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Will anyone ever be able to afford a home?
Housing mania is gripping the United States and Canada – with millions wanting but unable to find an affordable place to live.
For years, both countries have faced a growing housing crisis. The pandemic exacerbated the struggle, and only now are governments starting to take the problem seriously. Still, securing affordable housing remains a daily struggle for would-be buyers, renters, and a growing number who are either homeless or under-housed.
In February, the median home price in the US actually fell to $400,500, a decline of 7.6% annually, but housing remains unaffordable for the majority of the country. In December, a mere 15.5% of homes were considered affordable (mortgage payment no more than 30% of monthly income). A recent poll found that around half of aspiring buyers said they can’t afford a down payment and closing costs, though a mere 13% of would-be buyers said there was “nothing” keeping them from buying. This suggests that even those who might be able to afford a down payment face other challenges in the market. High mortgage rates, around 7%, “historically” low stock, and a lack of targeted rental and non-market units are keeping homes out of reach for Americans.
With homebuilders waiting on lower interest rates to initiate new builds, pressure on the market may grow in the short term. Housing starts were down in March, nearly 15% below February and 4.3% lower than a year ago.
In Canada, it’s even worse. Last month, the benchmark price was a whopping CA$720,000, up 2% over February with mortgage rates hovering between 5 and 6%. Homeownership now costs nearly 63% of the median household income, up from 35% in 2002.
High housing costs are also driving up inflation – as in the US – and the country also faces a supply shortage. In 2022, the Canada Mortgage and Housing Corporation said the country would need 5.8 million new homes by 2030 to reach affordability. Yet, new builds fell in March, down 7% from February, and the six-month trend is also down, which means the country isn’t building nearly enough housing. There is one exception: British Columbia, with starts up 27% in Vancouver, as the province pushes new builds through a series of measures, including zoning reform to push beyond a focus on building single-family dwellings and pro-density minimum building requirements.
Why are houses so expensive?
Prices are high thanks to high demand and low stock, as usual, but there’s more to it. There’s also a lack of political action to build or encourage the building of housing people need where they need it – for instance, non-market units, purpose-built rentals, multiplex units – which is keeping stock low for segments of the population, including younger buyers and lower-income earners.
Ottawa ceased its involvement in building social housing in the 1980s and 1990s, which hasn’t helped. The US has long been a laggard on social housing, though in recent years some municipalities are starting to build publicly owned units.
Exclusionary zoning – or “not in my backyard” NIMBY-ism – has been another hurdle in both countries, with cities fighting the density necessary to build at scale and homeowners keen to protect their home values by keeping new housing out. A jump in the number of newcomers in Canada, about 471,000 last year, also contributes to market pressure.
Labor shortages are also hampering new builds in both Canada and the US, with the latter still slowed by the legacy of the Great Recession, which did more damage stateside than up north.
And then there’s the elephant in the room: the financialization of housing through which big institutional investors dominate the market looking for returns on their capital. This pernicious problem stems from seeing houses as assets first and foremost, a source of maximized profit, which invites speculation and market dominance by institutional investors who seek to inflate prices. Smaller investors, meanwhile, simply buy and flip properties.
Thinking of housing as an asset also means that individuals may see their homes as investments for retirement. Housing policy expert Carolyn Whtizman says “since the 1970s, the federal government has been treating housing, particularly ownership housing but more recently multifamily apartments, as the primary investment vehicle for retirement.”
“Housing in the US has always been an asset for the middle class,” says Noah Daponte-Smith, an analyst at Eurasia Group. “Your house is your primary retirement savings vehicle.”
Housing investors and those who rely on their homes for retirement planning want, even need,higher prices, which leaves millions priced out of the market or stretched to the brink.
In Canada, the share of investors and repeat buyers in the market has risen precipitously compared to first-time buyers, with investors accounting for 30% of purchases last fall. In the US, first-time buyers make up a similar share of the market at 32%, and recent data suggests institutional investors could make up as much as 40% of the single-family detached home rental market in the next five years or so, which means higher prices for renters and buyers alike.
What’s going to make housing affordable?
Solving the housing crisis will take years of commitment to a number of measures. Whitzman says Canada needs a period of stable house prices and rising incomes to produce an affordable market, but it also needs government involvement in building or incentivizing stock that matches the needs of buyers and renters at various price points. The same is true in the US.
