Housing boom isn’t good news for everyone

Peterborough homeowners will be happy to know the average home sale price for 2020 was an all-time high, and the average home sold in December went for nearly $600,000.

Five years ago the average home was worth $270,000. If you own one, its value has more than doubled.

That’s a very good return. The TSX is up 35 per cent over the same period.

But while homeowners have gotten richer, the broader impact of soaring real estate values is not relentlessly positive.

Higher home prices expand the wealth gap, a phenomenon that has been drawing more attention over the past decade.

Homeowners tend to be older, established and relatively well off. Renters tend to be younger and have lower incomes and net worth.

When home values double those already well-off citizens benefit. Renters see no gain.

Still, housing price jumps are generally seen as good for the economy. Homeowners have more equity they can borrow against, and studies confirm they are more likely to remortgage and spend the money, which drives economic growth.

Growth is good. That has been the rallying cry of most economists, and politicians, since the dawn of the Industrial Age. If an economy isn’t growing it is shrinking, which can be nothing but bad.

But the fundamental concept of growth driven by consumption — shopping our way to prosperity — is getting a rethink, for good reasons.

As populations surge and more of the underdeveloped world begins to see higher incomes and more capacity to buy stuff the fact that resources and raw materials aren’t infinite has come into sharper focus.

Higher home values, more accessible cash and more consumption equals economic growth, but potential future shortages. Not to mention more waste and pressure on the environment to deal with it.

Higher housing prices also drive up rents. The correlation isn’t precise, but renting a home or apartment and buying one each represent the price of housing. When one goes up, or down, the other tends to follow.

Renters, who have lower incomes, face higher costs. And the prospect that they will be able to buy a home in the future dims.

A strong housing market can be driven by various factors. Low interest rates, as is the case now and likely for some time to come, are a strong predictor.

The current local boom is also driven by retired Toronto and area homeowners selling and relocating, and others leaving because they can’t afford to buy in the big-city market, or are looking for a different lifestyle. Or both.

COVID-19 had accelerated that trend to the point that relocation, not interest rates, is the main driver. Price jumps reflect distance from the GTA; increases for 2020 were higher in the Port Hope-Cobourg area and City of Kawartha Lakes than in Peterborough.

Housing supply is the other big factor in pricing, both for renters and buyers. Supply on both sides is low here, although a surge in new rental construction is underway.

Peterborough can’t do anything to stem the inflow of home buyers and shouldn’t waste time trying. Any attempt to limit new home construction would worsen the scarcity factor and drive prices higher.

The city needs to be better at what is already attempting.

Streamline the construction permitting process and push for more affordable housing, both public and private.