November 8, 2023

Yesterday I posted a rather rambling post about deficits and spending. I think I forgot to get to the punchline.

Which is this: The narrative around price of debt, the cost of servicing that debt, and profit subsidies to innovation companies have been manipulated over the previous 15-20 years. This incorrect narrative has resulted in a public investment situation that we are ill-equipped to get out of.

Money that should have been invested in real productive capital was instead diverted to the "innovation economy". The innovation economy was supported by the government to the tune of hundreds of billions of dollars and it has essentially evaporated along with the promise of jobs in these areas.

There continue to be some large players in the sector, but we would have done much better if governments had not been so captured by fancy communications strategies.

This needs to be highlighted as we move forward. The government ignored its own research into investment for the Techno Utopia that has not only not arrived, it has helped usher in its evil twin.

The left must regain the mantle of public investment. The examples are all around us of this working and in many ways they are the only investments that are creating local production-orientated jobs. But, we have to break free of the idea that productivity can get us there alone.

I hope that this is not the time we look back on in 50 years and identify it as the moment that snake oil salespeople conned the world out of their future.

Random bits and pieces that might make the housing market easier to understand and find solutions to the affordability crisis:

1. The housing market is not a monolith. Affluent workers and the rich are not competing with average waged workers and below for housing.
2. The crisis in housing is not at the expensive end of the housing market. The affluent are keeping prices high because there was a decline in the production rate of new affluent homes for a while and the wealthy still have a lot of money from the pandemic oversupply of cash that came their way through profit and other subsidies.
3. No one is (or can afford to) building for the poorer end of the working class. That is where the housing crisis is. A crisis bourne of the affordability crisis, but now a supply crisis.
4. Costs are driving prices up of housing. Production costs are way up. Flipping the old housing stock through refurbishment is putting a cost floor on housing prices. Investors seek to maximize their profits and so invest the most they can in upgrades, driving up prices.
5. The housing market is "broken". The costs and lack of profit from producing affordable housing is a classic "market failure" (in neoclassical/Post Keynesian terms). The market conditions for investment means that profits maximized at the higher end of the market, "strangely" where costs are highest.
6. The Liberal plan of old housing becoming affordable to the lower end does not play out in a housing supply crisis. Older, cheaper housing actually becomes more expensive housing when a for-profit investor refurbishes housing. This is the opposite of the Liberal housing fantasy.
7. The solution in Canada relies on public, non-profit investment support to those who can be convinced to build affordable housing. Profit seeking will not result in more housing for the regular working class family and attempting to incentivize for-profit investment in this segment of the market will fail and will result in increased prices (and inflation).
8. CMHC needs a slight change in mandate to facilitate this investment in cooperative and non-profit housing development.
9. It is not enough to provide money. The government needs to actually procure the building of housing where working people want/need to live.
10. Only the left have the solution to this crisis. Liberal and Conservative programs are not real housing programs as they all treat the problem as one of "not enough investment". Indeed, it is both too much investment in part of the market and a failure to acknowledge that some people need purpose built rental housing that are the problems.

The takeaway: The "housing market" is not a uniform market.

Parts of the market:

• Apartments
• Non-profit housing
• Condos/Townhomes
• Rural housing
• Affluent private community housing
• Brand new builds
• Old houses on the verge of collapse
• Flipped homes
• Condos as speculative investments re-leased to renters
• Retirement communities
• Deferred tax residence
• Downtown affluent houses
• Suburban affluent multi-generational working class homes
• Long-term Care (private)
• Long-term Care (public)

All these are built or targeted through different investment strategies and there are probably even more that I am leaving out.

It is ridiculous to think that a single housing policy will reach all layers of society equally.