Housing, assets, and affordability

The housing market, particularly the affordable part of that market is suddenly going through  major changes. I was skeptical that the efforts by the Ontario Government to cool the market last month would make any difference, but it looks like I was wrong.

I have been hearing various rumours that prices were dropping. Just yesterday a friend, involved in buying, selling and renting property, said that prices in Toronto have dropped at least $100,000 and they may go down even further.

This morning in the Globe there is an article saying that prices have dropped so much that, “the most panicked buyers are trying to back out of deals.” (Carolyn Ireland, June 2, 2017, “Stressful times as real estate compass twirls”) This, along with the uncertainty of the market, could well make new buyers very cautious and that could lead to further drop in prices.

Not everyone, of course, will like the drop in prices. Those who own houses have felt some satisfaction in the rise in their net worth with the inflation of real estate prices, but those who want to get into the market, particularly families with modest incomes will be delighted.

The real problem with housing is around affordability. Those with upper incomes can look after themselves. It is those with middle and low incomes that are caught because they simply cannot afford to get into the market. In a country like Canada, where the major asset of most people is the house they own and live in, being shut out of the market means they lose the opportunity to build financial security.

I am talking about myself here. Home ownership was burned into me by my father when I was young when he told me that the major asset the family owned was the house we live in. That simple explanation stayed with me.

I bought my first house when I was in my late 20s. Over my lifetime I was out of the market for periods but I always scrambled to find ways to put the money together to buy another house. Today, it is the major asset I own with my partner, and I attribute that good fortune to the lesson my father taught me decades ago.

A lot of people lose that opportunity when house prices are high. But there are other options.John Lorinc has an article in the Globe about developers who are building affordable housing for people with modest incomes. (John Lorinc, June 2, 2017, “Developers take a new look at ‘affordable’”) The best known is a developer called Options for Homes which builds affordable condominiums. They take a low down payment and recoup the money when the condo is sold.

The Daniels Group is involved in the redevelopment of Regent Park and Tridel is a partner in the rebuilding of Alexandra Park. As Lorinc explains, other groups are getting involved in the effort to provide affordable housing, and the provincial government will require private developers to set aside units in their buildings for those with modest incomes.

But the pessimist in me continues to worry that this will not be enough. Housing is an essential, a fundamental right, but it is more than that. Those with low incomes will still be not be able to purchase houses and that means they will be unable to accumulate an asset that will see them through hard times.

Housing affordability is inextricably connected to income inequality.

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