Economic turmoil, irrepressible housing bubble leave Liberals playing for time

OTTAWA—In the upcoming fall fiscal update, Finance Minister Chrystia Freeland will no doubt focus on a package of federal measures intended to deal with the affordability crisis, a continuation of Prime Minister Justin Trudeau’s recent shift with regard to the carbon levy. Measures to address the cost-of-living crunch and the housing crisis may help reduce the Liberals’ popularity deficit in the polls. But, as long as the economy remains the central political issue, the Liberals’ only real friend is time—the time between now and the likely federal election in 2025. That’s because there are no easy fixes available for Freeland and very little likelihood of major shifts in the key economic factors contributing to the discouragement and anxiety being felt overwhelmingly by the public. The gruelling problem of off-the-chart housing prices coupled with widespread mortgage pain arising from rapidly rising interest rates has been building for many years, and of course exploded because of the unpredictable economic twists and turns of the pandemic and its aftermath. Canada's household debt is the highest among G7 countries, with 75 per cent of the debt from mortgages. And the International Monetary Fund has warned that Canada is most at risk of mortgage defaults among all advanced economies. But despite the Bank of Canada pushing up interest rates to slow inflation, Canada hasn’t yet suffered a large wave of mortgage defaults, partly because of our stringent mortgage tests. But it’s still a serious threat as missed payments by consumers on other forms of credit—a precursor to mortgage delinquencies—have been increasing. What’s more, the expected cooling impact of higher borrowing costs on the overheated housing market, which includes 30 per cent of residences being owned by investors, has been less than expected because, according to the BoC, of the shortage of supply. To increase supply, Freeland is expected to expand on the federal government's current initiatives, which include the $4-billion Housing Accelerator Fund, the removal of the GST on purpose-built rentals, and provision of low-cost financing. Any and all measures will help, but it is clear that it will take many years of concerted effort to begin to balance the supply-demand equation for housing. With Canadians telling pollsters they are living on the edge of bankruptcy and fearful of losing their homes, the affordability/housing issue has come to dominate the post-COVID political scene. And even though housing also falls within provincial and municipal jurisdiction, polls show the federal government is under fire for the whole cost-of-living/housing problem. Asked in a recent Abacus Data poll what priorities the federal government should focus on, a striking 82 per cent said Ottawa should work to ensure housing is affordable. And 72 per cent said the feds should focus on reducing the amount of personal debt Canadians hold. But this poll of 3,500 adults also underscored the dilemma faced by the federal Liberals as they try to fine-tune their fiscal and spending plans. Some 77 per cent of respondents said the federal government should also focus on controlling government spending, deficits, and debts. This may be a reflection of the fact that about half of Canadians buy into the disinformation spread by the Conservatives that government spending caused the inflationary outbreak (rather than the accurate estimate that such spending led to a small portion of the rise in the cost of living). Given that the federal government is running a $43-billion budget deficit, Freeland is not in a position to devote a large amount of money to the housing/affordability issue. All in all, the Liberals’ best hope would seem to be to do what they can to address affordability over the next year or so, and try to get a start on promoting a possible home-building boom. With luck, the economy could achieve the soft landing the BoC is hoping for, and some of the pain of today’s affordability crunch could fade before a federal election. Of course, Trudeau may not have that much time if the NDP, which seems to delight in ignoring the divisions of power under our governmental system, insists on forcing the introduction of a national pharmacare program. Bringing in single-payer, national drug insurance would open a new front in federal-provincial infighting, and would only be accomplished through pay-as-you-go federalism, in this case a multi-billion dollar project the Trudeau government can’t afford. So either NDP Leader Jagmeet Singh will have to accept a partial victory on this policy, or Canadians will be in a federal election before spring. That would be a disaster for the Trudeau-led Liberals, given the country’s apparent time-for-change mood. On the other hand, it might force voters to take an urgent, serious look at the right-wing fringe tag team of Pierre Poilievre and his wife Anaida that the Conservatives have put in the window. Barring sudden changes in Poilievre’s approach, such a contest would, if nothing else, present a sharp contrast between the Liberals’ attempts at extensive, long-term socio-economic improvement strategies, and the Conservative leader’s unsubstantial, grievance-fuelled culture war campaign. Les Whittington is a regular columnist for The Hill Times. The Hill Times