Essay: finance to explain the housing crisis

Essai: la finance pour expliquer la crise du logement

One of the major causes of the housing crisis experienced by several major world cities such as Montreal would be the financialization of the real estate market, or considering the ownership of an apartment building as an investment with which one wishes to make the most money possible, according to Louis Gaudreau, a professor at the UQAM.

As more and more families struggling to stay in the metropolis, and that the vacancy rate reached in 2019 to its lowest level in 15 years, practical solutions have been slow to significantly improve the situation, often leaving households on lower incomes in a precarious long time, especially when it comes to the end of the leases, the first of July.

The problem may be not solved in the right way, believe Louis Gaudreau, author of the book “The promoter, the bank and the annuitant”. His essay focuses on the history and evolution of the real estate market of the 19th century up to our days in North America.

“The usual way to present the issue of housing to the general public, in the newspapers, often it will rely on economic indicators that are going to say that the prices are increasing because supply is constricted, the demographics are favorable, and therefore there are more requests for housing, there is more pressure, etc” was first explained to the professor at the School of social work, UQAM.

These economic indicators, whether they retain all of their importance, according to Louis Gaudreau, are insufficient alone to explain the increase in the cost of rents and housing prices.

“At this point, I would say that one of the main factors, is the trend of the real estate market is financiariser, that is to say, the trend of the market to be subject to the logic of financial accumulation, which are more foreign than ever to the consideration of housing as a need, a right or as a property of use,” he stated.

In sum, the housing becoming less affordable, particularly because they are part of a market that tends to continuously push the prices higher. The housing, rather than being regarded as a right or a need according to the teacher, here, representing a financial by which it is possible to generate income.

“Of course, those who have a lot of ways, they have also because they pay more expensive for housing, but they are still capable of finding a place to live, said the author. Where the problem becomes the more manifest, it is for people who have more modest income, and not just the very poor people. Increasingly, this is a problem that affects other categories of income, of household, that were not considered as poor people before, and who become poor by increasing the price of housing.”

Coronavirus and solutions

The pandemic of the COVID-19 and the economic turmoil that it has caused have not had the effect, at least for the moment, according to the professor at UQAM, to reduce the pressure on the real estate market.

“Of multiple offers on homes that are placed into the market, there is still a lot, he stressed. Of bids on the price, that is to say, people who offer prices that are well beyond what the seller asked, it is also quite commonplace, it is being maintained.”

So, where would be the solution?

“One observation we can make, it is the inability of structural housing market to meet the range of needs, and especially to those who are most in need of housing. For that, it has already been done before and continues to do so, but not so important enough, it is the privileging of forms of housing that are démarchandisées. There is social housing, community housing, there are all sorts of formulas that exist,” said Louis Gaudreau.

“I think that these forms, they are interesting in principle, but the challenge in the medium term, it is one of funding, he noted. Because even the housing co-operatives, it is built much in the 1970s, the HLM, the different forms of social housing, there is, but it occupies a portion quite marginal in the residential park. We could use the public power to spend the money to just invest in forms of affordable housing, and that remain affordable over time.”

The essay, “The promoter, the bank and the annuitant” is available from the 11th of June.

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