Jack Mintz: With Housing Prices Softening, Let's Dial Back Government Initiatives
Is the housing crisis finally approaching its conclusion? According to economist Jack Mintz, the data suggests a significant shift in the market that warrants a reevaluation of government intervention. Since reaching its peak in the summer of 2022, the new-housing price index has declined by 3.5 percent. While prices remain approximately a quarter higher than in January 2017, when adjusted for inflation, real housing costs have returned to levels seen seven years ago.
Economic Factors Driving Affordability
The recent softening in housing prices can be attributed to several key economic factors. Lower demand resulting from a weaker economy and stagnant real incomes has played a role, but the most significant driver has been immigration curbs. Additionally, investors are retreating from the condo market as current interest rates make it difficult to cover operating and capital costs through rental income. This suggests that condo prices may need to fall further to attract investment again.
On the supply side, a modest increase in housing starts has also contributed to downward pressure on prices. However, housing affordability remains a concern. The Bank of Canada estimates that mortgage payments and utilities now consume 43 percent of disposable income, up from 36 percent in January 2017. While this is significantly lower than the peak of 55 percent in the third quarter of 2023, it still represents a substantial burden for many households.
The Case for Scaling Back Government Programs
Mintz argues that if the housing market is responding to normal economic forces, there may be less need for aggressive government interventions. Over-the-top spending programs, blanket zoning regulations, and targeted tax measures might be unnecessary when market mechanisms are already improving affordability. While limited initiatives could still be appropriate, Mintz warns against policies that lead to larger deficits or tax increases.
Recent regulatory changes, partly influenced by the federal Housing Accelerator Fund, have encouraged municipalities to relax zoning laws. However, Mintz cautions that cutting red tape isn't always sensible. He points to examples in Edmonton where eight-unit complexes in previously detached-house neighborhoods have created parking and garbage issues, potentially reducing property values for existing homeowners. Similarly, Calgary adopted blanket zoning in 2024 but is now debating its repeal.
Questioning Federal Spending and Development Fees
Beyond regulatory measures, governments have been pouring taxpayer dollars into housing initiatives. The new Build Canada Homes fund starts with $13 billion, requiring matching provincial contributions. Recently, the federal and Ontario governments announced an $8.8 billion cost-sharing agreement for housing-enabling infrastructure programs over ten years, aimed at municipalities that reduce development fees on new homes.
Mintz acknowledges that development fees in cities like Toronto can add $100,000 or more to the cost of a new home. He suggests that some infrastructure costs, such as transit extensions that benefit the entire network rather than just new developments, shouldn't be loaded onto development fees. Instead, he proposes adding a surtax to annual property taxes to recover local infrastructure costs over time, rather than burdening new home buyers with upfront expenses.
Regional Differences and Federal Overreach
Mintz emphasizes that housing markets vary widely across regions, with some areas already quite affordable and not requiring federal attention. He argues that the federal government should generally stay out of provincial and municipal housing markets, allowing local conditions to dictate appropriate policies. As the housing emergency appears to be subsiding, Mintz concludes that it's time to dial back ad hoc initiatives and let economic factors continue to improve affordability naturally.
