What Happens When Housing is a Commodity

By Christopher Jordan-Stephens, PhD

It’s hard to imagine but there was a time when a home was just that – a home – and not an investment. Somewhere along the way, its value as a financial asset began to overshadow its value as a social good.

To say that housing prices have outpaced inflation is an understatement. After decades of synchronized peaks and valleys, housing prices in the mid-2000s began to race ahead of income growth by a wide margin. That isn't a surprise to recent economists, Thomas Pickety for example, who’ve recently recognized that returns on capital outpace growth. 

Buying and trading real estate has become both an incredible investment opportunity and a way for households to compensate for stagnating wages and a weakened safety net. This has created a system in which property owners are incentivized to resist increased housing affordability because it would devalue their greatest asset. 

The point isn't that housing prices have been high — we know they have been. The point is that we, as a culture, are treating housing like an investment commodity, to the detriment of housing as a social good.  

Housing as a Human Right vs. a Source of Wealth 

These dual attitudes are in direct conflict with each other. On the one hand, we all agree that housing is a human right and should be affordable to all Canadian families. At the same time, we see home ownership as the primary and sometimes only means of breaking into the middle class.

But here’s the thing: we can’t have it both ways. Housing can’t be both affordable and an investment commodity. Simply put, if housing is treated as an investment commodity, it has to outpace inflation. Investors will have incentive to see property values and rents rise. Home owners will campaign to preserve and further the value of their largest capital asset. 

Affordability has no place in this picture. And with the majority of Canadian households being owner- occupied, a real increase in housing affordability would mean (indeed, has to mean) a dip in the value of housing, not something any savvy politician is likely to pursue, at least not in earnest. 

The drive to protect and stimulate real estate values is disguised by the unquestionable acceptance of home ownership as the ultimate goal and standard of  domestic life in Canada. The  ideal of a single detached home is the materialization of a worldview that narrows the scope of our social concern to discrete family households, whose parceled interests are then reflected in municipal policies. 

Supply vs. Demand: Two Sides of the Same Coin

When it comes to solutions, the way we frame the debate is problematic, and it creates division between people who want the same thing: an equitable distribution of housing.

First, there are those who argue that there is not enough housing supply, and the government is getting in the way of us building more. The solution is cutting red tape, making it easier and cheaper to build. In the other corner, you have those who argue that it’s a demand issue, stemming from speculation, foreign investment, and cheap money. The solution is greater government regulation and more involvement from the nonprofit and public sectors.

Framing it this way makes it seem like both things can’t be true, but they can be. For starters, not all red tape is bad. Yes, some of it is reflective of NIMBY attitudes or results from antiquated, inefficient planning processes. But regulations are also there to protect the environment, promote class integration, and preserve diversity or affordability in neighborhoods.

Development isn’t bad either, at least not in itself. Yes, it can lead to gentrification, rising land costs, and class stratification, but it can also lead to filtering and a larger stock of available housing. Increased density will result in a larger tax base, which municipalities require to expand the quantity and quality of social goods. Building also stimulates Canadian economic staples like immigration and industry.      

Trying to divide the ring into a demand side and supply side is bound to fail, and not just because it's a false dichotomy. The polarized causes of unaffordability -- financialization and red-tape -- are often two sides of the same coin, converging at the local level, where policies are informed by a public incentivized and therefore determined to maintain and increase the value of their property. 

The Real Problem…and Real Solution

The problem is, in fact, our housing culture. When we see housing as an investment commodity, we resist supply to preserve current real estate values; we speculate and drive prices to their breaking point; we engineer policies that constrain supply or increase demand to ensure gains; we displace families and gentrify neighborhoods; and we rely on what we own, rather than what we do, to provide financial security to our families.

If we don't start thinking about housing as a social good first and foremost, we are right to anticipate gentrification and displacement with new development; we are right to expect opposition to affordable housing and growth; and we would be prudent to prepare to live in an increasingly unaffordable and exclusionary Canada.

Current interest rate hikes are a wakeup call and an opportunity to choose a different path toward housing as shelter and a human right, not as a commodity. Hopefully we take this time to reflect and question how we got here. Housing is a social good first and foremost – let’s start acting like it.