The rising price of real estate in the U.S. and Canada has triggered a serious housing crisis in these countries. The housing crisis has made people contemplate leaving the countries. Now, let us take a look at what triggered this affordable housing crisis in the first place.
Canadian home prices wildly outpace disposable income – this is not the case in the US.
The reason is simple.
Proportionately, we takes in 4X as many immigrants as the US (and that's just counting permanent residents). pic.twitter.com/KXRKzgZAup
— Riley Donovan (@valdombre) July 21, 2024Causes Triggering Housing Crisis
Historically low interest rates are known to have made homeownership more affordable for many people. It has also driven up demand as the supply of money is increased and consequently pushes prices higher than usual. As more money is available, people are at liberty to spend it on real estate which makes it difficult for first-time buyers to actually find a living space.
Limited housing supply is something that adversely impacts the housing crisis. With population rising and increased instances of immigration and urbanisation, a shortage of housing inventory, especially in cities and a lack of spaces have contributed to the crisis. The horizontal expansion of cities and towns is no longer possible in congested urban centres, and hence, vertical expansion is the only way. This makes the cost of construction even higher.
Demand fueled by investors has been another reason for escalating prices of real estate. Investors who are attracted to real estate and see it as a stable investment make it difficult for ordinary homebuyers to obtain housing at affordable rates.
Moreover, in a capitalist economy like the U.S., the rising income inequality poses a significant challenge for low-income groups. As the gap between the classes widened, the poor found it impossible to buy homes, forcing them to find shelter in the streets. The propertied classes meanwhile buy private islands whereas the poor have to struggle for the bare minimum.
Long-Term Financial Impact
The housing crisis has a far-reaching impact on the economy of these countries. It has to be borne in mind that these are countries that are known to be welcoming to immigrants. Canada, which capitalises on international students for its flourishing economy, is going to face serious challenges if it fails to accommodate the growing demand for housing. The survey conducted by the Angus Reid Institute found that 28% of Canadians are pondering leaving their province, with this number rising to 39% of recent immigrants.
As many are looking for cheaper alternatives in less popular regions within Canada, like Alberta, there are others who are also considering leaving the country altogether as the rising cost of living coupled with the housing crisis has made survival difficult for them. The high cost of living, especially housing, is the primary driver of this migration.
In addition to that, the growing dominance of immigrants in U.S. politics, economy, and culture has made them an indispensable part of the country. According to recent research findings by the Pew Research Center, immigrants in 2023 accounted for 14.3% of the U.S. population, a roughly threefold increase from 4.7% in 1970. It houses about one-fifth of the world’s international migrants who come from just about every country in the world.
This can significantly affect the economy of these countries as immigrants consist of major manpower in these economies. The supply of labour will be negatively affected if the Government fails to take effective measures to check the rising prices of real estate and thereby prevent the trend of escalating housing crisis.
Measures adopted by the respective Governments
Canada, realising the gravity of the crisis, has come up with a Housing Plan. It has relied on its history to provide a solution to today’s mounting crisis. The official report claims that Canada faced a similar challenge after the Second World War when soldiers returned home, and thousands of displaced people migrated to Canada in search of betterment and prosperity. The Government and private industry joined hands and together built affordable homes at a record pace to meet the needs of the rising population. Later, when the baby boomers came of age, Canada had to face a similar housing shortage.
This time, too Government intervention saved the day. It is this history that allows the Canadian Government the confidence to tide over the present crisis. It relies on three main ways to address these: first, constructing more homes by bringing down the costs of homebuilding and helping cities make it easier to build homes at a faster pace; second,  initiating policy changes to make it easier to own or rent a home, and finally, helping Canadians who can’t afford a home by building more affordable housing for students, seniors, persons with disabilities, equity-deserving communities, and eliminating chronic homelessness in Canada.
On a similar note, the U.S. Government has too undertaken a number of policies and programs to check core housing inflation. It includes first-time homebuyers programs that offer down payment assistance tax breaks to incentivize first-time homebuyers. Favorable tax benefits, rental assistance programs, and Mortgage Finance Reform to improve the stability and affordability of the mortgage market, such as the creation of the Federal Housing Finance Agency (FHFA), are other initiatives that have the potential to check the housing crisis to a major extent if implemented effectively.
FAQ
1. What are the primary factors contributing to the housing crisis in the U.S. and Canada?
Low interest rates which have increased demand for housing. Â Besides, population growth, urbanization, and a lack of available land have contributed to a shortage. Â Additionally, investors purchasing properties as investments have driven up prices. Moreover, the growing gap between the wealthy and the poor has made homeownership difficult for many.
2. What are the long-term economic impacts of this housing crisis?
People may leave the countries due to high costs of living. A decrease in the labor force and consumer spending could negatively impact the economy. Â
3. How are the governments of the U.S. and Canada addressing the housing crisis?
Governments are working to build more affordable housing and streamline the construction process. Â They are implementing policies to make homeownership and rental more accessible. Programs are being introduced to help people afford housing, such as first-time homebuyer programs and rental assistance.
4. What role does immigration play in the housing crisis?
Immigration can contribute to increased demand for housing, putting further pressure on the market. Immigrants can also contribute to the economy, but their ability to participate fully is affected by the housing crisis. Â
