The guy who runs Generation Squeeze says building more homes isn’t enough to lower prices, because most people buying houses are already property owners. Property owners can either sell their current house to get a load of cash, or borrow against it to get a load of cash. Either way, they can pay a lot for their next property.

As evidence, he mentions that Alberta has less supply per capita than the rest of the country, but house prices are half those of Ontario and BC.

Here are the good bits:

While building more supply is absolutely important, setting ambitious targets does little good if property values continue to rise. Unless they are deeply subsidized by tax dollars, new market units will price in today’s high land values – which have soared well beyond what most can afford with local earnings whether the new homes are intended for renters or owners.

Plus all the focus on “Build! Build! Build” ignores that lack of supply isn’t the only, or even primary, factor influencing the price of rent and ownership. You could be forgiven for thinking otherwise, since undersupply has become the dominant narrative shared by Canada Mortgage and Housing Corp. and a variety of financial institutions.

The Bank of Nova Scotia, for instance, published reports lamenting that Canada has a smaller number of private dwellings per capita than the G7 average, blaming this ranking for much of our unaffordability problem. This leap in logic begs questions, since the same Scotiabank data also show that Alberta has lower levels of housing supply per capita than most other provinces, yet home prices in Alberta are about half as expensive as those in Ontario and B.C.

Mr. Pomeroy [who published a study about this stuff] encourages us all to widen our focus to include the vicious cycle by which rising home prices drive rising home prices.

First-time homebuyers are a minority of purchasers. They compete with many Canadian buyers who have already owned in the market. Bolstered by the equity they’ve gained from surging home values, existing homeowners bid up the price of housing to levels that are disconnected from earnings paid by local jobs. This was especially true prior to recent interest-rate hikes, because historically low interest rates made it cheap for homeowners to liquefy wealth windfalls created by skyrocketing home values.

Some homeowners bid up the price of housing simply to relocate. Others do so to purchase an investment property in search of additional wealth windfalls.

The latter are among the one in six Canadian homeowners who own multiple properties. Most are over the age of 55. To pay the mortgages on their investment properties, they increasingly collect rent from younger residents with dashed dreams that a good home should be in reach for what hard work can earn.

This reveals that the vicious cycle by which those enriched by high home values bid housing costs ever higher isn’t just ruining the market for aspiring owners. It is also breaking the rental market, as confirmed by the record-high rents reported this summer.

To disrupt this vicious cycle, political leaders must help break Canada’s cultural addiction to rising home prices by endorsing the plan that governments will use all available policy tools to stall home prices for the foreseeable future.

  • sbvOP
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    1 year ago

    Here are some of Generation Squeeze’s suggestions for improving affordability. Here’s one that’s interesting:

    The first step is putting a price on housing inequity by adding a modest surtax on homes valued over $1 million. This surtax will apply only to the top 12% of high-value homes – the vast majority of Canadians won’t pay a penny more. But it will help slow down home prices so earnings have a chance to catch up, demonstrating allegiance to the Canadian dream that a good home should be in reach for what hard work can earn.

    • alvvayson@lemmy.world
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      1 year ago

      Here in the Netherlands we have such a surtax, but it doesn’t really work.

      I rarely think the USA has the best system, but when it comes to housing equality, the USA has done one thing right: high property taxes combined with deductions on income tax and lower income taxes overall.

      Buying a house in the USA for speculation is rarely worth it, because the property taxes are just too high. You can’t afford to let a property sit empty. It must either be sold or rented.

      Meanwhile, in Canada and the Netherlands, renting out an empty home for 30 nights a year on AirBnB is enough to cover all costs. So it’s very easy to have houses sit empty while waiting for the high ticket renter or buyer.

      I think the US system could be slightly improved by better regulating rents.

      • sbvOP
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        1 year ago

        I looked at tax rates for Boston:

        That means that the owner of a $500,000 house pays $5,370 this year, not counting the city’s homeowner exemption

        That’s very similar to what the tax rate in Ottawa is. According to this random calculator, tax on a 500k home would be $5,846. I’m not sure how representative Ottawa is, however.

        • Nouveau_Burnswick@lemmy.world
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          1 year ago

          With the conversion rate, Boston is about 25% more.

