Homeownership may soon mean never having to say you’re mortgage-free, according to former Bank of Canada governor Stephen Poloz.
Lacing his analysis of the Canadian economy and the future of homeownership with humour, realism and a healthy skepticism of politicians, global organizations like the G7 and G20, and economists (of which he’s one), Poloz addressed members of the Greater Ottawa Home Builders’ Association at a breakfast meeting Wednesday.
His dissection of Canada’s current turbulent financial state opened with the opinion that economists’ predictions are guaranteed to be unreliable because the models on which they are based are incapable of dealing with the complexities of our times. Most economists simply won’t admit “how much uncertainty there really is about our business outlook.”
Swinging into his own bleak prognostication, he said, “My advice is for you to prepare for even more inflation, prepare for a significant recession, prepare for the two of them to happen together, which we would affectionately call stagflation, and I think you even need to be prepared for a deflationary scenario simply because the situation is so confusing that major mistakes could be made in the next year or two.”
“Bear in mind that the only difference between me and any other economist you could have invited this morning is that up front I’m admitting I actually don’t know what I’m talking about,” he added, although it was clear he believed he knew precisely what he was talking about, even if the audience, including homebuilders struggling with a recalcitrant market for the past year, wanted to hear something more uplifting.
Drawing in part from his new, Donner Prize-nominated book The Next Age of Uncertainty, Poloz gave his analysis of how we wound up in our recent inflationary spiral. He pointed to everything from the tardy response of central banks when inflation soared to, more significantly, global events — specifically the disruption of global supply chains following Russia’s invasion of Ukraine.
Looking ahead, he said increasingly strong “tectonic forces” — growing income inequality, technological change, an aging population, climate change and rising debt — mean “we face a rising tide of volatility and risk over the coming period. That’s why I think, ‘You ain’t seen nothin’ yet.’”
Given political polarization and other factors, he said policymakers and governments will probably add to the volatility.
Implications for housing
What does all this mean for housing?
Noting there is a entire chapter devoted to housing in his book, Poloz said we could have multiple recessions in a 10-year period punctuated by booms, more job loss (although for shorter periods), and that inflation and interest rates will be much more variable than in the past.
Among other outcomes: Housing accessibility will continue to worsen (he views the belief that the government can solve the problem by building more homes as “baloney”).
That means the current homeownership model is “ripe for disruption.”
With a growing number of would-be buyers unable to afford a home, he said shared equity mortgages — in which an investor tops up what the individual buyer can afford to pay, thereby meeting the minimum down payment required — could help new buyers get into the market.
Rising home co-ownership, either with multiple residents or even residents and investors both paying for a stake in the property, is another likelihood.
And why not a 50-year amortization or even one you never pay off? asks Poloz. “There’s nothing wrong with that. After all, is there really a difference between paying rent to a landlord for your entire life or paying interest to a mortgage lender for your entire life?” Only pride of ownership, he says, and regulatory bodies’ customary aversion to debt.
Poloz concluded on an upbeat, reminding his audience that volatility always has both negative and positive sides, with the positive outweighing the negative over time. “After all, that’s how we got here.”
