April 3, 2023 | Dissenting

Happy Monday Morning!

Everywhere you scroll these days there is some debate about the housing mess, people arguing on social media, all levels of government pointing fingers and blaming each other for the housing crisis. “Vote for me and i’ll fix housing.” It is all political theatre.

Case in point for those following along at home, the federal government introduced a two year ban on foreign purchasers of residential real estate this year. The same government that labelled people xenophobic a few years ago for even suggesting a foreign buyer ban. They folded like a cheap tent in the wind after mounting political pressure and quickly rushed a new bill through.

By doing so the new law prevented many developers from acquiring residential land for the purposes of building new housing supply. You see, many local developers are private corporations with non-Canadian equity partners. Any developer with more than 3% of its corporation controlled by a foreigner was prevented from acquiring new land to develop housing. In other words, you’re a local Vancouver developer but your capital partner in the US who controls part of the company prevents you from building purpose-built rental condos.

So new housing supply gets throttled at the same time the government is ramping up immigration targets, with over one million new immigrants flooding into the country in 2022. Meanwhile, the immigrants we’re asking to come here and fill job vacancies and work a lot of these low paying jobs are not allowed to purchase housing, instead they must compete in the incredibly tight and undersupplied rental market.

In other news, the Federal Government dropped an updated budget. The Budget contained a net total of $43B more spending over six years. That includes $67B of new spending over the next 5 years offset only partly by about $22B of internal savings and higher taxes. I have a few things to say here but i’ll pass the mic to Scotiabanks chief economist Derek Holt…

“There are macroeconomic distortions stemming from all of this spending that include but are not limited to the following and that follow from yesterday morning’s note:

• it has contributed to some of the inflationary pressures that represent a highly regressive tax on lower and middle income Canadians while nevertheless transferring seigniorage revenues. They are being helped with one hand and hit with the other.
• it has contributed to a higher BoC policy rate than would otherwise be the case.
• it has contributed to worker shortages as public sector jobs are up 420k since just before the pandemic and account for 51% of all jobs created in Canada over that time. No wonder businesses are struggling to find workers!!
• it has contributed toward higher wage pressures and imo some of the productivity problem in this country where public policy has emphasized the body count in job markets over what is produced by whom.
• it has worsened competitiveness problems through spending that is primarily focused upon redistributive social transfers.
• In a broader public policy sense, Ottawa’s housing strategy remains confusing. The BoC is trying to contain inflationary pressures and soften previously raging house prices. The Feds have thrown open the immigration doors into a market with no supply while another tax subsidy to housing starts up on Saturday in the form of the 1^st time homebuyers tax-free home savings account that allows one to shelter up to $40k tax free with annual contributions of $8k. Housing is going to rip after a temporary retrenchment and there goes the BoC’s efforts.

In all, I’m not impressed. This budget adds to macroeconomic imbalances and divides folks at a time when unity is needed to address the country’s challenges. Governments did a fantastic job in the early days of the pandemic. The problem is that they are now addicted to high spending and delivering divisive jabs at certain interests. Nothing is being done about productivity and competitiveness pressures that are mounting year by year. Big spending, big deficits, big debt, high taxes, high inflation and bond market challenges are not the path to prosperity.”

It’s not often you get a mainstream big bank economist dissenting. Kudos to Derek for speaking up. To his point on housing, it is absolutely heating up. More on that next week.

Steve Saretsky April 3rd, 2023

Posted In: Steve Saretsky Blog

Next: Eyes On The Prize »