Rather late to the party, but wanted to let you know I agree on all points Kareem, with one exception. Although Trudeau's liberals did not "start" the housing crisis, they most certainly escalated it with questionable policy. Furthermore, they were swept into power by blaming the prior government for exactly that and promising to fix it. Then, when elected, did absolutely nothing. Now, we have a far bigger problem to address. This is not an anti Liberal or pro CPC comment. It's one about holding governments to account and learning that in the next election cycle when promises are made, be very wary unless actual plans (not promises) are provided.
I read a book awhile ago that really changed my views on some this stuff called Rethinking The Economics of Land and Housing. (It's long though!) It talks about some similar things to your post in terms of the effect of low interest rates (which also inflate prices of other assets to some degree) and credit on housing prices, but also some ways that residential land is different from other assets. (Those include basically that quip 'they are not making more of it', but also how a lot of its value comes from public infrastructure and also land-use regulation.) Land-use is one thing that maybe fills in the gap in terms of why low interest rates and loose credit in Canada specifically led more to bidding up existing properties compared to, say, the kind of huge McMansions you sometimes saw in the US pre-2008 crash.
One part of demand is just like, demand for land that housing can be built on is naturally going to grow relative to 'usable' supply as the population grows (especially if city boundaries are limited by geography or policy but also just because people cannot commute forever). Interest rates changes are obviously good news and so is trying to reduce investment, but I think there are also plausibly ways that land prices (a big factor in home prices!) and demand for land don't act identically to demand for housing units.
I wonder how much land-use played a factor, compared to our crazy scheme to guarantee high ratio mortgages through the federal government, which artificially lowers mortgage rates, encouraging banks to lend out ever bigger mortgages (which are risk free to the banks): https://kareemk.substack.com/p/how-a-promise-from-our-government
Sounds like an interesting book! I've just added it to my reading list. I've been meaning to learn some more about this stuff, which I assume ties into the idea of land value taxes, for a while now. Thanks!
Here is the direct quote, the first paragraph actually, of your first link, which you rely on for the strawman argument that "supply is the sole determinant of housing prices":
Quote "Finance Minister Chrystia Freeland says the country needs a boost in the supply of housing to help make prices more affordable, but suggests there may be other steps governments can take."
Your entire analysis proceeds from a misinterpretation. I am curious, Mr. Kudus, whether this misinterpretation arises out of carelessness and haste, or out of an attempt to create a narrative. You are obviously an educated individual, so this sort of basic error in reasoning is a surprise to say the least. Looking forward to your response.
The goal of this article was to point out that we are drastically overemphasizing the role that supply plays when it comes to our housing prices.
In the quote from Freeland, supply is indeed the only factor that she names directly. I believe that stands to support my argument.
Furthermore, there is this quote further down in that same article: "Freeland said that affordability concerns are first and foremost an issue of supply."
I hope this addresses your concerns. Thanks for reading, and let me know if you have any further questions!
Once again I will provide the quote for you to reconsider:
From the article:
"Finance Minister Chrystia Freeland says the country needs a boost in the supply of housing to help make prices more affordable, but suggests there may be other steps governments can take."
Even the author is not willing to go to the length that you are to strawman Freedland's position. Note the operative words in the quote: "help", "but", "other".
"For X is 'first and foremost' a result of Y" is not the same statement as "for X is the sole result of Y". More formally, a charitable interpretation would be that Freedland says a lack of supply is a sufficient, but *not* a *necessary* cause of the housing crisis. In other words, supply is (obviously) a correlate of housing prices, but not the sole factor. Given your professional history, you are certainly aware of this.
At any rate the article in question is well out of date. You're a very intelligent man: don't fall prey to this sort of intellectual chicanery. Your analysis is good enough to stand on its own without these logical contortions.
I also love how we went from being below the us and uk in housing supply in one chart to “being sandwiched between the us and uk” in your other chart supposedly showing the same data in a different context. Lol. Manipulate the numbers? Or they arent actually the same? Your very first argument and you showed how you don’t understand how numbers work or what the word context means.
Please see the sources for the data which are embedded in the text - Scotiabank and OECD. The numbers are slightly different between the two charts because the measurements were taken at different points in time. I don't think that discredits any of the conclusions that I've drawn from them.
Good article! You might some of the links here insightful, particularly around the Construction Duration Continuum, BuildForce Canada's findings about skilled labour shortages, and housing concentration.
And 1 million immigrants + a year doesn’t help either when we only build a couple hundred thousand . Except you won’t say that, will you?
Actually, I agree that there is a drastic misalignment between our immigration rate and the rate at which we build homes.
After all, I did mention that "there is something to be said for the supply theory", right at the beginning of the article.
