Editorial – Let housing prices alone
Puncturing price panic
By Patrick Flannery
Government intervention onhousing prices probably won’t help.
It is hard to know what to think about housing prices. On one hand, high prices are obviously good for our industry. As long as condos in Toronto and Vancouver are commanding a million dollars each, developers will be eager to keep building. But the question on everyone’s mind is, what happens when the country runs out of people willing to spend that kind of money on a cramped one-bedroom? It isn’t hard to envision a future of half-full towers and plummeting property values bankrupting developers and casting our big urban markets into a long-term chill.
But everyone has been staring that spectre in the face for at least 10 years now. It’s been amusing to watch the Chief Economists go through the stages of grief as they came to grips with the futility of their trade. First came denial that prices were a problem – the New Economy of permanently low interest rates meant everyone could afford everything no matter what it cost. Then came the sly attempts to bargain their way to accurate predictions – the bubble would burst, but probably not until some unspecified time in the future. Next the angry demands that we stock up on canned foods ahead of the imminent housing crash apocalypse. Then a sad depression as they started to admit in front of rooms full of people that they had no idea what was going on. The last Chief Economist I heard seemed to have finally accepted that property values in Toronto made no sense to anyone, so he shrugged and boldly predicted a severe correction soon, all the while acknowledging that he was probably wrong.
The federal government has apparently decided it is time to Do Something. There was a story in the Globe and Mail this morning about some minister who is in charge of this stuff saying that he and other cabinet ministers are having a lot of frowny discussions about it. Ire seems to have focused around the perceived impact of foreigners buying properties as investments rather than places to live. Vancouver’s city council got worked up enough about this to apply a special transfer tax to properties owned by foreigners. Governments wanting to Do Something scare me.
Here’s a thought I find interesting: there are a billion people in China. That means there must be tens of millions of millionaires with the wherewithal to pick up a condo in Canada just for the fun of it. I asked earlier what happens when we run out of people who want to pay these prices. Maybe the reason these prices are defying regular economic logic is because the pool of people willing to pay is several orders of magnitude higher than it ever has been in this country’s history. Maybe it’s connected to the stubbornly low rate of inflation that bedevils central bankers the world over – apparently no rate of interest is low enough to stimulate prices in an economy that gets stuff made in China.
I’m probably wrong, but no wronger than a Chief Economist, which isn’t too bad for someone who gets paid what I do. I say bring on the wealthy condo owners, the more the merrier, and let the market forces sort ‘em out.