Gregor Robertson is sworn in as Canada's Minister of Housing and Infrastructure, in Ottawa, on May 13. The new minister’s philosophy is cold comfort to those Canadians despairing of ever entering the housing market.Blair Gable/Reuters
The swearing in of a new cabinet is supposed to be a day of smiles and solemnity, with a series of rituals designed to show that the government has the concerns of the people well in hand. Woe betide any Member of Parliament who makes waves.
Last week those waves were made by Gregor Robertson, the new Minister of Housing and Infrastructure. The former mayor of Vancouver assumed the role as millions of Canadians struggle with housing affordability. For many of them the solution is as simple as it is obvious: Homes need to cost less.
But Mr. Robertson had a different take when asked whether he thought home prices should go down. No, he said, the more important thing was to increase supply and “make sure the market is stable.”
Then he pivoted to talking about building “affordable housing.” For the uninitiated, Mr. Robertson was talking about government-built rental projects, not less expensive homes.
The new minister’s philosophy is cold comfort to those Canadians despairing of ever entering the housing market. And it recalls a disingenuous attempt to play sides that was employed by former prime minister Justin Trudeau.
One of the country’s leading housing policy analysts, academic Mike Moffat, responded scathingly to Mr. Robertson.
“This is akin to saying that you want to change the temperature of the water but only on one side of the bathtub,” the economist, who works with the Smart Prosperity Institute at the University of Ottawa, wrote on social media. “Housing is a system. A large supply increase in affordable housing will lower demand in the rest of the system, lowering prices.”
Here’s a quick primer. Supply and price are related. Increase the former and there is a moderating effect on the latter. Prime Minister Mark Carney, a former central bank governor in two countries, surely understands this.
Happily, there are plenty of examples proving this. In the Texas city of Austin, for example, a massive boom in apartment building has led to nearly two years of rent decreases as landlords compete for tenants. A counterexample happened in Los Angeles, where fires destroyed a lot of homes and the resulting surge in demand for apartments caused rents to spike. And of course, there is this country, where years of stoking demand, and unprecedented population growth, sent prices soaring this decade.
If Canadian politicians accept that more housing will exert downward pressure on prices, as the laws of economics insist is the case, the question then becomes how much of a drop is optimal.
Governments have targets for the number of additional homes they want to build. But there hasn’t been enough discussion about whether the goal is to build enough homes to slow the rise in prices, or maybe to cause them to plateau. Or is it to bring them back down to more affordable levels?
Politicians have traditionally been loath to clip the market’s wings for fear of angering homeowners. But they should be mature enough to make clear that in any market, including housing, there are winners and losers. No one is guaranteed a payout.
There are two points that homeowners worried about their equity might consider.
For most people, other than those who bought recently, a drop in house prices would be only a loss on paper. They would still be far ahead of what they paid – Canada’s real estate market has outpaced most other G7 countries for many years – though their windfall might be smaller.
Second, Canada’s most expensive real estate markets are often cited for being at risk of a bubble. A reminder about bubbles: It’s much better for them to deflate slowly than to pop.
Setting aside the economic incoherence of Mr. Robertson’s comments, his quote indicates that he is firmly on the side of keeping home prices buoyant, or at least stable. That will play well with Liberal voters, which tend to be older and more established. But it cedes ground on a crucial issue to the Conservative Party, which has made large inroads with younger people who can’t afford homes.
A central challenge for Mr. Carney is creating a legacy distinct from his predecessor. That task is not aided when Canadians hear the new Housing Minister singing the same discordant refrain as his Trudeau-era predecessors.