If Mark Carney’s Liberal government is successful in bringing the cost of housing down across Canada – and that’s definitely a big ‘if’ – does that not open the door to another problem?
Much was made in the recent federal election campaign about the need to address Canada’s housing situation, which has left many on the outside looking in, particularly young people who are unable, because of rapidly escalating prices, to purchase a home like their parents and grandparents did.
Home prices have become out of whack with wage levels, which has created a significant hardship for those not already in the market.
To help rectify this situation, the Liberal game plan includes doubling the number of housing starts nation-wide while at the same time lowering the cost of building homes through increased use of prefab products and technology. The plan sounds like it could help, although it’s going to take some time to produce any tangible results.
I’m having a hard time getting too excited about it given Carney’s choice for housing minister, Gregor Robertson, has already made waves by suggesting prices don't need to come down. This is the same Gregor Robertson who spent a decade as Vancouver’s mayor during a time when housing prices skyrocketed in that city, so forgive me if I feel a little uneasy that he’s been tapped to lead the file on a national level.
But for argument’s sake, let’s say the Liberal plan makes a dent in the supply-demand imbalance and real estate prices start to decline across the country. How much will homes have to come down in price to truly make a difference remains to be seen, but let’s say, again for argument’s sake, that under this scenario a $600,000 home drops to $500,000.
It certainly makes it more affordable, but what happens to the homeowner who just saw a hundred grand worth of equity disappear?
That’s a sizable chunk of change for anyone to lose, although those who have been in the market for a long time are in a better spot to absorb such a hit, likening the lost equity to the ebbs and flows of long-term investments.
But what about the more recent buyer, the homeowner who scrimped and saved to put together a down payment so he could get into the market before prices were out of reach for good? He’s the guy who bought that $600,000 place with a minimal down payment and still has a $550,000 mortgage, yet now his place is worth $50,000 less than that.
I realize it would take time for any downward shift in the market to happen, if it does so at all, so perhaps that homeowner doesn’t end up going into the negative, but lowering prices would mean eroding equity from millions already in the market, which wouldn’t prove popular with a great many Canadians who look at their home as their nest egg.
The Liberal government faces an uphill battle with its ambitious plan to right past wrongs and make housing more affordable in Canada, but even if it’s successful in that goal, not everyone’s going to be happy.
