Madam Speaker, why? That is the most basic question anyone asks when something strange happens anywhere in nature. Why is it that a family in Riverside South, a suburban community 25 minutes from here, has been bid out on seeking a house eight times, most recently watching one normal middle-class house go $400,000 over the asking price, from $800,000 to $1.2 million? Why? Why have housing prices gone up 32% in a period of just a year and a half, while the economy has actually shrunk?
Why are housing prices going up while wages in real, inflation-adjusted terms are going down? Why is this incredible bubble filling with air? Let us go through the reasons that we have been given for the recent housing bubble. Some people blame house prices in Canada wrongly on immigration. We know that cannot be true, because throughout COVID there was almost no immigration, yet house prices went up. The normal flow of roughly 300,000 newcomers seeking houses nearly came to a grinding halt. Immigration cannot explain the ballooning house prices.
Some have blamed inflation in general on supply chain problems, but of course land does not have supply chains. It is already right beneath our feet. We do not import land on a ship. It is not stuck at a port. It was put here by billions of years of geological development. We cannot blame foreign supply chains for the booming price of housing.
Nor can we blame it on global factors, because housing inflation here has been far worse than in any other nation, with the exception of New Zealand. According to Bloomberg, Canada has the second most inflated housing bubble. Similarly, The Economist magazine has named Canada along with New Zealand and Australia as the countries it thinks might experience a massive crash on the scale of the 2008 crisis in the United States of America. If this was a global problem, we would not be suffering a much bigger bubble than the rest of the globe.
Some trendy commentators have said it is just that Canadians' preferences have changed. Because of all of the cabin fever that came with lockdowns, people want to live in the countryside and have more space; therefore, they are paying more for real estate. If that were true, we could verify it simply by seeing a drop in housing prices for inner-city condos. If people were all unloading those condos to go and live in the countryside, we would see the prices of urban condos drop. In fact, they too are up 15%.
Finally, and more plausibly, some people have pointed to the fact that it is very hard to build anything here in Canada. That is true, and that is one of the long-term structural reasons why we have inordinately high real estate prices in Canada. We all are aware of the incompetent municipal and provincial governments that drive up housing prices with their bureaucracies, and the rich urban snobs who like to prevent people from living in their neighbourhoods by lobbying city councillors to prevent development.
That is all true, but it does not explain the rocketing prices that began in the spring of 2020 because, of course, snob-zoning and incompetent bureaucracies are nothing new. They did not appear in Canada. We did not suddenly have an airdrop of one million inner-city snobs on Canada when COVID hit. They have long been here with the bureaucracies backing them up, blocking us from building housing for other communities for a very long time.
That is nothing new, so what is new? Why all of a sudden, when the economy fell off a cliff, did the price of housing suddenly rocket? If we look more microscopically at the data, we will see that in March and April of 2020, house prices actually started to drop. We forget that now. It was just as our number one housing agency predicted.
CMHC said that house prices would drop 10% to 14%, and then suddenly there was a change of direction. Prices went up and up, until they were far out of reach for everyday, ordinary working-class people. What happened in the spring of 2020 that would cause this inexplicable phenomenon to begin? The answer is that in late March, and running through until about a month ago, the government had the central bank pump $400 billion into the financial markets in order to make it cheaper for the feds to run deficits. The thinking was that if the central bank printed cash to buy bonds, it would drive down interest rates enough for the Government of Canada to be able to run consequence-free deficits, at least in the short term. The problem is that much of that money overflowed into the mortgage market. Just this week, we found out that mortgage borrowing totalled $193 billion in that period of time.
That is almost a quarter of a trillion dollars of mortgage lending, and what do we know? When the financial and mortgage markets are flooded with cash, that cash goes out and bids up the price of houses. In fact, the multiplication effect of a dollar inserted into the housing and financial system is really powerful. To simplify, let us say that we have 10 houses in a given country and each is worth $100. The total market value of all those 10 houses is $1,000. If one person manages to get some of that money from the central bank and bids up the price to $200 for one of those 10 houses, that house then has a market value of $200. What happens to the entire street? That entire street's market value now doubles, so $100 of extra purchasing power adds $1,000 of market price. This is the incredible multiplication power that leads to housing bubbles. That $400 billion led to $200 billion of new housing demand, which led to many more multiple increases in market value.
What happens with that? People then go out and borrow against their new home equity. They have unrealized gains in their homes that they use to collateralize more debt to buy more assets, which further inflates asset bubbles. We have seen a massive increase in the market price of assets across the economy since this experiment with central bank money printing began.
Here is the problem. What goes up can come crashing down. People are basing their economic decisions on assets that are floating on top of a bubble. When that bubble bursts, all of those assets, and the people who rely on them, come crashing down. In the meantime, the poor and the working class can no longer afford to purchase those assets. Thus, we see a massive expansion in the gap between the rich and the poor.
Trickle-down economics has never worked. Giving money to large financial institutions and expecting it to reach the working-class people at the bottom is a figment of the government's imagination. The people who do the work will pay the price in the crash, but get none of the benefit during the bubble. The answer is to stop printing money, free up more land and start building housing. We need to incentivize our municipalities to clean away the red tape and create work for our carpenters, framers and other tradespeople. We need to open up more land to supply our young people with homes and restore the great Canadian dream of having a place to live and a roof over one's head in a country that is a meritocracy, not an aristocracy.
