{"id":2525,"date":"2021-08-27T01:37:49","date_gmt":"2021-08-27T06:37:49","guid":{"rendered":"http:\/\/www.holypotato.net\/?p=2525"},"modified":"2023-06-14T16:29:27","modified_gmt":"2023-06-14T21:29:27","slug":"housing-bubble-harms","status":"publish","type":"post","link":"https:\/\/www.holypotato.net\/?p=2525","title":{"rendered":"Housing Bubble Harms"},"content":{"rendered":"

Adam Vaughan made himself the face of government callousness and inaction earlier this year[0]. It started with an appearance on TVO’s the Agenda, where when talking about what the government should do about housing<\/a>, he said “We’re in a safe market for foreign investment but we’re not in a great market for Canadians looking for choices around housing.” Which wasn’t news to a lot of people, but it was news that the government knew <\/em>and was choosing to do nothing rather than just being incompetent and unaware.<\/p>\n

He then continued to say (and followed it up and in various Twitter battles) that the government would not do anything if it meant risking even a 10% decline in house prices — which in the context of the time (over 20%\/yr increases, and not just in the big cities) would have been rolling prices back just a few months. But even that was too much for them.<\/p>\n

In other words, he said the quiet part loud. And now we all know that they know, and that they don’t care.<\/p>\n

He’s tried to make the case that housing prices falling is bad, as have others throughout this decade+ run-up in house prices. People don’t like seeing their biggest asset fall in value, and recent buyers could be underwater and financially stressed. If it gets rolling, it might lead to a recession.<\/p>\n

And sure, it’s pretty obvious that if we have a housing crash, it would have many negative effects. The problem is, high prices also have negative effects, and there’s a chance prices will fall anyway<\/i> in the future, and inaction just delays and exacerbates that.<\/p>\n

Why Housing Bubbles are Bad<\/h3>\n

A housing crash and its associated harms is hard to miss, but the harms of a bubble are more subtle and insidious, but just as bad for society.<\/p>\n

Bad? The wealth effect? Our cities becoming “world-class”? These are bad things? Well, those aren’t the only side effects of a housing bubble.<\/p>\n

There are much more serious effects on people’s lives. There’s rising inequality, though that’s just part of it.<\/p>\n

Housing is the biggest cost in most family’s budgets, and for young people that can be by a huge amount[1]. When housing gets more expensive, they feel the squeeze: literally, if they have to settle for being under-housed to make ends meet. That has real-world consequences.<\/p>\n

I can write about the rent-vs-buy decision and raising a kid in a rental all I want, many people out there still want to put off starting families until they can buy sufficient housing for a family<\/b>. The frenzied speculation makes rentals less secure even if rents themselves have lagged price appreciation. With higher prices (and rapidly rising prices), buying is harder — much harder — and young families have to settle for less space, and delay their purchases to save up. That means they put off having kids longer, and having fewer when they do. Toronto’s fertility rate dropped 16% in the last decade<\/b>[2]. If anything else<\/em> had caused our fertility rate to drop that much in just a decade (in the face of millennial demographics that we might have expected an increased fertility rate from<\/i>) we would be rioting in the streets for the government to do something, holding up signs about the missing 10,000 babies. We’d be banning chemicals, exterminating mosquito vectors, or adding fertility treatments to OHIP coverage. But when it’s economic: crickets. Housing insecurity and microcondos are just the way of life here in a world-class city, and a few thousand unconceived babies are acceptable collateral damage for muh price growth.<\/p>\n

Mike Moffat has also pointed out Toronto’s troublesome population movement patterns: the largest cohort of people leaving the city are newborns<\/a> (followed by other young children and those in the parents of young children age bracket) — so even when a kid is born here, there’s a good chance its family promptly leaves.<\/p>\n

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Lots of people leaving Toronto and Peel. And who are they? People in the 30s and small children. Why? Priced out of the market. pic.twitter.com\/oH8r5oGLhO<\/a><\/p>\n

\u2014 Dr. Mike P. Moffatt (@MikePMoffatt) August 17, 2021<\/a><\/p><\/blockquote>\n