Canada’s Political Dilemma on Housing Policy and How to Change It

In my previous article “Stop Housing Speculation with Math” (https://t.co/KpIKucDxQk?amp=1), I presented a math model and analyzed how real estate speculators make money, and made several policy suggestions on how we can stop them by directly targeting at their Return of Investment.

However, all those policies will be very difficult to implement — not because they’re infeasible, but more because of today’s political reality in Canada.

Policies need to be implemented by a government. In Canada, we have three levels of governments — Federal, Provincial and Municipal, and they’re responsible for policies that affect the entire country as a whole, a province or a local town or city.

If we look at the policies listed in the article, they can be categorized into:

• Adjustments to the country’s financial regulations — increase down payments for investment properties and financial market supervision.
• Federal level taxes — rental income tax, and capital gains tax and a country level holding tax for investment properties.

They’re all responsibilities of the Federal government. For argument’s sake, let’s say they’re all great ideas and we want them, but would the Federal government be motivated to do so, too?

Canada derived its parliamentary system from the UK. The entire country is divided into 338 electoral constituencies, and that corresponds to the 338 seats in the parliament. Every four years during an election, a Member of Parliament (MP) would be elected in each of the constituency based on majority vote. Each MP belongs to a party and the party that wins the most seats forms the Federal government.

There are two big parties that normally go toe to toe in an election — the Liberals and Conservatives. And through the entire Canadian history, the winning party has always been one the two. There are also two smaller parties, NDP and Bloc, which have never been a governing party — and normally by a large margin, and there are several even smaller parties.

You probably already know this from your Politics 101 course. Now let’s look at something you probably dont know. In the 2019 Federal election, the Leger poll has found that [1]:

• Between age 18–34, NDP polls ahead at 36%, while Liberals 25% and Conservatives 22%
• Between age 35–54, Liberals poll ahead at 41%, while Conservatives 27% and NDP 18%
• Age 55+, Liberals 39%, while Conservatives 35% and NDP 13%

And based on StatsCan’s population estimates, the percentage of each of the age group of the total voter base is roughly [2]:

• 18–34: less than 30%
• 35–54: 31%
• 55+: 38%

If we look at home ownership rate in each of the age group, again aggregated roughly as [3]:

• 19–34: 27.5%
• 35–54: 67.7%
• 55+: 73.3%

Let’s see what happens when there’s an election.

Suppose you’re the leader of the Liberals, and you want to win a Federal election. You want to make sure your base is happy, which is age group 35–54, so that you can maintain a strong leading position to the Conservatives — for 31% of the voters. You also want to gain some favor from the 55+, to make sure you get the other 38% of the voters.

If you’re the leader of the Conservatives, you want to get ahead of the Liberals in the 55+, and try as hard as you can to get into the 35–54 age group.

You might have seen the problem here — the home ownership rate in the 35+ age group is 70%+, and this age group is also the main battleground between the Liberals and the Conservatives. Therefore, if either of the parties want to win, they would want to make the home owners happy. And that probably means “the higher the better” for housing price.

Yes, I know this is not 100% true. First of all, a lot of home owners are also unhappy with the sky rocketing housing price. For example, some may be looking at upgrading their homes and rising housing price increases the gap and makes it impossible to “climb up the real estate ladder”. Some could be concerned about their children or grandchildren, who may never afford to live in the community where they grow up and have friends and family ties. Some are also concerned that this could be a financial risk and may hurt the future competitiveness of the country. Secondly, the home ownership rates listed doesn’t differentiate someone who lives in his/her parents’ basement — so it’s not that accurate.

However, until we have more refined polls and statistics, this is what everyone has to work with. And this is what the two parties have to work with.

As a result, simply based on the numbers, those 70% voters are way too important and none of the two parties can afford to take the risk. That becomes even more apparent if we examine the housing policies they proposed during the 2019 election:

Liberals:

• Buy a stake in First Time Homebuyer’s homes — effectively the government gives you part of your down payment.
• One percent vacancy tax for foreign buyers.

Conservatives:

• Loosen up mortgage stress test for First Time Homebuyers.
• Increase amortisation period from 25 to 30 years.

