Stop counting on rising home values to drive economic growth

Governments across Canada have spent years assuming rising home prices will drive economic growth. This strategy has harmed younger people, renters and newcomers, more and more of whom are locked out of unaffordable housing markets.  

To restore affordability for all, Gen Squeeze encourages Canadians and their governments to celebrate stalling home prices so that earnings can catch up. Stalling prices shouldn’t be seen as a sign of ‘weakness’ in the housing market. This attitude assumes that the primary purpose of housing is as an investment strategy to grow wealth – not a place to call home. We can no longer pursue an economic strategy that grows the major cost of living out of reach with what Canadians earn from their jobs. Stalling home prices will prioritize hard work paying off today the way it did for previous generations.

Compensate young people for enduring higher home prices that grow homeowner wealth

The political bargain we've struck in Canada obliges younger people to sacrifice their standard of living to protect the housing wealth accumulated by homeowners who have come before them. It's time to acknowledge this sacrifice - and to compensate young people for their profound expression of intergenerational solidarity.

We can begin by targeting some savings from fixing Old Age Security to reducing housing, child care, education and other costs for young people.

We can also put 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. 

Reduce collateral damage from the cheap credit system

Average home prices rose by over 300% since 2000. Yet over the same period, Statistics Canada reports that total inflation rose by 48%. That’s a pretty major disconnect. Gen Squeeze is calling on Statistics Canada to remedy its flawed inflation measure which does not adequately consider rising home prices, sending the wrong signals to the Bank of Canada to guide inflation policy. This explains why increases in food and gas prices triggered interest rate hikes – while decades of increases in home prices did not. 

Underestimating inflation sustains the cheap credit system. Low interest rates decrease the cost of larger mortgage debt. Buyers able to borrow more bid up prices. Rising prices aren’t adequately captured in inflation data. This is a dangerous feedback loop for our housing system.

Some first-time buyers may welcome low interest on the frighteningly large mortgages needed to straddle the massive gap between home prices and earnings. But this individual coping strategy reinforces broader trends that work against first-time buyers. Current homeowners with more capital use low interest rates to outbid their novice rivals, which is why Census data reveals that more new homes are bought by investors, and that one in six Canadian homeowners now owns multiple properties.