When Canada’s Housing Bubble Pops, It Will Cause Misery and Ruin
The price of Canadian homes has increased faster than those of any other member of the OECD. Rising interest rates now threaten to bring the market crashing down, destroying the lives of millions in the process.
As recently as ten years ago property speculators were a minority amongst Ontario’s home buyers. Investors now surpass first-time buyers as well as the total number of people moving between homes. According to a recent report, between January and August of last year investors were responsible for a quarter of house purchases in the province.
These speculative investments are, of course, driving up prices. They are also creating major problems for the economy as a whole because the rising cost of housing has increased the amount of private debt held by individuals. Whilst interest rates have remained low this debt has been sustainable. The possibility of hikes now threatens to bring Canada’s housing market crashing down.
A Disaster Waiting to Happen
The Bank of Canada is warning that a “frenzy of real estate investment,” combined with impossibly high levels of household debt, “could destabilize the economy as rates start to rise.” The central bank’s deputy governor Paul Beaudry suggests that a reckoning is fast approaching because the Bank of Canada now plans to increase interest rates. Beaudry warns that
A key concern here is that financially stretched households have little breathing room to absorb any disruption to their income. A job loss could force many to drastically cut their spending to keep servicing their debt.
In the last two decades, home prices have gone up by 375 percent in Canada. These increases have been especially marked in in Toronto and Vancouver, where prices have swelled by 450 and 490 percent respectively. This rise far outstrips any other developed markets in the world. In recent years, an incredible gulf has opened between house prices and real income. Even high-level investment bankers such as David Doyle, head of North American Strategy & Economics at Macquarie Group, have rung alarm bells. “Prices,” according to Doyle, “are totally disconnected from the fundamentals.”
The easiest way to appreciate how serious things have become is to compare the situation in Canada with that of the United States. The United States’ sub-prime mortgage crisis was deeply linked to the 2008 financial crash and the Great Recession it caused. Canada, however, didn’t experience the same kind of forced “correction” as its North American neighbor. The reckless inflation of its profit driven housing bubble has continued unabated. Whilst US investors on the whole took stock of the enormity of 2008 and stopped viewing housing as a safe investment, their Canadian counterparts remained bullish, continuing to fuel a debt driven housing market.
In February, a study of “the world’s least affordable housing markets” showed how Canada’s speculative bubble has made Toronto and Vancouver one of the world’s frontrunners when it comes to unaffordable housing. Using a scale in which a rating of over 5.1 is “severely unaffordable,” Toronto, with a score of 8.6, beat out London and San Francisco. Vancouver at a staggering 11.9, is entirely off the chart. The US Federal Reserve’s “Exuberance Index” has shown that, as one media report puts it, “Canadian home prices have been in bubble territory for 6 years without a correction.”
The cause of this instability is the commodification of housing, and unimpeded it will lead to further indebtedness on the part of private buyers and threaten millions with economic dislocation. It also drives up rents, forces precarious housing on many, and forces growing numbers of people into homelessness. The Canadian Mortgage and Housing Corporation (CMHC) has produced data showing that “rents are going up, pandemic or not.”
Between October 2018 and October 2019, average rents for a two bedroom unit in Canada increased at five times the general rate of inflation. The fact that the incomes of the poorest Canadians have remained stagnant during this period has not affected the pace at which prices have risen. Ontario’s social assistance benefits remain frozen despite housing costs shooting up.
Predictably, the threat of eviction hangs over the heads of a huge number of tenants. The Globe recently reported that in Vancouver, the Canadian epicenter of unaffordable housing, 10.5 percent of renter households moved from their previous home because they were evicted. The figures for Toronto and Montreal are 5.8 and 4.2 respectively.
When landlords want to evict tenants, the legal system and its enforcers are only too ready to provide support. During the Easter holidays, landlords removed a Toronto father and his two young children from their home with the assistance of dozens of police officers who stormed into his apartment on Good Friday. This was a day before the Ontario government enacted a province-wide shutdown. As the tenant put it, “there’s no justification to sending twenty-six cruisers to evict a single peaceful man, and his two children. That is inhumane.”
As you would expect, the rise in housing prices has led to a rise in homelessness. In major cities, local authorities, instead of working toward meaningful solutions, have decided to sweep the problem under the rug. Toronto has seen a major increase in homeless encampments, often set up in public parks. The pandemic has increased the visibility of urban destitution. Cities have responded by increasingly resorting to brutal police operations to clear encampments.
In the summer, police arrested twenty-six people during skirmishes between protester and law enforcement. The arrests followed a police operation to drive homeless people out of a Toronto park. Similar methods have been employed in other Canadian cities, including a particularly ugly police attack in Halifax. According to a local housing advocate, “these people had nowhere to go, despite the doublespeak that we’re hearing from the city that everyone has options.” Nevertheless, City Hall is determined that the post-pandemic “recovery” won’t include people who have been priced out of housing.
At the start of the 1990s, Canada’s governments slashed funding for social housing and opened the housing market up to complete domination by private interests. Today, as housing prices and rents skyrocket, and homeless shelters overflow, mainstream public policy is entirely reconciled to the idea that housing must be a commodity.
The Trudeau government has recently made a lot of noise about the need for a housing fix, but while the crisis spins out of control, it appears that the Liberal’s solutions amount to little more than empty talk. In Toronto, the largest city in the country, both left and right members of City Council are wedded to the pro-property developer position that including some “affordable” units in their reckless buildout of upscale housing is a reasonable solution to the crisis.
It’s clear that only a real challenge to the commodification of housing can make a meaningful difference in this situation. In the wake of the dislocations and hardships that were triggered by the pandemic, many politicians have paid lip service to the need for a “just recovery.” The reality, however, is that any gains that working people make during the period ahead will have to be fought for.
The struggle for housing will require a massive expansion of public housing. The call for public housing will have to be clearly articulated and very specific local demands will have to be put forward. However, to press governments into public housing development, mass social action will be required.
The breakthrough in the fight for union rights in North America took place in the 1930s, when workers occupied the factories in order to press their demands. Under present conditions, a comparable method of advancing the struggle for housing is possible. As investors take over the housing market, it is estimated that 1.3 million homes are sitting empty in Canada.
According to a Toronto lifestyle magazine, the city “has more construction cranes than any city in North America with roughly two thirds of them working on condos.” This construction represents an astonishing market failure — a staggering sixty-five thousand condo units in the city are thought to be presently unoccupied, serving no other purpose than speculative investment.
The housing crisis requires major social mobilization. The occupation of these empty homes by all the people who the market has displaced would take the challenge of housing beyond the limits of abstract debate and into the realms of real action. It would be a real, grassroots “build back better” initiative.
Canada’s housing market is sick and grossly distorted. It causes tenants to live in constant fear of eviction and ensures that the unhoused sleep on the streets. The subordination of housing needs to profit has created a dangerous bubble that threatens an economic catastrophe. An effective “correction” to this situation could begin with a movement of people on the streets who insist that housing is a human right.