Housing Affordability — We Need Homes, Not Investment Vehicles

By John Francis,
Bruce Peninsula Press

In my semi-retirement, I spend a lot of time reading online newspapers, Talk about a busman’s holiday!

I read that all three parties have unveiled new “housing affordability” promises and policies as part of their election platforms.

I notice that none of them actually mentions the elephant in the room — that housing prices are too high. There is an obvious solution that absolutely none of them is willing to acknowledge.

All you have to do to solve the housing crisis is drive the value of houses down.

How would you do that?

The most obvious answer to that is to build more houses.

That might work in some places, but not in Toronto and not in Northern Bruce Peninsula.

In Toronto it won’t work because NIMBY neighbours block any attempts to build the medium-rise in-fill housing the city desperately needs.

On the peninsula it’s even worse. If you could find a place to put in medium density housing (ie apartments or condos), the neighbours would scream, money lenders would balk because of a lack of town water and town sewer, and the hoops you would have to jump through would stretch from here to Walkerton.

But how about new single-family dwellings? You can still buy a cheap lot and build a house, can’t you?

Well, not exactly.

I haven’t seen a building lot for under $100,000 in awhile. Building materials have gone up a lot over the last couple of years. Despite Council’s valiant attempt to reduce it in the stalled Comprehensive Zoning Bylaw process, the minimum size for a new house in MNBP is still well over 1,000 square feet. And the builders are all booking for 2023 and 2024. They’d love to expand their crews and build houses faster, but they can’t get workers. Why can’t they get workers? Because nobody can afford to buy a house up here.

So good luck with building yourself a house… (And good luck finding a place to rent until then…)

Buying an existing house is even worse because then you have to compete with speculators to get one. The speculation market is driven by what a property could earn as an STA.

The Royal Bank comes up at the top of a Google search for “what percentage of income should be spent on mortgage payments?” The Royal Bank says you should spend no more than 30-32% of pre-tax income on your mortgage (including taxes, insurance, heating and condo fees if applicable).

So: work it backwards. Two people working on the peninsula, both working full time at $20 per hour. Call it $72,000 before taxes. 30% of that comes to $21,600. Knock off $5,100 for taxes, insurance and heating and that leaves you $16,500 for mortgage payments.

If you can find somebody who will give you a 20-year mortgage at 3% interest, and if you waive the mortgage insurance, that $16,500 per year will pay down a $300,000 debt. Throw on 10% for the imaginary cash down payment and you’re looking for a house that costs $330,000.

Have you seen any $330,000 houses lately? Me neither.

Why not? Because they all got snapped up and turned into STAs and now they’re worth $500,000.

Because bank and telecom stocks only pay about 4% in dividends and a lot of investors are looking for better returns than that. Buying a house and turning it into an STA looks like a good strategy for doing that. So good, in fact, that a lot of pension funds are doing it on a grand scale.

One of the people I read every day is Nobel Prize winning economist Paul Krugman. In recent columns he has talked about the predicament California finds itself in. Their problems are a lot like our problems, only writ large.

California has a lot of rich people and a lot of pretty-well-off people (think universities, Hollywood and Silicon Valley). California also has a lot of poor people, but fewer every year. It’s not that they are getting less poor, though — they’re leaving. Housing has gotten so expensive that working people can’t afford it, so they’re leaving — more than 750,000 in 10 years.

Krugman states that “California gained three million jobs between 2010 and 2019 but added fewer than 700,000 housing units.” He blames it on the new extension of NIMBY, which is BANANA: Build Absolutely Nothing Anywhere Near Anybody.

On the peninsula, we keep building new houses, but they’re mostly STAs, and the existing housing stock is getting snapped up as well.

The net result is the same — nobody can afford to live here except the wealthy. But our situation is actually worse than California’s because the lower-wage people who can’t afford to live here are our children and other young families. A community without young families is not a stable community.

We need more housing, urgently. Partly we need to make it easier to build multi-unit rentals and condos. But we also need to prevent them — and everything else — from being turned into STAs as fast as we build them.

We need homes, not investment vehicles. I commend MNBP Council for trying to stem the tide.