Housing Policy Is Mark Carney's Mission: Impossible

You can't have it all, but the government is going to try. Bon courage.

Houses? In this economy? Photo by Tom Rumble on Unsplash

Speaking to reporters in Rome on Sunday, where he was attending the inaugural mass for Pope Leo XIV, Prime Minister Mark Carney was asked about housing prices. The question from reporter Mackenzie Gray was simple: “Do you want house prices to go down in Canada?” The answer was…less simple.

When Carney’s Cabinet was sworn in last week, new housing minister Gregor Robertson took a lot of heat for answering no to that question, but his answer was more complex than he’s getting credit for. Robertson didn’t communicate particularly well, but what he seemed to mean was that the government’s plan is to lower prices for some and not others while seeking to stabilize home prices and grow incomes, ensuring long-term affordability. This strategy, at least in theory, would match buyers in certain segments of the market with more affordable homes without lowering prices — and, thus, equity value for current owners — in other segments. It would allow for a soft landing in adjusting housing price-to-income ratios over time.

Many observers and experts took aim at both elements of this plan. For the former, the critique is, essentially, that you can’t suck and blow at the same time, though politicians will always try to. Lowering prices is lowering prices — or not. It’s hard to lower prices by market segment, as one might do, or try to do, in a centrally planned system. Moreover, trying to lower prices with techniques like tax credits for first-time buyers could inflate housing costs, as you get more money chasing those homes. In short, targeted lower prices at scale are difficult to manage, if not impossible, notwisthadning non-market options.

For the government’s latter policy hope, stabilizing prices and growing incomes, experts including Mike Moffat argue it would take four or five decades in some parts of the country for wages to “catch up” with “flat” housing prices. That’s the long run. And you know what Keynes said about the long run: in it, we’re all dead. People want homes now. Not when they’re dead. Homes are far less useful when you’re dead. First time buyers, whether younger or older, won’t be happy with a plan that reuires them to wait decades to enter the market.

I’m not here to adjudicate this debate. At least not in this post. I’m sympathetic to those who say we need lower prices, at scale, and sooner rather than later. In short, yes, housing prices need to come down. I say that as someone who, at 40-years-old, became a first-time home owner last summer. My financial interests run counter to cheaper prices, but I’m more interested in everyone having a shot at ownership, if they want it. But, as I say, I’m not here to sort that out right now. Instead, I want to focus on Carney’s answer to the question: “Do you want home prices to come down in Canada?”

Forgive me, but I want to share his answer at length, because it’s a detailed, reflective, comprehensive answer that Canadians ought to consider. I’ve cleaned up some of the wording, but you can listen to the entire question and answer here, beginning at the 20:30 mark.

“I want house prices to be more affordable for Canadians,” Carney starts. That’s the simple, soundbite answer. The political answer. That’s the answer you run on. That’s the answer you give when you’re doing politics and don’t want to hand the opposition a crowbar to use in dismantling your government. Then he continued

And let me explain that. It means a number of things. One, in the very short term, it means getting specific costs out of the price. So, for new home buyers…it’s cutting GST on new homes and ensuring that particularly younger Canadians get the benefit from that. So, that’s the first thing. The second thing we want is to strip out…half the development charges for construction on homes. So, again, another measure in the near-term that will lower the cost of near-term homes, and those lower costs should be passed on to home buyers. The third thing we think needs to happen, and we’ll do at scale, is to help develop a much more efficient home building industry in Canada, on a path to a broader doubling of the rate of home building in Canada. All of those factors are going to help to improve affordability. The exact level of house prices is going to be a function of a variety of factors, including where incomes grow. But the key is we’re building new homes, and the purchase of new homes becomes less expensive, absolutely. Without question.

This is essentially the plan as I discussed it above. Easy enough to follow. Substantive. In-depth. And the sort of thing that sounds reasonable, rather than platitude-laden, even if it’s…a stretch. It sounds like a yes, more or less. The prime minister wants housing prices to come down.

But Gray presses him, following up (and this is why follow-up questions are so important): “I just want to figure out where you are, because I didn’t hear a yes or no there. We did hear a yes or no from Gregor Roberston; he said ‘no’. So, where do you stand?”

I think what Gray is doing here is important. He’s trying to find clarity and consistency between the prime minister and the minister in charge of a critical policy file. The country cares a great deal about housing. The federal government has chosen to make it a central part of its policy agenda (and the Liberals, a central part of their campaign) despite those who are quick to point out that housing is typically, or primarily, a provincial and municipal issue. So, it’s fair game.