Rather late to the party, but wanted to let you know I agree on all points Kareem, with one exception. Although Trudeau's liberals did not "start" the housing crisis, they most certainly escalated it with questionable policy. Furthermore, they were swept into power by blaming the prior government for exactly that and promising to fix it. Then, when elected, did absolutely nothing. Now, we have a far bigger problem to address. This is not an anti Liberal or pro CPC comment. It's one about holding governments to account and learning that in the next election cycle when promises are made, be very wary unless actual plans (not promises) are provided.
I read a book awhile ago that really changed my views on some this stuff called Rethinking The Economics of Land and Housing. (It's long though!) It talks about some similar things to your post in terms of the effect of low interest rates (which also inflate prices of other assets to some degree) and credit on housing prices, but also some ways that residential land is different from other assets. (Those include basically that quip 'they are not making more of it', but also how a lot of its value comes from public infrastructure and also land-use regulation.) Land-use is one thing that maybe fills in the gap in terms of why low interest rates and loose credit in Canada specifically led more to bidding up existing properties compared to, say, the kind of huge McMansions you sometimes saw in the US pre-2008 crash.
One part of demand is just like, demand for land that housing can be built on is naturally going to grow relative to 'usable' supply as the population grows (especially if city boundaries are limited by geography or policy but also just because people cannot commute forever). Interest rates changes are obviously good news and so is trying to reduce investment, but I think there are also plausibly ways that land prices (a big factor in home prices!) and demand for land don't act identically to demand for housing units.
I wonder how much land-use played a factor, compared to our crazy scheme to guarantee high ratio mortgages through the federal government, which artificially lowers mortgage rates, encouraging banks to lend out ever bigger mortgages (which are risk free to the banks): https://kareemk.substack.com/p/how-a-promise-from-our-government
Sounds like an interesting book! I've just added it to my reading list. I've been meaning to learn some more about this stuff, which I assume ties into the idea of land value taxes, for a while now. Thanks!
Here is the direct quote, the first paragraph actually, of your first link, which you rely on for the strawman argument that "supply is the sole determinant of housing prices":
Quote "Finance Minister Chrystia Freeland says the country needs a boost in the supply of housing to help make prices more affordable, but suggests there may be other steps governments can take."
Your entire analysis proceeds from a misinterpretation. I am curious, Mr. Kudus, whether this misinterpretation arises out of carelessness and haste, or out of an attempt to create a narrative. You are obviously an educated individual, so this sort of basic error in reasoning is a surprise to say the least. Looking forward to your response.
Hello, thanks for your comment!
The goal of this article was to point out that we are drastically overemphasizing the role that supply plays when it comes to our housing prices.
In the quote from Freeland, supply is indeed the only factor that she names directly. I believe that stands to support my argument.
Furthermore, there is this quote further down in that same article: "Freeland said that affordability concerns are first and foremost an issue of supply."
I hope this addresses your concerns. Thanks for reading, and let me know if you have any further questions!
Once again I will provide the quote for you to reconsider:
From the article:
"Finance Minister Chrystia Freeland says the country needs a boost in the supply of housing to help make prices more affordable, but suggests there may be other steps governments can take."
Even the author is not willing to go to the length that you are to strawman Freedland's position. Note the operative words in the quote: "help", "but", "other".
"For X is 'first and foremost' a result of Y" is not the same statement as "for X is the sole result of Y". More formally, a charitable interpretation would be that Freedland says a lack of supply is a sufficient, but *not* a *necessary* cause of the housing crisis. In other words, supply is (obviously) a correlate of housing prices, but not the sole factor. Given your professional history, you are certainly aware of this.
At any rate the article in question is well out of date. You're a very intelligent man: don't fall prey to this sort of intellectual chicanery. Your analysis is good enough to stand on its own without these logical contortions.
Well written Kareem! I would love to talk housing with you. Are you based in T.O.?
Thanks so much Urich!
I am indeed in Toronto - feel free to reach out by email: kareem.kudus@gmail.com
I also love how we went from being below the us and uk in housing supply in one chart to “being sandwiched between the us and uk” in your other chart supposedly showing the same data in a different context. Lol. Manipulate the numbers? Or they arent actually the same? Your very first argument and you showed how you don’t understand how numbers work or what the word context means.
Please see the sources for the data which are embedded in the text - Scotiabank and OECD. The numbers are slightly different between the two charts because the measurements were taken at different points in time. I don't think that discredits any of the conclusions that I've drawn from them.
Good article! You might some of the links here insightful, particularly around the Construction Duration Continuum, BuildForce Canada's findings about skilled labour shortages, and housing concentration.
https://open.substack.com/pub/civicsfactor/p/housing-affordability-needs-a-workforce
https://open.substack.com/pub/civicsfactor/p/show-your-supply-and-demand-math
Thanks! Excited to give these a read!
Second link is quite shorter so I'd likely start with that. Cheers!