Opinion: We’re going to hear a lot more about the financialization of housing this year

January 8, 2022

Professor Emeritus John Belleck says people should be prepared to hear more about the financialization of housing in 2022.Fred Lum/

John Belleck is Professor Emeritus of Geography and Environment at Fraser Valley University.

In his November update on the financial system’s key vulnerabilities and risks, the Bank of Canada deputy governor focused almost exclusively on the Canadian housing market.

in the middle trends highlighted There was a “sudden influx of investors into the housing market” by Paul Beaudry. [which] That likely contributed to the rapid price growth we saw earlier this year. Data provided by TransUnion Canada shows that the number of “investor” buyers doubled in 2021 compared to 2020. Granthshala and Mail columnist Rob Carrick used the term “financialization of housing” to describe this growing trend.

Be prepared to hear a lot more about the financialization of housing in 2022. I predict the term is about to make the leap from academia, where it has spread since the financial meltdown, to the world of urban theory critical among nerds like me. 2007, in popular colloquialism. As an example, the Canada Mortgage and Housing Corporation recently announced the funding of a Finance of Housing Solutions Lab To examine the phenomenon and its implications for housing affordability. Recent mandate letter Prime Minister Justin Trudeau to Housing Minister Ahmed Hussein does not use the term, but asks them to look for ways to prevent excessive returns on investment properties.

The literature on the financialization of housing draws attention to the growing importance of the housing sector as a major source of growth within the global economy, especially as it occurred in the early decades of the 21st century. In general terms, housing finance refers to the expanded role that housing plays as a market commodity, as distinct from its provision of shelter. As a commodity with a solid track record as an economic asset, housing is attractive to investors of all stripes. The result is a vicious cycle of increased demand, and ultimately greater mortgage indebtedness by those who simply need a place to live.

It is useful to think of residence as providing two kinds of value: use and exchange. Use value, as the name implies, refers to a structure’s shelter and local characteristics to its occupants, while exchange value refers to the market value of said structures. These two characteristics of housing have always existed in an uneasy relationship and poses an important question to Canadian federal public policy: if a roof over our heads is necessary for survival, should these roofs be publicly required by the public? Shouldn’t it be distributed instead left to the vagaries of a private market?

Canada’s housing market was at a crossroads when this question was investigated by the Conservative government of RB Bennett in the Dirty Thirties. His Special Committee on Housing met for two months in 1935 to prepare a response to the widely documented state of the country’s housing stock. The committee heard from a wide variety of interests, including reformers, construction councils and financial institutions. The result was the Dominion Housing Act (DHA), which was presented as an attempt to encourage employment in the construction trades rather than explicitly addressing the housing problem.

While the DHA proved ineffective on either, it unveiled an innovation that would define the practice of residential consumption for most Canadian households in the following years: the modern institutional mortgage. More specifically, it meant longer-term (20-year) mortgage amortization and higher (80 percent) loan-to-value ratios. Most importantly, DHA came with the support of Mortgage Ottawa. In practice, this meant extending federal aid from DHA funds to lenders in the event of a foreclosure. This was replaced by the current program of mortgage insurance in 1954. In addition, DHA loans were actually combined loans – institutional lenders provided 60 percent and Ottawa provided 20 percent.

Mortgage home ownership is the foundation upon which Canada has built its housing market. According to the 2016 census, nearly two-thirds of Canadian households were homeowners, and most of these were paying off a mortgage. Canadians owe $1.73 trillion in mortgage debt as of June 2021, according to Statistics Canada, and this figure has been rising in record amounts during the pandemic.

It is a bit hypothetical to suggest that it need not change as such – although alternative housing futures were also on the table in 1935. One of the most interesting was written by Humphrey Carver on behalf of the League for Social Reconstruction, of the Commonwealth Association, a forerunner of the NDP. Mr Carver’s proposal called for a national public housing program and slum clearance. The road not taken could result in an expanded role for non-market housing in Canada – perhaps something resembling a European model, where home ownership rates are lower in some countries and cooperative housing is more widespread.

Ottawa’s resistance to these voices for reform was evident from the start, largely because of the cost of the proposals. But more important was the warm relationship that existed between Ottawa and the lending industry. The terms of the DHA were drawn up by the Deputy Finance Minister, WC Clark, and the Lending Industry (represented by Dominion Mortgage and Investment Association attorney Thomas D’Arcy Leonard) and submitted to the Housing Committee. Completion of the hearing of the committee.

Mortgage innovations introduced in 1935 survived for almost 90 years, with only minor tinkering. Recent efforts at Disrupt have focused on efficiency at the retail level, including accelerating lending decisions with the application of artificial intelligence and algorithms, rather than the fundamental change being offered.

It should come as no surprise that the finance sector – and, by extension, the Canadian state – has a lot of skin in the game. In the words of the Belgian scholar Manuel Albers, “increasingly, mortgaged home ownership is intended to keep the financial markets running, not to be facilitated by those markets.” This will continue to be a major obstacle to changing the housing model in Canada.