Not good.
One way in which our society broadly misunderstands inflation is to think that it represents an increase in the value of goods and services, and that this increased value is leading to ‘higher prices.’ Rather, what is often happening is that the value of our money is declining, but since we measure the price of everything in relation to the purchasing power of our money, it manifests as rising prices.
If the Bank of Canada creates a bunch of money out of thin air in a short period of time, and the federal government rapidly increases spending, there will be more money in the system with no corresponding increase in the availability of goods and services, reducing the value of each individual unit of money.
This is basic supply and demand, and there is no way around it.
And that brings us to Canada’s new Housing Minister, Sean Fraser.
Fraser – the former Immigration Minister who presided over a rapid surge in immigration which has contributed to the unaffordability of housing in Canada – appears to believe there is some magic way to lower home prices for aspiring homeowners without lowering the price of housing in Canada:
“In a country with some of the world’s most expensive real estate, Prime Minister Justin Trudeau’s government wants housing to become more affordable.
But Canada’s new housing czar has a message of reassurance for the nation’s homeowners — it also doesn’t want to drive down prices.
“Our goal is not to decrease the value of their home,” Housing Minister Sean Fraser said in his first interview with Bloomberg News since he took the job on July 26. “Our goal is to build more units that are at a price that other people, who don’t currently have their needs met, can afford.”
Fraser’s comments underscore the ambitious — and contradictory — aims of a government that’s trying to quell a political backlash against the soaring cost of living, but doesn’t want to adopt policies that would damage the millions of Canadian households whose wealth is tied to their homes.”
What Fraser is saying here is simply impossible.
By definition, something is unaffordable because the price is too high.
If the price is too high, then the price needs to go down in order for it to become more affordable.
There is no magic separate supply of homes that can be generated and then somehow isolated from the rest of the housing market.
Even if the government just built a bunch of homes and gave them to people, that would increase the supply of housing and reduce the number of people seeking to purchase housing, thus lowering housing demand and lowering housing prices.
As you can see in the chart below, housing has rapidly become unaffordable, meaning that a return to the norm requires lower housing prices.
The government should be honest about their policy aims
Whether Sean Fraser really doesn’t understand supply and demand, or whether he is feigning ignorance for political purposes is something only he knows.
But that aside, the Liberal government should really stop trying to obscure things and should just be honest with Canadians about their policy aims.
The government should admit that Canada’s economy is so stagnant and unproductive under their watch that they are terrified of what would happen if the housing sector declined in value. They should admit that rapid immigration increases are largely meant to prop up housing prices. And they should admit that they have deliberately chosen to make housing unaffordable for Canadians, and that they are deliberately continuing to do so.
That kind of honesty would at least allow our country to have a debate on housing policy built on a foundation of truth, rather than endless government spin and misinformation.
Spencer Fernando
Photo – YouTube
