MNI INTERVIEW: Trudeau Must Fix Housing Without Fanning Prices

Prime Minister Justin Trudeau is coming under increasing pressure to tackle Canadian anger over unaffordable housing while avoiding quick fixes that drive up inflation, and could unveil a new strategy for the troublesome sector in coming months, former adviser Tyler Meredith told MNI.

“This has become a real metaphor issue of middle-class success,” said Meredith, who advised Trudeau and the two finance ministers in his cabinet since taking office in 2015 and is a founding partner of Meredith Boessenkool Policy Advisors.

“Right now the government is struggling on that metric, and if they can’t at least bring it to a tie going into the next election they will have some challenges.” (See: MNI INTERVIEW: Trudeau Hints At Govt Homebuilding-Ex Adviser)

Trudeau's Liberals must call an election by 2025 and could be pushed sooner if the NDP party it leans on to pass confidence votes withdraws their support.

The political challenge is re-inventing a government falling behind Conservatives, led by Pierre Poilievre, who argue Liberals have drifted from their early slogan of middle-class prosperity. With inflation peaking at 8% last summer and moving back above 3% this month, Meredith said the trick is pulling together local governments to expand housing over the long haul without further scorching prices.

CAN'T MAGICALLY SOLVE TOMORROW

“This is going to take ten years, this isn’t something that we can magically solve tomorrow. In fact, if we tried to solve it tomorrow we’d actually probably make the problem worse, because we would be concentrating all of this activity on a limited amount of talent and goods," he said.

The federal housing agency says 3.5 million homes are needed in the next decade in a nation of 40 million people, and industry sources tell MNI higher interest rates and red tape means that's impossible right now. (See: MNI INTERVIEW: Canada House Building Hit By Rates, Shortages)

As for prices, in Vancouver a detached home fetches more than two million dollars, or more than 20 times what a typical family earns, one reason the IMF labels Canada one of the world's most fragile housing markets. Mortgage costs have climbed a record 30% from a year earlier alongside the Bank of Canada's 10 rate hikes and the prospect for more.

The next government likely inherits the chance to oversee the Bank's mandate renewal and approve the board's selection of a Governor. The Liberals approved Tiff Macklem as BOC chief after Stephen Poloz retired and added language to the Bank's five-year inflation remit about potential to seek maximum employment if the 2% inflation target is being met.

BEYOND THE BOC

Poilievre has pledged to fire Macklem for what he's said amounts to a kind of fiscal dominance, and would likely restrict the Bank to narrow inflation targeting. Meredith said while the Bank could improve some of its work, the public hasn't singled out the central bank for the inflation squeeze.

“We don’t understand the psychology of the consumer well enough, and I just think this is an area where monetary policymakers need to do a lot more to understand things, because their traditional models just haven’t been as effective,” Meredith said.

Macklem has said the Bank is reviewing how it missed the early inflation surge as the economy emerged from Covid lockdowns. That included a pledge that rates would remain low for a while before instead turning to the most aggressive hikes in decades, one reason some borrowers are in distress.