Tag Archives: demand

Should incentives go to the supply or demand side?

The Canadian Mortgage and Housing Corporation (CMHC) is Canadas national housing agency.

The front page of their website says this:

Backed by more than 65 years of experience, we work with community organizations, the private sector, non-profit agencies and all levels of government to help create innovative solutions to today’s housing challenges, anticipate tomorrow’s needs, and improve the quality of life for all Canadians.

This is a bit vague, but let’s assume ‘today’s housing challenges’ includes the availability of affordable housing for all Canadians.

With this goal in mind there are two ways you could use government money to create incentives for housing: The supply side or the demand side.

CMHC works on both sides, but over the years they’ve shifted the bulk of their support to the demand side.  This means that instead of directly funding the construction of housing or providing incentives to builders, they provide support to the buyer mainly in the form of mortgage insurance for risky loans.  Of course this support is actually provided to banks to make their loans risk free, but the end result is that more people are able to pay a higher price for housing due to more availability of credit.

In concert with record low interest rates and a speculative mania this has driven housing prices to record highs in Vancouver and inflated prices across the country leading to talk of a national Canadian housing bubble similar to that seen in the US.

If we really want to use government to assist in the creation of affordable housing shouldn’t we be providing incentives to the supply side instead?  It shouldn’t be a stretch to understand that building more housing and providing less credit to home buyers would drive prices down making homes MORE affordable.

But nobody really wants to drive prices down do they?  So instead we get vague statements about housing challenges and smoke and mirrors attempts to improve ‘affordability’ by providing ever cheaper credit.

That hasn’t worked in any housing bubble yet, but hey! Maybe it’s different here!

 

What sets house prices?

Jesse put together a nice clear presentation on our housing market.

Check it out.

His argument is that the factors that set house prices are different for the long term than they are for the short term.

If short term factors drive up supply and pull demand forward, what happens in the future to balance this out?

With housing affordability in Vancouver hitting an all time low and sales scrapping along under 100 a day It sure looks like Months of Inventory is starting to flash a big warning sign for current buyers.

Detached home sales collapse in June

Wow.

It looks like the number of detached home sales in a number of lower mainland areas are coming in very low for June this year.

It’s useful to look at what sales looked like in June 2012 compared with the last many years.

Fortunately Inventory posted a bunch of month-end stats showing exactly that this weekend.

Here’s Richmond, which saw an all-time low number of sales of detached homes:

Continue reading Detached home sales collapse in June