Does the NDP Leader realize what he’s proposing?
NDP Leader Jagmeet Singh believes the Canadian housing market is overpriced. That’s one of the few things he is right about. Canada’s housing market has become severely distorted by a combination of Bank of Canada money printing, excessive federal spending, surging population numbers, and the widespread stagnation of our economy pushing much of the newly created money into fixed assets like housing.
So, what does Singh propose to do about this situation?
Use taxpayer dollars to subsidize mortgages.
I wish I were joking:
“NDP leader @theJagmeetSingh wants government subsidies for mortgage borrowers facing rising payments…”
NDP leader @theJagmeetSingh wants government subsidies for mortgage borrowers facing rising payments… pic.twitter.com/ZdrhOtFQr4
— Steve Saretsky (@SteveSaretsky) July 20, 2023
A terrible idea
At first glance, subsidizing mortgages may seem to improve housing affordability by lowering the costs of home ownership for consumers. However, such a policy would backfire, and lead to higher housing prices, and thus reduced affordability, exacerbating the same crisis Singh claims to want to address. Here’s why:
First, subsidies can increase the demand for homes. If the government subsidizes mortgages as Singh is calling for, it effectively reduces the cost of borrowing (directly counteracting higher interest rates that were necessary to reduce inflation). Lower borrowing costs means increased demand. This surge in demand, in the absence of an equivalent increase in supply (and supply is not even close to keeping up), can lead to inflated housing prices.
Second, sellers and developers can essentially capture the subsidy by raising prices, as they know that current homeowners who end up selling their homes and becoming buyers will be supported by government funds, and can now afford to pay more.
Finally, subsidized mortgages can potentially encourage riskier lending and borrowing practices. Lower mortgage costs could prompt individuals to borrow more than they can afford, leading to financial instability. This could enflame Canada’s housing bubble. As we saw during the global financial crisis, feeding into a housing bubble for short-term gain leads to long-term pain.
Singh appears to be completely ignorant of the potential consequences of what he’s proposing. It would be far wiser to explore alternative solutions that would actually addressing housing affordability, such as measures to increase the supply of affordable housing and focusing on Canada’s moribund productivity levels.
What about those who want to buy homes?
What is so ‘fascinating’ about what Singh is proposing is that it completely ignores the other side of the housing affordability crisis:
Those who cannot currently afford to buy a home in Canada.
If someone bought a house they can’t afford, and are then forced to sell their home, someone is going to buy it. The only real way for housing to become more affordable is for a lot of people to end up in that situation – unless Canada has a surge in per capita GDP growth combined with a surge in housing construction – both of which seem unlikely under the policies of the Liberal-NDP pact.
Nobody likes the idea of people being unable to afford their mortgage payments, but that’s not something the government should be interfering with. The market must be allowed to work.
How does it make sense for homeowners to benefit when the market goes up and then be bailed out when the market goes down or when their mortgage payments rise?
How can housing prices ever return to a reasonable level if the government steps in to stop prices from going down?
An entire generation risks being locked out of the housing market, with severe societal consequences, yet we have politicians like Jagmeet Singh demanding that our tax dollars be spent to prop up that same market, even as he claims it’s overpriced.
The fact that we have normalized such economic illiteracy goes a long way to explaining why our country is so stagnant economically and why we have replaced innovation and entrepreneurship with pleas for government intervention to bail people out of the consequences of their own choices.
Spencer Fernando
Photo – Twitter
