Canada's Housing Crisis: A Consequence of Aggressive Immigration Policy
Story by Investing.com
By Ketki Saxena
Investing.com - The Trudeau government has taken a perplexing approach to tackling the ongoing housing affordability crisis in Canada. By implementing the most aggressive pro-immigration policy in history, they have intensified the demand-supply imbalance within the country. Consequently, population growth continues to soar, with Canada experiencing its highest ever annual growth rate at 2.7 per cent – an increase of more than a million people – last year.
As per David Rosenberg of Rosenberg Research, this strategy is nothing short of bewildering.
Rosenberg notes that the crux of the issue lies in Canada's inadequate supply, particularly for residential real estate, which cannot accommodate such immigration-driven population growth without further straining an already-overburdened housing market. The ratio of population to housing stock now stands at 40 per cent above historical norms, as does homeowner affordability ratio.
He adds that the Bank of Canada’s (BoC) rate hikes over the past year would have succeeded in lowering real estate prices to more reasonable levels; however, this was thwarted by federal government’s unyielding immigration stance that maintained housing inflation intact. As a result, aspiring Canadian homeowners continue grappling with elevated prices and central bank-induced rates shock.
Ballooning debt remains necessary for many Canadians seeking home ownership; consequently pushing household balance sheets into precarious territory with a record-high debt/income ratio at 180 per cent. Over 14 per cent of incomes are now consumed by escalating debt-service costs while tight labour markets and growing earnings fail to offset higher rates and persistent exorbitant home prices, which are once again trending upwards.
With further rate hikes by the BoC seeming unlikely, Rosenberg believes that the only way to improve affordability for Canadians is for the Canada Mortgage and Housing Corp. to tighten lending guidelines.
Rosenberg exhorts Ottawa to seriously contemplate adopting a less-ambitious immigration policy as its current approach causes more harm than good. A nation where individuals in their 30s face exclusion from the housing market due to prolonged periods of excessive home price inflation – a direct result of government policy – is far from content. This discontent may manifest itself in the upcoming elections, providing ammunition for opposition parties.
Rosenberg is no less stringent in his criticism of Prime Minister Justin Trudeau, who he believes has facilitated some of the most burdensome housing affordability conditions ever encountered in Canada; and that this has had widespread negative implications on society as a whole.
To illustrate just how dire this situation is, he points out that homeowner affordability would need to witness an almost 30 per cent drop in home prices merely to revert back to its long-term average. However, such natural correction remains unattainable due to governmental immigration policies that maintain absurdly high price levels. Interest rates would have to plummet nearly two percentage points or incomes surge by 40 per cent instead.
The bottom line? Rosenberg notes that this precarious scenario cannot persist indefinitely; with little likelihood that income will increase by 40 per cent anytime soon, what's needed is for the BoC to facilitate lower rates while implementing fiscal and regulatory policies fostering reasonable home prices (regrettably at existing homeowners' expense) and sustainable low inflation (currently hindered by Ottawa’s spending and immigration strategies).
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