The Crushing Cost of Housing

Housing in Canada is utterly unaffordable. The average home price is somewhere in the ballpark of CAD$700,000 while a one-bedroom rental goes for nearly $1,900 a month. A recent report from the Canadian Centre for Policy Alternatives found the hourly wage required to rent a one-bedroom unit is higher than the minimum wage in every province. The study found only three urban areas — all in Quebec — where the minimum wage was higher than the one-bedroom rental wage.

As the country grows, housing starts — breaking ground on new construction — are failing to keep up. In fact, they were down 10 percent in July after a big jump in June. The Canada Mortgage and Housing Corporation says the country needs 5.8 million homes by 2030 to reach affordability, yet builds are on pace to hit just 2.8 million, less than half of what’s needed. The cost of building, government policies, and labor shortages are hampering efforts to build. But even when units are constructed, there are far too few purpose-built rentals and nonmarket options to serve those who struggle the most for affordable shelter.

Those who are fortunate enough to own a home are facing their own pressures. High interest rates, which may rise again in the fall, are facing rising mortgage costs. Now 40 percent of mortgage holders are borrowing to meet day-to-day expenses and nearly 20 percent are falling behind on bills. As Robert McLister writes for the Globe and Mail, that’s based on data from December, and since then things have probably gotten worse. The risk of defaults is looming despite new guidelines from the Financial Consumer Agency of Canada that aim to keep people in their homes and costly financial kluges such as extra-long mortgage amortization periods. But at this rate, something has to give — especially as borrowers face renewal periods and high interest rates in the coming months and years.

Drowning in Debt

Households are also carrying heavy consumer debt. In May, the CMHC warned that Canada’s household debt, which tops the G7 and hit 107 percent of GDP in 2021, “makes the economy vulnerable to any global economic crisis.” It also makes it vulnerable to a domestic crisis of the country’s own making.

Mortgages make up the bulk of household debt, but auto loans and credit cards are doing their part. In the spring, consumer debt in Canada hit $2.32 trillion — a new record. And people are falling behind on payments. At the same time, inflation and high prices persist.

In July, the Bank of Canada raised interest rates twenty-five basis points to 5 percent — in large part thanks to mortgage costs, which were the primary inflation drivers in June and July. The bank may raise rates again in September as it struggles to get inflation down to its 2 percent target.

In the short term, the bank, and Canadians, are caught in a brutal mortgage-inflation spiral where mortgage rates drive inflation and, to fight inflation, the bank raises interest rates, which increase mortgage costs. Even if the long-term goal is to lower inflation through reducing the supply of money and thus spending, the short-term spiral is hell.

Reaching the 2 percent inflation goal will take a long time. Meanwhile, high mortgage costs, low housing supply, high prices, and huge consumer debt loads put Canadians in a deeply vulnerable spot. As rates rise, so too does the likelihood and potential number of defaults on mortgages, auto loans, and credit cards. Ditto the risk of job loss.

Trudeau’s Austerity Dance

The Bank of Canada isn’t mandated or inclined to care about people struggling in the short term. It’s focused on lowering inflation to a manageable level for the long term. National, provincial, and local governments, however, are meant to care — at all times — about people struggling. And yet if there’s a plan to keep Canada’s house of cards from falling, or to make people whole again when it does, it’s not exactly clear what that plan is.

Imperfect and insufficient social welfare programs including dental care and prescription drug care are rolling out, but they’re not nearly enough to address the deep financial malaise Canadians face. Justin Trudeau’s Liberal government may also be turning toward cuts. Ministers have been ordered to find $15 billion in spending reductions by October. That could signal a government less inclined to spend big in the months and years to come, even as the Liberals sag in the polls and face an election by the fall of 2025 or earlier.

Governments must be prepared to assist those who face economic hardship and will be crushed if and when the country’s house of cards falls. These are people who work and who aim for what they’ve been told to aim for: a home, a car, an education, and a few decent consumer goods. Yet they now find themselves abandoned due to a blend of economic structures, pandemic impacts, suboptimal government decisions, and uncontrollable global geopolitical dynamics. These workers, who ensure that the buses run on time and grocery shelves are stocked, comprise 40 percent of the country’s earners but hold only 2.7 percent of its net wealth. Conversely, the top 20 percent of earners hold almost 70 percent.

This wealth gap is obscene at the best of times, but it’s particularly odious in the wake of the last few years when so much lip service was paid to workers — as “frontline” and “essential” — by the powers that be. They must not now be left to the wilds as the country struggles to get its economic affairs in order.