          USD $5,730 // $4,352

          CAD $7,213 // $5,846

          edit: WTF is this? is this a joke? “Owners of units that remain vacant for more than half of the calendar year will be charged an extra fee equivalent to 1% of the property’s assessed value”

          A whopping $12 per $1,000 accessed? leaving a $8.8 million dollar property would cost $1,000…

          • sbvOP
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            1 year ago

            WTF is this? is this a joke? “Owners of units that remain vacant for more than half of the calendar year will be charged an extra fee equivalent to 1% of the property’s assessed value” A whopping $12 per $1,000 accessed? leaving a $8.8 million dollar property would cost $1,000.

            Is that Ottawa 's vacancy tax? It’s self reported, so without decent verification (or snitch lines), I doubt it’ll make a difference.

        • alvvayson@lemmy.world
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          1 year ago

          Oh yeah, should have been more precise. In the USA, property taxes are set more locally. Often even below the State level. So it does vary.

          I should not have said it’s better in the USA. It’s more accurate to say that, in the USA states and counties have extra tools to tax property and some have used it to good effect.

          Perhaps I should have even said had tools, since it seems Trump put a ceiling on the state and local tax deductions.

          To illustrate what I meant, this house in Houston was assessed at $250K and paid about $4K in property tax in 2018. That $4K would then be deductible from federal income tax, so for a working person, it would be easier to pay than for an investor. Texas also didn’t/doesn’t have state income tax.

          https://www.zillow.com/homedetails/12107-Laneview-Dr-Houston-TX-77070/28357645_zpid/

          I don’t know what happened after 2018, I guess they lowered property taxes and the house is now for sale for $450K.

          Also found this overview. It seems most of the USA doesn’t follow the model:

          https://www.fool.com/research/property-tax-rates-by-state

      • sbvOP
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        1 year ago

        Apparently some US states also have a progressive tax on the sale of a property. You get the first 250k of profit (for example) tax free, but you pay tax on the rest.

    • kitonthenet@kbin.social
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      1 year ago

      That does nothing for the prices at the low end, and it keeps most landlords happily in their current (extremely high) rents. What hope do middle and lower class people have to outbid the rich for the same houses?

      • sbvOP
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        1 year ago

        Generation Squeeze has a bunch of other proposals that would probably help people in all income brackets.

        The point of many of these measures is to take investment out of housing, so people with money don’t treat houses as a vehicle to make more money.

    • N-E-N@lemmy.ca
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      1 year ago

      Wouldn’t this negatively impact people who bought their homes at a much lower price when it was affordable and whose home has since increased in value to 1mil+

      • Guns4Gnus@lemmy.ca
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        1 year ago

        They bought a house, not an investment.

        If they did buy it as an investment, well, they certainly should learn that investments aren’t guaranteed, and that anyone promising that should have a watchdog alerted on them.

        • N-E-N@lemmy.ca
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          1 year ago

          While I don’t disagree, I dont see how it helps anyone else? Only sounds useful if it’s exclusively on owners of multiple properties

          Am I missing something?

          • Guns4Gnus@lemmy.ca
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            1 year ago

            If they bought their house to live in they won’t have a problem.

            If they bought it because they wanted an investment that would appreciate in value, they knew the risks.

            We haven’t been in a stable market for the average person in over fifteen years.

            I just can’t muster up pity for the people who want to hold other people back just because they bought early.

            It’s that same pity which allowed flippers and investors to put us in this position to begin with

            • N-E-N@lemmy.ca
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              1 year ago

              This didn’t really explain how it makes the market better for others tho

              How does taxing home owners bring down the price of the house?

              • Guns4Gnus@lemmy.ca
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                1 year ago

                You haven’t explained how hampering others from getting a home helps society.

                You seem to think that we should be bending over backwards to protect the NIMBY crowd that cares only about themselves and couldn’t give a fuck about others.

                • N-E-N@lemmy.ca
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                  1 year ago

                  Lmao I didn’t say that at all, now you’re just making stuff up instead of producing any valid points for your perspective 🤷

      • sbvOP
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        1 year ago

        Probably. I think part of the idea is to get them to sell.

        • N-E-N@lemmy.ca
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          1 year ago

          Doesn’t make sense to me tho. Someone could non-problematically own one 1mil house, or problematically own ten $500k homes they rent out

          • sbvOP
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            1 year ago

            Generation Squeeze has a bunch of other proposals as well.