How We Got Into This House Price Problem

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The following paragraphs are from a Toronto Star newspaper article (dated December 4th, 2021) on GTA house prices and affordability. It’s a good summary of how we got where we are.

Kean Birch, as associate professor at York University, said because housing as an investment has historically paid off, those who can afford it are signing up for huge debt loads in the hopes their purchase will pay dividends in the future.

Housing started really taking off in the late 1990s, said Birch, a trend that accelerated after the 2008-09 financial crisis because of the government aid used to kick-start the recovery. “We’ve ended up locking ourselves into the need to keep shoring up house prices as a society,” Birch said. “So much of everyone’s wealth, and everyone’s futures, are now embedded in these house prices that it really becomes very difficult,  if not impossible, to turn the ship around.”

David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, said though the ratio of house prices to average or median incomes has gone through the roof, the monthly cost of a mortgage has not gone up quite as dramatically—and that’s a bad thing. “That’s the real danger of rock-bottom interest rates that we’ve seen, basically, since the 2008-09 recession,” he said. “You get massive asset price inflation as a result because people can carry way more debt for the same monthly charge.”

There’s nothing I can add to that except to say that experts the article quotes don’t offer any meaningful solutions to this problem and speaking for myself I don’t see any path out of this mess other than higher interest rates, which although they might tick up a little bit, aren’t going to go up enough to change the “cheap money” reality in which home buyers (and investors) operate.