Hardly a day goes by without a bank economist, public official or newspaper columnist wringing their hands about the collapsing U.S. housing market. All the official indicators, and most commentators, don’t doubt that things are going from bad to worse.
The four big questions are:
Just how bad is the U.S. housing market going to get?
Will a collapse of the housing market bring the entire U.S. economy into a recession?
Will a radical downturn in the U.S. economy drag the entire world into an economic tailspin?
And,
Why did we ever assign such a fundamental necessity as housing to the private market in the first place?
Question one: The situation is bad in the U.S. The word from the street is that sellers are starting to get worried. Not quite a panic, but it’s getting gloomy. House prices are falling rapidly. There was already a serious affordability crisis for low, moderate and middle-income homeowners. People at the lower end of the market were extending themselves financially, over-mortgaging.
Question two: The U.S. economy isn’t very healthy – even before the housing started to crumble. George W. Bush’s insane economics – massive tax cuts primarily benefitting the wealthy and massive spending increases in the military – has led to an astronomical deficit. Who said that right-wingers were good financial managers? A sharp drop in house prices may, ironically, provide a bit of savings to the U.S. government. Right now, the single biggest housing subsidy in the U.S. is the mortgage interest deduction – the bigger the mortgage, the bigger the tax cut. If the U.S. housing market collapses, then there may be a reduction in the tax handouts to homeowners. But overall, as the economists like to say, the fundamentals are not good.
Question three – successive Liberal and Conservative governments have tied Canada’s economy closer and closer to the U.S. economy, both through the signing of formal trade deals like NAFTA and also through a host of policies that encourage the buy-out of our economy. We used to have fair trade arrangements like the auto pact, but all those have been swept aside in the name of free trade. Now, Canadian autoworkers are forced to offer up cuts in their salaries in order to bribe U.S. carmakers to send business here. Canadian autoworkers rejected concession bargaining, now they are desperate for the work. A downturn south of the border will certainly undercut the Canadian economy, and the economies of much of the world.
Question four – private markets are not fair, they are not efficient and they don’t even produce the lowest prices. An executive of Wal-Mart told The Toronto Star recently that his company is not aiming for the lowest prices in any area, but figuring out the highest possible price. Markets are a good and efficient way for those with prior resources – those that come into the market with money – to maximize their resources. Markets seek to deal with market demand, not human needs. As the U.S. housing market was booming up in recent years, more middle and even upper-income households were being priced out. Those low, moderate and middle-income households were left behind. The “lucky” ones were able to over-mortage themselves into the market. Now, they are about to be shaken out, bankrupt and without a home.
In Canada, most people live in the housing supplied by private markets – either ownership or rental. For those that have the money, the housing markets have been able to deliver a reasonably good quality of housing for a reasonably good price. We haven’t had the same extreme escalation in housing prices (although Calgary, Edmonton and Vancouver are definitely in the category of “over-heated”).
Non-market housing (the 600,000-plus homes across Canada that are in co-ops, non-profit housing and municipal housing) act as an informal regulator of the private market. Private market boosters called for the elimination of the social housing sector in the 1990s because they didn’t want the competition.
Canada hasn’t, as yet, adopted the policy insanity of mortgage insurance deductibility. In the U.S., this sucks up so many housing dollars that there simply isn’t much left-over for the housing needs of low, moderate and middle-income Canadians. George W. Bush is considering massive cuts to the already meagre low-income housing programs in the U.S. right at the time when they are most urgently needed.
Canada’s social housing programs from 1973 to 1993 continue to stand as a hallmark of successful, cost-effective, efficient and fair housing initiatives.
In the face of a collapsing U.S. housing market, we need to return to those successful programs now more than ever.
Housing is more than a market commodity. It is fundamental to human health. Good housing creates healthy and economically vibrant communities.
- Michael Shapcott
