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  • Writer's picturePaul Therien

"Exploring the True Value of Housing: Beyond the Mortgage"

It is becoming more and more difficult for the average Canadian to afford basic housing, never mind housing that supports upward mobility. That is an issue that countries around the world are facing as the global population continues to grow.

For most people who read this, the primary focus surrounding housing of late has been on the cost of borrowing and the impact that has on housing affordability. A genuine and real concern that is a part of the driver of the record inflation that we have been experiencing in the post COVID world.

This inflation forced central bankers around the world to raise their key lending rate in an effort to cool an overheated economy and try to reduce inflation. While raising interest rates can cool inflation in most areas of the economy, it can create inflation when borrowing is factored in. A higher cost of borrowing means higher payments. Those higher payments impact how much we have to pay every month out of pocket, and that can cause issues for people who see a dramatic increase in their monthly payments.

Housing in Canada directly, and indirectly, contributes an astonishing amount to our national Gross Domestic Product and employs hundreds of thousands of people. It is the single largest driver of household wealth, and in recent decades has changed from being a necessity of life to an investment vehicle. A change that has had dramatic impacts on societies around the world.

How does government, and society in general, ensure that adequate housing remains a human right, while still protecting it as a wealth generating asset? That is the question facing Canadians today, at all levels of society. The answer is not simple, and it is challenged by the sheer dollars in revenues attached to the sector. Governments at all levels make billions from the housing marketplace through taxes and other charges. As land values continue to increase, so too does the tax revenue. Let's illustrate this for you using a REAL property, but a made up address:

123 Main Street, Anywhere town Canada.

2010 Sale Value: $103,000.00 Tax Rate: 1.5% = $1545.00

2016 Sale Value: $125,000.00 Tax Rate: 1.5% = $1875.00

2019 Tax Assessed Value: $132,000.00 Tax Rate 1.5% = $1980.00

2021 Sale Value: $240,000.00 Tax Rate: 1.8% = $4320.00 (@ 1.5% = $3600.00)

2024 Listed Value: $420,000.00 Tax Rate: 2.2% = $9240.00 (@ 1.5% = $6300.00)

Even without the tax increase there is an obvious incentive for government to encourage dramatic land value increases. If you look at the time period between 2010 and 2016 the value of the home has increased at what would be considered a more normal rate. When you look at the increase in values between 2010 and 2016 at a rate of 4.167%, that was already 1.167% higher than the average up until 2010. From 2016 until 2021 we experienced an average increase of 12.64% or around $42,000 per year in value increase.

It was in 2016 when we started to see rates drop to under 3% consistently for a 5 year mortgage. However, the tax assessed value in 2019 was only $132,000 but the property sold in 2021 for $240,000 so a value increase of $108,000.00 in only 2 years. That equals an increase of 45% in under three years, and when considering 2024 is seeing a sale asking price of $420,000.00 that totals an increase of 75% in only 14 years.

With that dramatic rise in home values, governments have also benefited from massive increases to tax amounts received. It also means that Realtors, and others who rely on fees/taxes/ or commissions based on the sale value of the home all have seen their incomes increase. We have not even touched on the fact that even with this staggering increase, we have not even considered that basic services are still lacking.

Interest rates play a bigger role in housing affordability when housing values are escalating at such dramatic levels. The only real solution to driving housing affordability is to build a lot of quality homes that allow upward mobility, and build them fast. The problem with that solution is the lack of monetary motivation for anyone with a vested interest in housing to see land values drop by any significant amount. It means that to ensure housing is more affordable, it must be a political solution. Thankfully, that is the view being taken by most!

Government at all levels is focused on increasing housing stock with a focus on purpose built rental and social housing. How will a focus on rental housing help with affordability when purchasing? It is actually an elegant solution that is multi generational.

When rental housing is more affordable it allows people an opportunity to save. Those savings allows a greater contribution to the surrounding community, as well as provide the opportunity to own a home in the future. That only works when rents are affordable, but still slightly higher than the cost to service a mortgage. The value to owning a home has to be about two main components: (1) The financial ability to service the debt/taxes plus costs to maintain the home and the security and safety that home ownership can bring; (2) The equity that is built through the repayment of the mortgage, and escalating value.

If we can significantly increase rental stocks to provide the basic housing so desperately needed, it will also relieve some of the pressure on the real estate sales market as more people settle in to save for future purchases. If rental housing was more affordable, the pressures to exit into an owned home would reduce enough to allow developers and government time to build up the for sale stock. This would lead to a more gradual 'levelling' of housing costs as incomes and savings increase in line with modest price corrections in over heated markets.

Today we are at a generational cross roads whereby an entire generation of Canadians may never be able to afford to own their own homes. We are also seeing record numbers of citizens that are either under housed, or unhoused, and that deeply impacts the livability of our cities. The more poverty we have, the higher the rates of crime as people resort to desperate measures just to survive. Clean and safe housing gives young families and communities the foundation they need to grow and flourish. They provide an opportunity to live within their means, while working hard to achieve upwards mobility. Once an attainable dream for all Canadians.

Housing is not just about money, it is the very fabric upon which our societies are built. Homes are the places where families come together, where we celebrate, mourn, grow, age, and die. They are the very core foundation of all human civilisation and are what defines our cities and societies. Without homes to bring us together and organize our civilisation we would be nomads wandering the earth. Homes are so much more than just financial vehicles, they protect us, unite us, and in many ways, define us.

Society is more than just capable of solving the current housing crisis. We have done it before, more than once. We simply need to have the will and the commitment to looking beyond today and understanding that housing is not the same as home ownership. Housing meets our fundamental needs by giving us the opportunity to reach ahead and achieve our dreams and goals. The only way for that to happen is to make sure we have affordable, safe, housing for all. The myth that people will never want to do more, be more, is just that a myth. Sure, some people may not have great aspirations in life, but that doesn't mean that they do not contribute to our communities. It does not mean that they too should not have safe and affordable housing.

Those people who do wish to climb societies ladder should have the same safe and affordable housing so they can truly reach for the stars. If we hold people back financially, we are restricting our own communities ability to grow and flourish. We are only hurting ourselves when we make it more and more difficult to have upward mobility because the demand for profits outweighs the needs of the community.

We have seen almost unprecedented political rhetoric around housing over the last couple of years. It has formed the foundations of political party platforms, and has been the number one topic for most Canadians and politicians. It has even been used to drive a wedge between different segments of society, and has spurned numerous conspiracy theories.

While all of that is noise that we could all do without, what is good is that for the first time in 30 years housing is once again a focus of government. A focus that should never have been removed and once that will costs Canadians billions in what could have been preventable costs to our communities. It is time that we all started to demand better when it comes to housing and the role that government plays in ensuring housing for all.

We do not want government to compete with private developers, they play a invaluable role in our communities and economy. Rather we think that government should build affordable housing and provide incentives to developers to build more for purchase homes. The combination of both will bring down the housing demand, force a soft landing on home prices, create thousands of jobs, and most importantly - house people in safe affordable housing.

It looks like that is the direction in which we are headed, only time will tell.

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