Obviously, all these policies, except the vacancy tax, will increase demand. And within a market with tight supply, this can only lead to one single outcome — an increase in housing price. Although the two parties disagree on so many fronts, they seem to be surprisingly aligned about housing — rather than making housing more affordable, they are trying to make housing more expensive while turning more people into home owners. At least now these people are part of the club and might be just as happy with a rising housing price, even if that means they are loaded with debt and financially stretched.

Therefore, if you count on the two big parties to come up with a housing policy to target at making housing more affordable by themselves, you will only be disappointed. It is not because of corruption or conspiracy. It is simply a combination of math and statistics, and how democracy works.

Does that mean our system is broken? It would ever only let NIMBY drive everything and lead to a “Tyranny of the Majority”? — Well, let’s not lose faith in democracy — just yet.

During an election, when the winning party has the most seats in the parliament, but less than half, it forms a minority government. In a minority government, the governing party must seek reconciliation with at least one of the oppositions to pass a bill. They also risk losing power when a “vote of non-confidence” is triggered, so they would really be treading on thin ice all the time, and they want to win back a majority status at all costs when such “snap election” happens.

This may not be ideal for the governing party, but it creates the perfect situation for a minority group of the society to make an impact. Indeed, even if we put together every single person, be it non home owners or owners, who support making housing more affordable, it may only get up to 30% of the votes, and that is far from winning an election. But 30% is good enough for a smaller party, who would unlikely win an election anyway, to win more seats and thus has more influence. Furthermore, although 30% is not enough for any party to win a majority, it is pretty enough to make sure the party who wins stays in that uncomfortable minority territory.

Right now we might be exactly in that situation. The Liberals won the election in 2019 but they were only able to secure 157 seats. This is less than 170 and they are a minority government. As a minority government, they will have to seek support from some of the non governing parties with significant seats to reach 170. That is from the Conservatives (121), Bloc (32) or NDP (24). It is therefore no surprise that the Liberals are probably preparing for a snap election to take back majority again some time[5].

I think you already know the strategy here. It is very simple — if neither the Liberals or the Conservatives can come up with a satisfying housing policy package, don’t vote for them — not only don’t vote for them, but vote for the NDP. This may not help NDP to win an election as their current seats (24) is far from any significant portions, but it will push the Liberals and Conservatives further away from the majority they’ve been long craving for — in other words — “No Housing Affordability, No Government Majority”. Furthermore, NDP would be more inclined to come up with a good housing policy package now, because they have a new base of voters who want to make housing more affordable and they need to make them happy — not to mention that they’re less likely to win a majority anyway, so they don’t need to worry about that 70% of voters.

Once this strategy is implemented at the Federal level, it can be adapted to the Provincial level, or even the Municipal level.

Earlier this year, around an insignificnat video games retailer — GameStop, a bunch of Wallstreetbets retards banded together, many using their meager stimulus checks, to stand up against giant Wallstreet mutual funds in a historical short squeeze, simply because they “love this stock”.

The gist of the story? — Unity and the small guys will have a fighting chance. If something as crazy as that can work, surely Canadians, by using your constitutional voting rights, can come together and fight for the future of this country.

Come and join our discussion on Reddit (/r/canadahousing) and the Discord channel (https://discord.gg/m7sdWnXP) — let us make this happen — simply because -

We love this country!

References:

1. 338Canada: Who leads among young voters? The NDP. https://www.macleans.ca/politics/ottawa/338canada-who-leads-among-young-voters-the-ndp/
2. Population estimates — StatsCan. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710000501&pickMembers%5B0%5D=1.1&pickMembers%5B1%5D=2.1&cubeTimeFrame.startYear=2018&cubeTimeFrame.endYear=2020&referencePeriods=20180101%2C20200101
3. Homeownership, mortgage debt and types of mortgage among Canadian families. https://www150.statcan.gc.ca/n1/pub/75-006-x/2019001/article/00012-eng.htm
4. Gimme shelter: Breaking down the housing promises on the campaign trail. https://financialpost.com/news/election-2019/gimme-shelter-breaking-down-the-housing-promises-on-the-campaign-trail
5. “Trudeau says Canada could see an election this year” — https://globalnews.ca/news/7563500/canada-election-justin-trudeau-2021/

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