For several years now, the issue of affordable housing has become a major concern in most of North America’s major cities. We are especially talking about a large segment of young people who are questioning whether or not they can afford a home. Middle-income households are now struggling with the issue of affordability in many of our cities. For the last decade, New York, Los Angeles and San Francisco in the U.S. and Toronto and Vancouver in Canada are examples of wealthy cities that have failed to meet the housing needs of low- and middle-income households. What’s crazy is that in the last few years, the costs of housing jumped leaps and bounds, making it almost impossible for young middle-class individuals and families to afford a home despite low mortgage interest rates. For example, the average price of a home in Canada peaked at just over $790,000 in February 2022, marking a 50 percent increase over two years. The same situation has emerged in the most American cities.
Enter local, regional and national governments who began to introduce numerous programs and bagfuls of money to encourage developers to build more affordable homes, especially in a market where demand outstripped the housing supply. The difficulty in today’s post-pandemic era is that developers themselves are being faced with increasing labour costs and shortages, higher land prices and construction costs, as well as financing constraints. As a result, governments at all levels were showering developers and consumer groups with incentives, including tax breaks, reduced fees and promises of quick approval times. Some housing activists would like more public funding to be funnelled into purpose-built rentals and co-operative housing — or “non-profit housing.” Despite such incentives, affordable housing scarcity remains the number one concern in most communities. In order to own a home, some people are being forced to purchase homes in outlying areas, creating what we call “rurbanization.” Since many will work in the urban core, this then leads to increased commuting times and greater congestion on feeder routes, never mind environmental concerns over increased air pollution and greenhouse emissions.
Now, central banks in both countries are increasing their rates in order to curb the current hyperinflation. It is anticipated that rising mortgage rates will force a decline in housing prices as more and more potential buyers back out of the market. However, the housing correction is seen as only being a small “blip.” Even with today’s expected price drop, some Canadian analysts note that the lower asking prices will still be nearly 30 percent above what they were in December 2019.
The costs of a lack of affordable housing can stretch into the broader economy as well. When households are financially stretched with a greater share of income going to housing — often 50 percent or more, their consumption of other goods declines. The lack of affordable housing has forced many the turn to the rental market for short-term accommodation, thereby causing a significant increase in rents in many cities. Such is the “domino effect.” The danger now is that the cuts in consumption will contribute to what economists believe will be a recession in both Canada and the U.S. Under these circumstances, how can young people or couples really consider investing in home ownership? Based on his observations, one analyst even suggested that there are women in their 20s who want to have babies, but put off doing so given that real estate prices are interfering with their ability to start a family.
From time to time, I read of huge mansions and estates selling for millions of dollars in cities like Toronto or Los Angeles. This may be fine for multi-millionaires, but does little for the so-called struggling middle-class. As a boomer, I was fortunate to live during a period when wages were good enough to buy a modest home in one of Canada’s biggest cities. One can only ask if the age-old dream of home ownership has slowly but surely collapsed in today’s economy? One cannot but feel for the millennials who it was estimated in 2019 could take up to 29 years to save enough money to afford a home in some of Canada’s biggest cities.
FROLITICKS 