Should House Prices Come Down?
by Melanie Swailes on behalf of the Development and Transportation Committee
Is there anyone who doesn’t want “affordable” housing? Not likely: we all need a place to live. Over the past several years, house prices have risen rapidly, as have rental rates. The average price of a detached resale home in Calgary increased rapidly from about 2021 to 2024: in 2021, the detached resale house price averaged $583,000,1 by the end of 2024, it reached $748,683.2
In order for housing to become more affordable, a lower percentage of monthly income must be spent on rent or mortgage: relatively speaking, either wages have to increase substantially, or the cost of housing has to drop significantly. Both wages and home prices are complex, with many determining factors, so let’s focus only on the housing side of the equation.
A real estate crash that dropped prices to the 2021 level or lower would be a great thing for someone buying their first house, but people who have bought homes since then would have “underwater” mortgages, where the value of the mortgage is greater than the value of the house. If you lived in Calgary in the early 1980s, you might remember “dollar dealers” who purchased houses for $1 from people who were desperate to walk away from the liability of their mortgage.
In May, the new Liberal Housing Minister and former Vancouver mayor Gregor Robertson was asked if house prices should go down. He answered, “No, I think that we need to deliver more supply, make sure the market is stable. We need to be delivering more affordable housing.”3 He recognized that it is impossible to lower prices for some people (i.e. those looking to buy their first house) while protecting the investments of existing homeowners.
Similarly, Prime Minister Mark Carney has said, “Ultimately, the housing crisis is solved by supply.” He added that the Federal Government could take measures such as cutting the GST on new homes, halving the development charges for construction on homes, developing a more efficient home-building industry in Canada, and ultimately doubling of the rate of home building in Canada.
All those proposals should help to improve affordability. But there are so many other factors at play. If prices drop, homes could also be bought up by domestic and offshore investors for use as Airbnbs or other short-term rentals. If rents drop drastically, developers won’t be as interested in building rental units because their return on investment will be lower.
Two recent books provide a fascinating look at the realities of house prices; both are available from Calgary Public Libraries. In The Tenant Class, author Ricardo Tranjan looks at the relationship between landlords and tenants and argues that the housing market is working as intended in our society: owners and governments reap the profits from the status quo, while renters pay the price. Is there really a desire to change the way things work now?
Broken City: Land Speculation, Inequality, and Urban Crisis is written by Patrick Condon, a Vancouver-based professional city planner, UBC professor, and researcher with over forty years of planning experience. He posits that housing wealth has risen for some (the “rich”) because land has become an asset rather than a utility. When land and housing became a profitable investment for global markets, runaway housing costs ensued. In Vancouver, despite building massive amounts of new housing, prices kept increasing.
In Canmore, there has been a recent well-publicized debate over second-home ownership, which means fewer homes available for those who live and work full-time in Canmore. Again, there is no easy answer. Restrictions ignore the benefits that part-time residents bring; they still spend their money in the community but use fewer resources such as schools. More homes can be built, but if the units are purchased as investments for people outside of the community and/or used as short-term rentals, the benefits are not passed on. The number of houses increases, just as in Vancouver, but the affordability does not.
Do we really want house prices to come down? In Canmore, if prices dropped, perhaps many of us might consider buying a second home there. US investors might find the prices appealing because of the currency exchange rate. Should purchasing property be restricted? Because Jasper and Banff are located on Federal lands, they have a “need to reside” clause, designed to ensure housing is available for those who work and live in the community. But if there are restrictions in Canmore, there will be less investing and fewer dollars available to build anything.
It’s complicated. Read and learn more. Next month, some measures that might help with affordability – housing co-ops, designated affordable housing providers, types of homes, small homes, mobile homes, and quicker building.
If you would like to join our Community Association, you are always welcome to do so. Contact the office at [email protected] or at 403-284-3477.
Sources:
2. https://www.calgary.ca/research/housing.html
3. Should home prices go down? ’No,’ says Canada’s new housing minister | Globalnews.ca.
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