The Canadian Mortgage and Housing Corporation (CMHC) has produced data showing that “rents are going up, pandemic or not.”īetween October 2018 and October 2019, average rents for a two bedroom unit in Canada increased at five times the general rate of inflation. It also drives up rents, forces precarious housing on many, and forces growing numbers of people into homelessness. The cause of this instability is the commodification of housing, and unimpeded it will lead to further indebtedness on the part of private buyers and threaten millions with economic dislocation. The US Federal Reserve’s “Exuberance Index” has shown that, as one media report puts it, “Canadian home prices have been in bubble territory for 6 years without a correction.” Human Costs Vancouver at a staggering 11.9, is entirely off the chart. Using a scale in which a rating of over 5.1 is “severely unaffordable,” Toronto, with a score of 8.6, beat out London and San Francisco. In February, a study of “the world’s least affordable housing markets” showed how Canada’s speculative bubble has made Toronto and Vancouver one of the world’s frontrunners when it comes to unaffordable housing. Whilst US investors on the whole took stock of the enormity of 2008 and stopped viewing housing as a safe investment, their Canadian counterparts remained bullish, continuing to fuel a debt driven housing market. The reckless inflation of its profit driven housing bubble has continued unabated. Canada, however, didn’t experience the same kind of forced “correction” as its North American neighbor. The United States’ sub-prime mortgage crisis was deeply linked to the 2008 financial crash and the Great Recession it caused. The easiest way to appreciate how serious things have become is to compare the situation in Canada with that of the United States. “Prices,” according to Doyle, “are totally disconnected from the fundamentals.” Even high-level investment bankers such as David Doyle, head of North American Strategy & Economics at Macquarie Group, have rung alarm bells. In recent years, an incredible gulf has opened between house prices and real income. This rise far outstrips any other developed markets in the world. These increases have been especially marked in in Toronto and Vancouver, where prices have swelled by 450% and 490% respectively. In the last two decades, home prices have gone up by 375% in Canada. A job loss could force many to drastically cut their spending to keep servicing their debt. Beaudry warns thatĪ key concern here is that financially stretched households have little breathing room to absorb any disruption to their income. The Bank of Canada is warning that a “frenzy of real estate investment,” combined with impossibly high levels of household debt, “could destabilize the economy as rates start to rise.” The central bank’s deputy governor Paul Beaudry suggests that a reckoning is fast approaching because the Bank of Canada now plans to increase interest rates. The possibility of hikes now threatens to bring Canada’s housing market crashing down. Whilst interest rates have remained low this debt has been sustainable. They are also creating major problems for the economy as a whole because the rising cost of housing has increased the amount of private debt held by individuals. These speculative investments are, of course, driving up prices. According to a recent report, between January and August of last year investors were responsible for a quarter of house purchases in the province. Investors now surpass first-time buyers as well as the total number of people moving between homes. It is shared here with permission.Īs recently as ten years ago property speculators were a minority amongst Ontario’s home buyers. This story originally appeared in Jacobin on Jan.
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