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The next pandemic is Big Government
As the world recovers from the COVID-19 pandemic, it’s important we choose a recovery rooted in free markets and capitalism. But it must be an inclusive capitalism that works for everyone, not just those with government connections. If we want people to believe in the capitalist model, we need to ensure it works for them.
MONEY TO THE MINUTE
by Fraser Macdonald
Canada’s federal government laid out its budget last Monday, the first in over two years.
From a fiscal standpoint, both the short and long-term numbers are galling. A record deficit… doubling the national debt in 18 months… and no plan to bring back fiscal stability in the next 10 years… are all concerning.
The government says this budget will set the stage for increased economic growth that will outpace higher debt and interest payments, but there’s little evidence and certainly no plan to achieve the productivity gains that will be required to make this enormous bet pay off.
Much ink has been spilled on the economic assumptions that underpin this budget—the perpetual low interest rates, traditional rules of inflation no longer applying, and lenders continuing to have confidence in our solvency. (The bond market doesn’t appear to agree with the government here.)
But what about broader questions about the role of government and whether this budget helps with the popular capitalist goal of allowing more people to benefit from economic growth? (Or, to use language the government has used, help “the middle class and those trying hard to join it.”)
When it comes to housing, tinkering at the margins and taxing foreign investors for what is actually a failure by all levels of government to increase housing supply will do next to nothing to help Canadians achieve home ownership.
How many small businesses will see any of the massive stimulus being doled out, as opposed to the large corporations friendly with the government? This spending seems designed to further intertwine government and big business, not help the entrepreneurs that create jobs.
For workers, a federal minimum wage will only impact a handful of people, but there’s no meaningful consideration of the relationship between employees and employers, shareholders and companies, or market makers and participants.
The vaunted national childcare program shows exactly how this government thinks—its job is to run things for Canadians, not support them in making decisions for themselves.
Popular capitalism stands for policies that help more people participate in economic growth and exercising their own free choices on how to run their lives.
And this budget takes the opposite approach: proposing policies and spending that insert the federal government into more elements of private life and the economy.
Chris Spoke is the founder of August, a Toronto-based agency that designs and builds digital products.
How will the federal budget impact the ability for the average Canadian to afford their first home?
It won’t have any material effect. Housing in urban centres is expensive because there’s not enough of it. The federal budget does nothing to change that other than introduce a tax that would apply to foreign non-resident owners who keep their units vacant, in an effort that they might then list those units for rents.
We shouldn’t expect a tsunami of new units coming to market as a result of this tax, and certainly nowhere near enough to offset increased demand for housing from higher immigration level targets.
Over the medium term, absent radical action from provincial and municipal governments, it will become harder for the average Canadian to afford their first home in or near major urban centres.
What should the federal government focus on to make housing more affordable?
The federal government should focus on the underlying problem. Again, housing in urban centres is expensive because there’s not enough of it. There’s not enough of it because municipal land use rules constrain new supply so as to minimize the impact of development on current residents. Over the past 80 years, we’ve baked NIMBY-ism into law.
The federal government should use every lever available to force municipal land use liberalization. As a starting point, they should tie significant upzoning requirements to any transit infrastructure funding.
Give us an example of a city or jurisdiction getting things right at the moment.
I’ll save my Tokyo and Houston praise for a later date and speak instead to the relative price elasticity of supply in Canadian cities.
Supply elasticity refers to how responsive housing supply is to rising prices. A city with more elastic supply would see more homes built as prices rise than a city with less elastic supply.
CMHC studied this question and found that housing starts in Montreal, Calgary, and Edmonton rise 1 to 2 per cent for every 1 per cent increase in home prices. For every 1 per cent home price growth in Toronto and Vancouver, however, housing starts only grow by 0.5 per cent and 0.3 per cent respectively.
Were Toronto’s housing supply to be as responsive to rising prices as it is in Montreal, Edmonton, and Calgary, between 2010-2016, we would’ve seen an additional 18,000-30,000 homes started and built.
What is the biggest misunderstanding about the housing market for the average would-be homebuyer?
The biggest misunderstanding might be a conflation of prices and goods. Prices reflect the relative scarcity or abundance of a good, but should not be confused with the good itself.
At the risk of repeating myself one too many times, housing in urban centres is expensive because there’s not enough of it. For first time homebuyers, this manifests as a big price tag on the house they want. Some then think that dollars from the government can help them pay some of that price.
But more dollars does not equal more housing in a severely supply constrained market. Dollars from the government are inflationary if the scarcity problem—the real problem—isn’t being addressed.
MONEY NEVER SLEEPS
The housing file
The Bank of Canada brought forward its timeline for a possible rate hike from 2023 to the first half of 2022, due to its brighter view of the economy, but with that comes worry about how the housing bubble will pop. “The inability to buy a home will be seen as a failure of the system,” writes Daniel Tencer in this column for The Line:
Who’s on labour’s side?
The one group that clearly understands the folly in both perspectives is workers themselves. Workers have shown that they dislike the hyper-adversarialism and political activism that American unions bring into their workplaces but are eager for more representation, voice, and support than they can achieve individually. What they want, and need, is a middle ground that neither side is offering.
— Oren Cass, the executive director of the “post-Trump” conservative think tank American Compass, offers this takeaway from the news that only one-eighth of the workers at Amazon’s Bessemer, Alabama warehouse voted in favour of a union.
The last words, for now
Labour was the focus of one of the week’s most viral stories, about the “king of absentees” at the Ciaccio hospital in southern Italy. Salvatore Scumace, 66, was placed under investigation for fraud, extortion and abuse of office, having been reportedly paid €538,000 since the last time he showed up to his civil service job, back in 2005: