These days, it’s all too common to hear discussion about the housing crisis. The rising rent, the sky-high house prices, the decline in home ownership—they’re all symptoms of a growing dynamic.
From the mid-2000s, right around the time of the subprime mortgage crisis, several shifts have conspired to make cities increasingly unaffordable.
First, many cities have all but stopped building new, affordable homes.
A significant source of these issues comes from messy zoning regulations, which make it easy for current homeowners to block higher-density housing. A fear of skyscrapers and high rises is a key concern. Many want to protect their “view”—or, perhaps, their community’s “character.”
Even though most suburban homeowners remain supportive of affordable housing policies, many take a “not in my backyard” stance. Fundamentally, the present system of housing construction is often susceptible to fierce, local opposition.
That isn’t helped by the growing urban centers across both the U.S. and Canada. Indeed, despite urbanization and immigration, a lack of housing—housing close to jobs—likely contributes to a loss of economic productivity.
The consequence of a housing shortage is the chronic inflation of prices.
In Canada, they have increased by 70% in nominal terms since 2015, according to the OECD. Paired with coinciding periods of low interest rates, buyers (those who can afford it, at least) are increasingly willing to shell out more money for homes.
Beyond the housing market and availability, these most heavily impact younger generations. This has exacerbated a generational divide between a significant group of millennials who cannot afford homes (note the stagnation of real wages) and current homeowners who do not understand their experience.
Moreover, such an attitude does not bode well for future support of economic freedom in the housing market.
This Decade
There are several straightforward answers to the housing market. But they are likely difficult for the market—and governments—to internalize in the short term.
One: there needs to be a shift in the way we build homes. Nonetheless, in this decade, we should expect to see fewer fully detached houses with backyards and more multi-unit, medium-density constructions.
Two: ownership need not be necessary. There’s an argument to be made about mortgages and home ownership as a means of personal investing. However, there are countries—like Germany—whose home ownership rate sits lower than Canada’s and whose prices have not seen much of an increase. That’s the result of a culture and regulatory protections that allow for long-term renting.
Three: the attitude toward new developments needs to shift from current homeowners to what the market genuinely demands. Needless to say, that will take time.
There are plenty of other good solutions. Yet as long as people keep moving into population centers and housing supply does not comparably increase, there will remain a problem. This dynamic and the desires of homeowners will have to subside for proper growth in the long term.
And that’s for both the economy and the standards of living for many.
Further Reading: The Economist
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