The other side of the equation is income – namely, people need higher salaries. Half of Canadians now live paycheck-to-paycheck, and a whopping 78% percent of Americans are in the same boat, which leaves no room for saving for a down payment.
Stabilizing requires efforts and cooperation by governments at the national, state/province, and local levels. One approach could be ending the capital gains exemption on the sale of a principal residence to dampen demand, just as, according to Paul Kershaw of Generation Squeeze, taxing home wealth and using the cash to build affordable housing would have a similar effect while increasing stock.
What’s being done now?
In recent years, and especially in the last few months, the Trudeau government has awoken to the need to go all-in on housing. Its 2023 Housing Accelerator Fund helps municipalities build homes, trading federal cash for national building goals, including upzoning, transit accessibility, and affordability. The fund is expected to generate 750,000 new builds in the next 10 years, and so far the feds have greenlit 179 local applications.
In Canada’s federal budget, tabled on Tuesday, the government committed to several measures focused on housing affordability to build what it says will be 4 million homes by 2031. Those include longer mortgage amortization periods, $15 billion for construction loan programs, $6 billion in infrastructure funding, and buyer tax breaks. It also promised to “restrict the purchase and acquisition of existing single-family homes by very large, corporate investors,” but those details are to be determined in the fall after consultations, and the promise itself is full of asterisks, such as “existing” and “very large.”
Stateside, Daponte-Smith points out that while there is a housing crisis, “especially in major metro areas,” no national housing strategy exists. Instead, housing policies are “determined at the state and really even at the local level,” which means that every builder has to deal with a different set of local laws and zoning codes that control what they can build and how expensive it will be.
The Biden administration is increasingly aware that it needs a housing strategy. In March, the White House announced the latest in its housing affordability plan, which includes pressuring Congress “to pass a mortgage relief credit” worth $5,000 a year over two years along with $25,000 as a cash grant for down payment assistance for first-time buyers. On the supply side, the administration is also calling on Congress to boost new builds with builder tax credits and announced grants for new builds of affordable units for buyers and renters.
Electoral consequences?
Both governments are under pressure to deliver affordable housing but are hampered by long timelines, limits on labor and capital, the need to cooperate and coordinate across levels of government, and views that housing is an asset rather than a human need.
Voters expect the Biden administration, Trudeau government, and their state/provincial and local governments to deliver, and they’re increasingly impatient – meaning they may punish those that don’t at the ballot box.
With both Joe Biden and Justin Trudeau facing voters in November and by the fall of 2025 respectively, you can expect both men to continue working on housing affordability – to get first-time buyers into the market and rents down for those unable or uninterested in buying. But they’ll be battling an intransigent market that serves investors and incumbents, and the fact that even in the best-case scenario there will be a lead time between better housing policy and good outcomes at scale.
Australian Prime Minister Anthony Albanese and New South Wales Premier Chris Minns join other politicians as they lay flowers at the scene of Saturday's mass stabbing at Bondi Junction, Sydney, Australia April 14, 2024.
Hard numbers: Sydney stabbing, Pricey Pakistan, US Steel deal, Costco gold rush
6: Australia is reeling from one of the country’s deadliest mass killings after six shoppers were stabbed to death at a mall in Sydney on Saturday. The attack left several others injured, including a baby who is in intensive care. The assailant, who was shot dead by police, was known to authorities and had been diagnosed with a mental illness as a teenager.
25: Pakistan has the highest cost of living in Asia, according to a report from the Asian Development Bank, and it’s only set to grow with a crushing 25% inflation rate. Authorities have hiked interest rates to 22% to try to alleviate the problem, but Pakistan’s economy will likely require further support from the International Monetary Fund.
14.9 billion: Shareholders in US Steel overwhelmingly voted to approve an offer from Nippon Steel to acquire the company at about $55 a share — but don’t expect the deal to close anytime soon. US President Joe Biden has expressed opposition to the deal, which could cost him crucial support from steelworkers in upper Midwestern swing states like Michigan, Pennsylvania, and Wisconsin.
200 million: Wholesaler Costco is estimated to be selling over $200 million worth in one-ounce gold barsevery month, according to an analysis by Wells Fargo. Those who made their purchases in the fall, when Costco was selling the bars for around $2,000 each have earned a nice bit of profit, as gold has surged to over $2,300 an ounce since March.A pile of money sitting on top of a table.
No rate cut for Biden or Trudeau
It looks like neither Joe Biden nor Justin Trudeau can count on lower interest rates to give them the economic or political boosts they need.
