazen leaders are plainly critical of the plan because it discourages foreign investors who bring large amounts of money into Canada from buying.
Heated conversation is a necessary part of the political process, but nothing will improve for those who need a roof to sleep under until action is taken. Trudeau’s government has made a decision. It’s a step in the right direction, and it could be life-changing for hundreds of thousands of Canadians.