Douglas Todd: Eight reasons politicians don’t really want house prices to fall

Opinion: Most politicians believe, apparently mistakenly, voters will punish them if house prices fell. Their self-interests could also be getting in the way.

Most Canadians, according to polls, are willing to see house prices to drop so people squeezed out of ownership, particularly young adults, can obtain some shelter security.

But, despite politicians’ endless rhetoric about fighting for “affordable” housing, they don’t really want home values to drop. There are several reasons why this is the case.

You are reading: Douglas Todd: Eight reasons politicians don’t really want house prices to fall

His comments, although painfully obvious, amount to an abrupt change in Liberal communications strategy — since, earlier this year, Trudeau’s housing minister refused to acknowledge the country is in a “housing crisis”.

Here are eight reasons why most politicians don’t really want prices to decrease:

Politicians, and the Canadian public, have a false belief house prices must rise and rise

Ron Butler, a mortgage broker, says, “No politician alive wants to be associated with the concept that a voter would buy a home and the politician would want it to be worth less than what the voter paid for it. That would be political suicide.”

Canadians love real estate because “they love the wealth, mainly tax free, it has created for the last 20 years,” said Butler, even while he firmly believes price reductions are necessary to restore “housing fairness”.

Politicians fear homeowners at election time

Despite such messages from polling, politicians live in fear of older homeowners who have most of their wealth in their residences, say experts.

Readmore : Roller coaster with big crack in North Carolina has second structural issue, inspectors say

Most people over age 45 have “internalized their house’s appreciation as a significant component of their net wealth,” says Don Wright, former head of B.C.’s civil service. “Any significant reduction in house price will make these people ‘poorer,’ at least on paper. They are likely to be angry about this and punish the politicians they believe are responsible for it.”

Members of the 55-plus age group, Wright adds, remain Trudeau’s most loyal supporters.

Politicians also fret about the wrath of those who bought in a panic

Younger people who stretched to buy a home, often from fear of missing out, “could go underwater if prices dropped significantly,” says Wright. The value of their mortgage would exceed the value of their dwelling. “One would presume a number of them will punish the politicians they feel are responsible for that.”

Politicians don’t seem to be getting the message that most of the public could live with house prices declining. (Source: Nanos Research)

Housing dominates Canada’s economy

It’s also led to Canada’s housing industry, especially in B.C. and Ontario, making up a much higher bulk of the economy than in most nations. “No government will ever want home prices to fall. While it may make housing more affordable, it can mean thousands of families may end up losing their homes.”

It could create an economic “meltdown,” said Wright, if too many people default on their mortgage and “their houses get dumped on the market.” The banking system could then be impacted, as it was in the U.S. during the 2008 recession.

Civic politicians are especially reactive to property prices and taxes

“A voting public that sees its property values dropping, but its property taxes progressively increasing, is an unhappy one for local politicians,” says D’Eathe. Even though civic politicians can adjust for lower pricetags simply by increasing the mill rate, the amount of tax payable per dollar of property’s assessed value, D’Eathe says, “that is looked upon as a political failure.”

Politicians prefer leaving the dirty work to the ‘non-political’ Bank of Canada

“The dirty work, to make home prices fall, is left to the ‘non-political’ Bank of Canada’s relentless mission to tame inflation … particularly in the super-inflated housing market. Higher interest rates are having the desired effect of lowering home prices slowly, by curbing excessive demand and increasing the financing costs of investors.”

Developers are massive political donors

Readmore : LeBron James’ I Promise school has officials worried over ‘discouraging’ tests

And developers, along with affluent homeowners, are the biggest donors to political parties, D’Eathe emphasizes. He notes even ostensibly left-wing Vancouver mayors such as Gregor Robertson and Kennedy Stewart were tremendously dependent on developers’ money.

Can politicians’ self-interest muddy their housing goals?

Federal and provincial decision makers buy and rent out residential units at roughly twice the rate of ordinary Canadians.

That’s not to mention most politicians are homeowners. Ninety per cent of B.C. MLAs, for instance, have title to their own residences. But more than one-third of Canada’s general population are tenants.

“Voters need to say they will view politicians as good economic managers when home prices don’t rise, even if this slows our GDP for a while,” says UBC Prof. Paul Kershaw, founder of Generation Squeeze.Photo by Jason Payne /PNG

What’s the way forward?

It should involve a so-called “safe landing” in the housing market, which would at least mean stalling prices, as well as some business-cycle price reductions.

“Governments should not be in the business of trying to cause prices to fall. But they should also not be in the business of doing everything possible to drive prices higher and prevent any decline,” says Pasalis.

“The latter is the position our federal government takes,” Pasalis says, particularly by increasing housing demand by steadily hiking immigration, foreign student and guest-worker targets.

Kershaw, the founder of Generation Squeeze, puts it this way: “Voters need to say they will view politicians as good economic managers when home prices don’t rise, even if this slows our GDP for a while.”

Related Articles

Related Posts

This will close in 0 seconds