In the United States, hopes for a rate cut were dimmed when Wednesday’s consumer price index numbers dropped. The index was up 3.5% in March compared to last year, higher than February and higher than expected, which means the Federal Reserve is unlikely to cut rates in the US anytime soon.
The Bank of Canada, meanwhile, held its benchmark rate steady for the sixth straight time on Wednesday, but Bank of Canada Gov. Tiff Macklem offered room for hope. “We need to be sure this is not a temporary dip in inflation,” he said, noting that a rate cut in June is still possible.
Both Biden and Trudeau desperately want inflation to ease and for interest rates to drop – to ease cost-of-living concerns for voters.
On Tuesday, former Bank of Canada and Bank of England Gov. Mark Carney – notably considered a potential successor to Trudeau – said the era of steady low-interest rates may be over because of structural changes – namely greater volatility and the shift to a low-carbon economy.
This perspective will be a cold comfort to the Biden and Trudeau camps as they face the prospect of asking for votes while mortgage rates, grocery, and gas bills remain high.
Finland's PM Sanna Marin at news conference in Stockholm, Sweden, February 2, 2023.
Finland’s next step
This is a big moment for Finland. For decades, its leaders tried to safeguard its security by remaining officially neutral in conflicts between giant neighbor Russia and the West. A clear majority of Finns considered that the more prudent choice. Since the end of the Cold War, Finland has drawn closer to NATO but remained outside the alliance to avoid provoking the Kremlin.
Then Russia invaded Ukraine, and Finnish minds quickly changed. Polls say nearly 80% of Finns support full NATO membership, and the alliance is eager to welcome a valuable new partner.
Finland’s application cleared its one remaining hurdle on Thursday as lawmakers in Turkey, the last NATO member needed to make it official, approved Finland’s bid. Nothing left now but paperwork.
And this Sunday, voters in Finland will choose the party and prime minister who will lead the nation in this historic step. At stake are all 200 seats in Finland’s parliament, which are now divided among nine different parties.
Current Prime Minister Sanna Marin hopes her center-left Social Democrats will win enough seats to lead the next government, allowing her to finish the NATO process she pushed into motion last year. Polls suggest the race will be close because the center-right National Coalition Party and the far-right Finns Party both appear strong.
If the election becomes a referendum on personal attitudes toward Marin, her party has a good shot. A recent poll shows that nearly two-thirds of Finnish voters say she’s done a solid job leading the country through the pandemic and the crisis created by Russia’s war.
Marin’s party, however, is less popular than its leader, and the nativist Finns Party has seen its popularity surge. Led by Riikka Purra, another of the country’s rising female politicians, the Finns are known mainly for their pledge to end all migration into Finland from outside the European Union. The center-right National Coalition is led by Petteri Orpo, the only man to lead one of the country’s leading parties.
Because it’s so popular in Finland, NATO membership has figured only indirectly in the election campaign. Orpo says it’s irresponsible for Marin to mull the provision of fighter jets to Ukraine, for example. Instead, voter perceptions of Finland’s high-and-rising cost of living, the importance of the government balancing its books, and the future of immigration policy will decide which party is best positioned to lead a coalition government. (No individual party is likely to win more than 20-25% of seats. Post-election bargaining over partnerships will take time.)
But pocketbook issues aside, Finland’s next prime minister will lead a NATO country with a Russian border that’s as long (more than 800 miles) as those of all other NATO countries put together. Moscow is very likely to reinforce its military presence – and make occasional mischief – along that long frontier.
Across the line, Finland has the largest and best-equipped artillery forces in Western Europe, according to the Wilson Center, a US think tank, as well as a conscription system that could mobilize 280,000 soldiers with hundreds of thousands more in reserve. This is a force NATO is glad to welcome.
In short, on Sunday, Finnish voters may focus mainly on their economic future, but the government they elect will face security choices and risks that no Finnish prime minister has ever faced.
A chart comparing countries with the largest Muslim populations with corresponding food inflation rates.
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The holy month of Ramadan has begun for the world's roughly 1.9 billion Muslims. But for many, the joyous feasting with family before and after the Ramadan fast will be overshadowed by inflated food prices thanks to Russia’s war in Ukraine. Majority-Muslim populations in Asia and the Middle East, where many countries rely on food imports, will feel the economic pinch most. We take a look at countries with the largest Muslim populations and their corresponding food inflation rates.
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