Housing might devour the economy from within – CMHC’s Siddall

Sustained improvements to housing supply can help address the problem of residential real estate affordability, but the head of the Canada Mortgage and Housing Corporation has warned that this might also be precisely the wrong approach to ensuring the nation’s long-term economic health.

CMHC president and CEO Evan Siddall noted that housing currently accounts for a disproportionate share of the Canadian economy, at 7.5%. This is far above other developed economies like the United States (4.9%), the United Kingdom (4.1%), and Australia (5.9%).

“Simply put, building more single-family homes is not the foundation upon which our economic prosperity will be built,” Siddall wrote in a contribution to The Globe and Mail. “If we aren’t careful, housing will eventually eat our economic future from within.”

“Canadians spend 50% on real estate transaction costs (broker fees, land-transfer taxes and legal costs) than we do on research and development. In comparison, our American friends spend 25% more on research and development than they do on real estate transactions.”

Additionally, stimulating the construction and purchase of more homes might feed into a vicious cycle that would eventually cripple the market. It falls upon the federal government to moderate any such influence.

“Economic growth and immigration strongly influence demand for housing. When they exist together with slow housing supply, the problem compounds even further. Opportunistic investors – both domestic and foreign – seize an investment opportunity and prices climb higher still.”

“Making home-buying easier, by easing mortgage eligibility requirements for example, can increase demand; but unless supply keeps up, prices rise even higher,” Siddall stated. “Counterintuitively, if we focus housing programs only on helping people buy homes, we make it harder for people to afford places to live. If more people can afford to spend more to buy houses, prices increase. And higher-priced housing leads to higher rents.”

The CMHC head further argued that the “B-20 as the ultimate evil” narrative is essentially a red herring.

“The debate about the mortgage stress test is in some ways therefore an indulgence for wealthier people. If we give people the ability to borrow more money, they bid up house prices and the homeless and underhoused suffer even more. As a result, the gap between rich and poor widens further,” Siddall explained. “Policies that increase house prices can undermine the inclusiveness of Canadian society.”