If you think you aren’t affected by high housing prices, read on!
Here are 10 important impacts of high housing costs.
1. If you own your home, and bought it before October 2021, lucky you. It’s worth more than you paid for it. Condo and single family home values have doubled in a decade, tripled since 2005. So for some of us, there’s good news. But most impacts are bad, for you, your children or people you know, and for our whole economy.
2. High house prices have fallen since March 2022, they are still so high that the dream of buying their first home has been dashed most would-be first-time buyers. Ratehub calculated this summer that you’d need an income of $180,000 to buy the average priced Hamilton home.
3. Rapidly rising interest rates mean higher mortgage payments for the roughly one third of Canadians who have a mortgage. A recent survey by the Financial Consumer Agency of Canada found two-thirds of mortgage holders don’t feel confident that they can afford their current commitments.
4. Another third of Canadians are renters—including all those disappointed would-be homebuyers—and renters are facing a double crisis:
a) Landlords keep raising rents faster and faster, far beyond increases in incomes. Average rents on all units are up 63 per cent in a decade in Hamilton; rents on vacant two bedrooms jumped 26 per cent in just one year, from 2021 and 2022;
b) and renting is also becoming less secure with evictions rising. For instance, across Ontario, landlord applications to evict for their own use jumped 41 per cent in just three years, 2019 to 2022.
5. Increasingly, those twin rental crises are dumping more and more people into our overcrowded shelters or directly to the streets. The city knows of 1,890 people experiencing homelessness last month; two years ago, it was 1,200. And today, 280 of those homeless individuals are living in encampments.
6. A lot of people are angry that all of these impacts seem to keep getting worse. It’s a significant factor driving the lead the federal Conservative Party and Pierre Poilievre have in the polls, including a lot of support from young adults.
7. There’s more. High housing costs in Hamilton are discouraging young adults from moving here or staying here, which has a negative impact on the future of our local economy. It’s a problem for Canada’s largest cities, too, not just resulting in jobs unfilled but causing reductions in the CBA National Magazine kind of productivity growth that happens in big cities that are able to bring together lots of talent.
8. Rising housing costs have played a significant role in driving up average household debt. It’s now $1.80 for every dollar of income, compared to 95 cents per dollar of income 30 years ago. Such high debt levels create a risk of defaults if interest rates keep rising. But like high housing costs, high debts also mean people have less money to spend on other things, hurting the rest of the economy.
9. The rapid rise in home values is an important contributor to inequality. One piece of that is the rapidly rising value of homes mentioned at the beginning. In 2019, the average net worth of all home owners (that’s assets minus debts) was $685,400. That was 28 times the average net worth of renters, at $24,000. And owners net wealth had more than doubled in 20 years, while renters’ net worth grew by only two thirds.
10. Canadians invest much more of their money in housing than other countries, and therefore less in other more productive investments that produce new products and jobs. It’s one reason Canada has much lower productivity growth than our major trading partners. High productivity growth was a key reason that average wellbeing grew so fast in the 1950s and 1960s, creating rising wealth. Today, productivity growth is very low.
Perhaps every major problem is related to high housing costs. That’s the argument of a fascinating article, called “The Housing Theory of Everything.” It argues that we have high housing prices because we don’t build enough (it’s only one reason) and not building enough housing contributes to almost every other problem we can think of, including slow economic growth, climate change and even how many children are born.
You can read it here: https://worksinprogress.co/issue/the-housing-theory-of-everything