Like most G7 countries in the early 2000s, Canada heard the gunshot signaling the real estate investment race and took off sprinting. But when the global economy was flattened by the 2008–9 recession — and housing growth in Britain, France, and the United States finally stagnated — we pushed on.
In G7 real estate price graphs, the “Canada” line seems committed to flying off the paper entirely: home costs have more than doubled since 1997, while most leveled off in other countries after 2009. In 2019, annual growth in real estate transaction revenues was over 80 percent higher than all other Canadian industries. Canada’s housing bubble has thrown us into one of the worst housing crises in our history. It’s a complex story of monetary policy, speculation, austerity, short housing supply, and local zoning. And it’s a textbook example of the private housing market’s inability to meet society’s housing needs.
The late 1980s recession resulted in a fall in interest rates immediately after. The resulting low-cost mortgages made homeownership more possible for middle-class earners. This period, as analyst Michal Rozworski writes, was “characterized by relative affordability. This was the time when the financialization of housing — its transformation into a major investment asset — was just taking off.” In the wake of the recession, home prices remained low, and many regular Canadians started scooping them up.
By the early aughts, the situation transformed into a boom for investors. Speculation began running wild as home prices rose, signaling the opportunity for high profits. Domestic and international capital ate up property like Goldfish, emboldened by low interest rates, weak regulation, and favorable mortgage policies. Earning outsize profits by renting and flipping, bets on the real estate market’s continual appreciation have won the investor class considerable wins. The results have caused rapid price increases in cities, where housing supply is fundamentally too low relative to demand. This problem is often made worse by zoning laws that restrict the amount of high- and mid-density builds, which makes existing units that much more valuable.
The Canadian market then powered through the Great Recession, experiencing only a brief shock in 2009. It went on to experience one of the longest periods of value inflation in Canadian housing history. By the 2010s, housing was thoroughly “financialized.” Both as long- and short-term rentals, investment properties are creating large returns for property companies, institutional investors, and everyday slumlords. And as values continue to go up, short-term units like Airbnbs further limit an already-limited supply of homes, removing units from the long-term market, further driving up demand and prices. The combination of spiraling costs and housing scarcity has produced Canada’s crisis of affordability in housing.
Free market champions point to the boom-and-bust of the business cycle as proof of capitalism’s tendency to self-regulate. The invisible hand will slap anyone who is charging too much in a saturated market, or so the story goes. But other than a brief dip in 2017, Canada’s housing market has weathered no major price correction in nearly twenty years. Meanwhile, Canadians nationwide have seen their rents double or triple in spite of relatively weak wage growth. In fact, tenants are in a worse position than ever, with almost one in five, as of 2014, paying over 50 percent of their income on rent — a problem uniquely felt in, but not limited to, urban areas.
Because of the wealth produced by the boom, housing now represents an unhealthy, oversized part of the Canadian economy. In GDP terms, it has eclipsed the energy and service sector in importance. Moreover, the rapid and seemingly endless asset appreciation has enticed pension fund managers who have since sunk billions into the idea that the market will remain stable and profitable. Similarly, homes themselves have become important vehicles for retirement savings for Canada’s aging population.
The crisis has thus infected various elements of the economy, taking economic stability and peoples’ retirements hostage while displacing renters in the process. It has created a situation where popping the bubble would be unconscionably disruptive, while maintaining a system designed primarily in the interest of the ownership class.
What Neoliberalism Has Wrought
An important actor in the whole circus is the Canada Mortgage and Housing Corporation (CMHC), a federal Crown corporation. Its original purpose, as the Central Mortgage and House Corporation, was housing new families in burgeoning postwar Canada. In the 1960s and 1970s, the CMHC built on that purpose and became integral to providing all Canadians with decent housing. Its work in this period, writes journalist David P. Ball, “dramatically expanded the country’s stock of public and social housing for low-income people, helped young families and renters buy their first home, gave incentives to rehabilitate substandard rental buildings, and loaned money to cities to renew run-down areas and improve their sewage systems.” At its peak in the 1970s, the CMHC was building hundreds of thousands of social housing units each year.
The 1980s, however, brought about a significant shift to the agency and the country at-large. The Progressive Conservative government of Brian Mulroney introduced severe social housing austerity, “downloading” funding responsibilities onto the provinces. This reduced the CMHC’s mandate to little more than insuring mortgages. The CMHC’s “main activity today is the highly profitable business of insuring banks against mortgage losses,” writes Ball, as well as promoting homeownership. Its focus shifted away from renters and social housing expansion and toward homeowners.
Mulroney’s slashing of social housing, in turn, led to a greater de facto privatization of housing altogether. As Rozworski argues, these decisions got the federal government “out” of the housing business — cementing the CMHC as an agency that insures housing, not an agency that builds housing.
As the decades passed, and one government after another embraced neoliberalism and austerity, housing has mostly been left to the market to figure out. Public options have languished, bloated with backlogs, marginalized by cuts, and unable to provide for Canadian housing needs. Thirty years after Mulroney’s initial rollback — and many Liberal and Conservative governments later — our affordability crisis is unlike anything ever seen in this country, while our public options are too underfunded to soften its razor-sharp edges.
The results are shocking: “There are no neighborhoods in Canada’s biggest cities (Greater Toronto Area and Metro Vancouver) where a full-time minimum wage worker could afford either a modest one- or two-bedroom apartment.”
An Agenda for Change
Now more than ever, Canada’s housing debacle demonstrates the need for a massive public re-intervention. There’s no silver bullet for this endeavor. But popular support for some straightforward demands could have a real impact.
Firstly, a massive national building program could shift the CMHC to its original, dynamic role as a builder of housing to address fundamental supply shortages. Limited supply has choked the market of decent rent prices — a great situation for investors that want to see their asset values grow, but a death sentence for renters. No surprise, then, that over the last twenty years the market has failed to incentivize housing construction that adequately reflects its need. Short supply keeps things profitable. A publicly directed building program will address this issue at its core.
Secondly, we must not create a national building program that is gifted to the private sector. We should aggressively step in to increase aggregate supply, yes, but we should do so through a nonmarket program so as to build a massive, affordable alternative to a market hell-bent on imploding.
A doable, ambitious goal is on offer from the golden years of the CMHC itself: hundreds of thousands of units a year. Paired with a liberalization of strict zoning laws in cities, a public program that breaks the dam of short supply could help correct a market unable to correct itself.
We did it before, and we can do it again.
Uninhibited by meaningful regulation, the private sector gleefully takes advantage of basic needs — and puts in place whatever system necessary to extract the highest profit. We need to present a clear alternative to it, in housing and beyond.