The rent trap

Rent unaffordability won't lead to economic mobility.

It’s hard to tell but Canada recognizes housing as a Human Right. It doesn't really mean much in real life as we are learning but I think the principle of it is important. It’s not realistic for the government to buy everyone a house or provide one but the government is spending billions of dollars on housing. On the wrong aspect of it.

I believe that a good government’s role is to improve people’s lives and that includes financial independence and creating conditions for economic mobility. If the government is to intervene in the marketplace with its ‘invisible hand’ then it should be based on these ideals. After all, the government uses taxpayers’ dollars so there must be a fundamental return to the taxpayers and society as a whole.

Instead of halting the mass immigration that is causing the housing crisis, the Justin Trudeau government is flying around the country announcing billions in subsidies to develop rental condos and rewarding municipalities that will remove restrictions to build mindless density. It’s a bad policy with a bad reaction that will cause even more financial pain because of its timing in particular.

The dwellings that are being built with the funding of the government are mostly for-profit expensive rentals. One of the housing units that Chrystia Freeland promoted as a successful example for low and middle-income Canadians is this 330 sqft micro unit in Victoria, British Columbia for $1,680/m.

Chrystia Freeland, who happens to be our Minister of Finance, seems to be completely disconnected from the financial situation of Canada and Canadians. $1,680 per month which is $20,160 per year after tax isn’t housing for low-income. This unit costs more than social assistance and income benefit programs provide. In other words, it inherently prices out the most vulnerable people and the lower quintiles of income earners. Then the government will have to subsidize different housing options spending even more taxpayer dollars rather than building proper units to begin with and putting cheaper units as options into the marketplace trying to influence its competitiveness into more affordable price points.

It will even be unaffordable for most of the middle class. We are talking about a 330 sqf dwelling that should be a starter unit at most.

This is a perfect example of housing that is being built that takes advantage of the currently skewed supply-demand situation that otherwise would have no demand for. People only choose to live in a dwelling like this because they can’t find anything else, and developers know that so they are taking advantage of the current situation by shoving as many monetizable units as they can in an area.

We are seeing a trend of units like this being built across Canada in the name of density and a statistical increase in dwelling numbers but we aren’t considering their impact on our society.

We have a combination of dwellings that people can’t grow in and their costliness leads to an inability to save thus economic mobility and societal decisions like starting a family are being impacted.

Renters are one of the biggest impacted groups in Canada’s current unaffordability crisis. They have higher delinquency rates on credit cards and auto loans than homeowners. They carry more debt on their credit cards and rely more on them.

This also leads to wealth gaps and financial inequalities. The gap in disposable income between the 40% of the highest income distribution and 40% of the lowest income distribution is now 44.9%. In Q3, 2023 (latest data) the net savings of the lowest-income households decreased by 9.8%. The lowest 2 income quintiles represent just 2.8% of Canadians’ net worth.

The trend is that renters and Canada’s lower-income earners are becoming poorer, and financially squeezed. The government, instead of working to reduce their hard costs, such as housing, is doing the opposite by subsidizing housing that is costing them proportionally more and negatively impacting them the most.

This directly impedes the economic mobility and stability of millions of Canadians and it is being done with taxpayers dollars.

There needs to be a complete rethink of the housing approach in Canada so that the government’s participation in it creates the conditions to position Canadians towards home ownership and the most vulnerable into housing security and financial independence.