Now we get to the core of what I want to talk about here. Carney replies to Gray: “First off, it’s not a yes or no question,” to which the reporter says “It was for him, though.” Carney fires back, “I’m answering the questions now, thank you.” Ouf. Okay, but let’s move on to. Carney continues

It’s a question which relates to different time horizons and relates to different houses. So, we’re cutting GST on new homes. So that affects the price of new homes. That affects the cost, is a better way to put it — the all-in cost for people. It’s up to $50,000 savings for the average home price, a little more than that actually if you look at the greater Toronto area. So, it’s significant savings for people. Measures to reduce development charges over the course of the next five years, to cut those development charges in half, lower the costs for those homes built over the next five years. Those savings will be passed on to people. The overall level of housing prices, though, that amount of activity isn’t enough necessarily to affect the overall level of house prices.

This is the core, disputed part of the answer. Will the effect be limited? Some aren’t convinced. I’m not.

Carney, nonetheless, contents

It does affect those types of homes and people who can buy those types of homes. Once we increase, as a country, the rate of home building, then that is going to make home prices much lower than they otherwise would be, but that’s a medium-term effect, and that depends on where house prices would have otherwise been at that point. So, look, it would be lovely if we could always give very simple yes/no questions up/down answers, but we’re talking about time horizons. What the core issue is for younger Canadians, for all Canadians, is that the level of house prices goes down relative to their incomes. So the affordability goes up for them. Both in the medium-term and the longer-term, that’s what we’re looking to do.

That Carney seems frustrated by Gray’s push back is notable. We’ve seen this from him before. Carney is an economist. He’s an expert. He’s a technocrat. He has tremendous capacity and wants to solve problems with his expertise and capacity. He seems to prefer that politics wasn’t necessary. Politics, an art he’s learning rather quickly but hasn’t mastered, comes second. At best.

As I noted on Twitter (linking to the wrong clip and thus proving my premise to be sound), watching Carney’s answer reminded me of an argument my doctoral thesis supervisor, Mark E. Warren, used often. It’s an argument I’ve come to use often myself: expertise has no pre-political authority. Five words, a lifetime of wisdom in them.

That expertise has no pre-political authority means that while you might be an expert, you might have the answer, or at least what you think is the answer, but all of that is secondary in a democracy to politics. You have to process expertise and answers through, well, politics. You can’t simply say “trust me,” or “I know best,” or “this is the way forward, get out of the way and mind your own business.” Answers to questions and policy solutions in a democracy are not mere technical matters, but political matters that must be sorted both through a technical and political process to gain legitimacy and approval. And, in the end, the people will judge outcomes accordingly, if not always fairly.

Even if Carney’s answer to the housing question is correct, and his policy approach sufficient, and I’m not convinced of either, his government will soon meet the sharp end of expectations. The Liberals ran on making housing affordable, and sooner rather than later. If prices don’t start to come down for buyers looking to enter the market in the near or near-ish term, those people are going to be angry. And they’ll blame Carney and his government. If prices do come down broadly, Carney will also face anger, but from owners looking to sell. It’s an impossible position, a zero-sum game, but politics is often marked by impossible positions and zero-sum games.

Carney now faces political realities that won’t ultimately care about his capacity or expertise, or won’t care much. People care about results, and they tend to want those results now, not later. That’s not always reasonable, but neither is a political campaign that runs on definitive answers to complex promises, that is, the sort of campaign politicians, including Liberals, routinely run. ‘Promise now, pay later’ is the model for elections. The payment bit is often a pain in the ass.

I think Carney must disappoint some people, and soon. I doubt that the government will be able to make housing affordable for a sufficient number of new buyers without lowering home values for current owners who’d rather get more for their asset — that’s what homes are, alas — than less. It’s also worth keeping in mind that the feds must work with provinces and municipalities on housing policy, particularly since the provinces are constitutionally responsible for the file. As a ruke they’re also terrible at managing it. Then there’s the market. And the non-market, which is a key part of the solving the housing crisis, and one that is ignored or marginalized too often.

There’s no way to tinker or technocrat your way out of the housing conundrum. The only way through is politics first, which implies choosing, disappointing, and doing the best you can within the boundaries of democratic institutions, citizen expectations, the market and its many players, and non-market players. It’s not by accident that politics is called the art of the possible. It’s a definition that implies that one who does politics must also understand and account for the impossible.