Future of Housing – Rent or Own

July 2022

Toronto, like many cities, has mismanaged its housing market.  This is at the root of current housing issues.  Housing is too expensive and its cost continues to increase faster than income.

The public policy of encouraging home ownership began in the 1950s.  Governments did so through subsidies, tax breaks and the sale of public housing in place of renting.  Politicians have since realized that encouraging home ownership wins votes so have continued this policy despite long-term negative effects believed to explain UK support for Brexit and US support for President Trump.  It has facilitated nimbyism; resistance to development in an effort to protect real estate values.  It has fueled rising housing prices and growth in mortgage debt.

According to The Economist, since the second world war governments have made three mistakes when it comes to housing.  “They have made it too difficult to build the accommodation that their populations require; they have created unwise economic incentives for households to funnel more money into the housing market; and they have failed to design a regulatory infrastructure to constrain housing bubbles.”

Politicians benefit when house prices rise. We feel richer, borrow and spend more.  They believe this helps the economy.  Incumbent politicians have a higher chance of re-election.  This has created a society where more homebuyers take on unsustainable debt.  Short-term economic benefits are soon reversed as loans get repaid by reducing spending everywhere else.

Repercussions of home ownership policies include congested cities without room to grow, aging people in unnecessarily large homes, and younger generations unable to afford to rent or buy despite being fully employed.

Canada has one of the highest home ownership rates in the world.  The homeownership rate in Toronto was 67 percent in 2018; one percent less than the Canada average (Statistics Canada).  Wages have not increased since 2008 while home prices are up 50 percent.  At a median age of 35, in 1990, baby boomers owned a third of real estate by value.  In 2019 at an average age of 31, millennials owned just four percent of real estate.

Some countries have shown it does not have to be this way.  In Britain, housing prices have barely changed since 2008.  Australia housing prices are only about 20 percent higher since 2008.  Tokyo, a city which built 728,000 homes between 2013 and 2017 while reducing the number who sleep outdoors by 80 percent, has no property shortage.  Germany encourages long-term tenancies, has a 50 percent rate of home ownership, and housing prices are virtually unchanged since 1980.  Rather than allowing gains in residential property to grow untaxed, New Zealand regularly updates valuations and taxes accordingly.

History has shown that rent controls and mortgage subsidies are bad ideas.  This longstanding economic failure is in need of a new approach.