GuelphToday received the following letter to the editor from reader Benjamin Tran regarding housing in Canada and Guelph.
As housing prices soar and rents skyrocket, the government is incentivized to keep subsidizing developers to increase the supply of private/market-based housing. The thing is, developers aren’t incentivized to build the type of housing we need; they are, however, incentivized to maximize the rate of profit per unit of housing built. It’s safe to say we can expect a flood of poorly built “luxury condos” in our future. But does this address housing affordability, particularly for those most affected by price increases?
Currently, the underlying logic of Canada’s housing is predicated on finding some sort of metaphysical equilibrium, finding that sweet spot on the supply/demand curve. As a new unit is added to housing stock, a market filled with entirely rational actors all pack up their belongings and move upwards, maximizing the utility of each dollar spent and opening up the supply of lower-priced housing for those in need. What this doesn’t account for is that the type of housing built matters. The market is segmented, investors aren’t going to supply housing at a loss, and for many families living paycheque to paycheque, the upfront costs associated with moving (think first and last rent, hiring a moving company etc.) make moving impossible, particularly as real wages have remained stagnant. To put it plainly, trickle-down housing, like trickle-down economics, doesn’t work.
These problems are compounded when we analyze how rental prices are set. A combination of algorithmic pricing software and market consolidation by larger firms results in market collusion to keep rental prices high. The average landlord doesn’t have access to supply-side data; they price according to comparable units in the area. A price that’s predetermined by larger players disconnected from actual market needs and subsequently massively inflated.
Guelph's affordable housing plan centres ownership and relies entirely on private rentals to alleviate the crisis. Landlords don’t provide housing; they just profit off existing stock. Increasing competition for prospective homeowners and subsequently driving property values up. Investors have no incentive to improve conditions within the market; by definition, their only incentive is to see rents and property prices increase. Without a plan to address the cause of affordability, a $4 billion cash injection into the market is only throwing fuel onto the fire.
Housing has undergone a slow transformation over the past 50 years. From necessity (as is evidenced by the push in the 70s to increase public housing stock) to market commodity (as that housing stock was slashed in the 90s neo-Liberal push), finally landing on speculative assets. House prices and their rent counterparts aren’t based on any tangible value proposition; they’re based on the expectation of future profits. While this problem directly affects the most vulnerable first, don’t for a second think it won’t affect us all. The problem with speculative assets is once that expectation of future profits can no longer be met (say, by future generations unable to invest in the market), future profits and the valuation associated with it disappears.
Benjamin Tran
Guelph
