The Inelasticity In The Canadian Housing Crisis

an applied intelligence | ai perspective

There is a world beyond the noise of cursory knowledge acquisition and quick summations that tell us nothing. If we can find the courage to think critically and for ourselves, we can avoid the social media world of abstract nonsense thinking that only serves the shallow end of our minds.

Here, we can find the serenity of applied intelligence | ai: a higher dimensional paradigm of critical thinking, in line with Einstein’s process of discovery. Which involves the scientific process of using thought experiments and analysis, questioning assumptions and seeking collaboration from other sources of information. The process asks more questions than there can be answers to because intelligence requires humility and empathy to see clearly and understand optimally.

The first step is to focus on discovering what we don’t know instead of what we think we know, and then applying that knowledge strategically. With criteria setting, contextualization and prioritization. This is a critical first step to learning and finding the objective truth, and not falling for nice compact narratives. Only then can we go beyond the noise and nonsense to focus on identifying the right problems to solve.

The applied intelligence (ai) process is a disciplined strategic thinking framework that maximizes the utility of an idea for practical purpose and application.

Related to the Canadian Housing Crisis (CHC,) we can apply those same ai principles to help explain what is true or not true about it.

There has been a lot of misinformation and top-down superfluous narratives going around relative to the CHC, and this has become intertwined with frustration and anger, serving to exacerbate the problem and efforts toward real effective solutions.

Therefore, ai approaches the problem bottom-up, applying intelligence to identify the root causes because if we can’t objectively define those causes, then whatever solutions put forward will fail. Because they won’t align with reality and reality always prevails.

At the core of the CHS problem are young people and families who don’t have enough income and savings to afford the housing they desire or what the meritocracy myth has led them to believe. At the same time, you have increasing rents…effectively outpacing income growth. So the boomers are the ones getting the windfalls from their real estate holdings, and of course, no one is willing to give up their equity gains and/or rental income from the properties they’ve invested in long ago.

From an applied intelligence analysis perspective, the problem lies in the extreme inelasticity or the nature of real estate itself, especially in areas or regions with strict zoning laws which is at the heart of the problem.

Real estate is generally considered inelastic, meaning that price changes have a relatively small effect on demand. This inelasticity is due to several factors:

• Necessity: Housing is a basic need, which makes demand relatively stable regardless of price fluctuations
• Limited substitutes: There are few housing alternatives, making it difficult for consumers to switch to other options when prices change
• Time constraints: The supply of housing is relatively inelastic in the short term, as new homes take time to build
• Non-price factors: Decisions to buy or sell homes are often driven by factors other than price, such as life changes or location preferences.

However, it’s important to note that elasticity in real estate is not binary but exists on a spectrum, so the degree of elasticity can vary as there is considerable heterogeneity across different areas and regions. Recent studies indicate that the housing supply has become less elastic since the 2008 financial crisis, and throwing higher interest rates at it in recent years has added to the crisis.

So, instead of listening to the abstract, distractive, and self-serving useless politicians and their surrogates who are spewing nonsense instead of knowledge. It is important to step back from the noise and anger and take a bottom-up approach to learning and understanding the reality of the inelasticity of real estate. To understand it as the mighty variable it is and how that impacts the economy. Inelasticity affects the decisioning of policymakers, people, developers and investors alike as markets respond to economic changes and policy interventions.

Land-use regulation: areas with tighter regulations have experienced larger declines in elasticity, and price history tells us that regions that saw significant price declines during the Great Recession (at the beginning of this century) tend to have lower elasticities. Possibly due to developers’ precautionary behaviour.

Income levels: the income elasticity of demand for housing is typically positive, meaning that as real incomes rise, the demand for housing grows along with it, but incomes have not been meaningfully rising, if at all, in real terms.

The dynamics of how things may have traditionally played out, for example, if you add 10% to the population in a city, maybe the house prices go up 50%, and maybe people’s salaries go up but certainly don’t go up by 50%. We often hear that an economy is growing (GDP growth), but again, the ‘windfall’ from that growth goes to the boomer homeowners and/or investors already in the market, and landlords do what landlords do: raise rents!

So the juxtaposition is that young folks who should be driving an emerging middle-class, take a big hit, more so now they become the ‘lower-middle’ class: young people who can’t get up the slippery housing ladder.

Significant home price rises create challenges for prospective buyers. Similarly, affordability challenges happen for renters, too. It’s part of the broader issues with the cost-of-living crisis gripping many Canadians. Inflation also compounds the problem because prices for a head of lettuce or just staple groceries, for example, keep going up, and the middle-class is not immune to it, but the middle-class is the heart of the economy. Young people striving to get into the middle class are stuck with high rents, eating up any chance of saving for a down payment and future affordability.

Therefore, the issues mentioned above are the challenges our society faces which are manifested in the CHC, and this is what must be honestly and properly explained to people. If we are going to make real authentic efforts to find real solutions to the problem. However, we are saddled with particular stupid politicians for whom truth doesn’t matter; and so, too, their ignorant herd, aka ‘the base.’ Where noise and nonsense reign over truth and reality, unable or unwilling to apply intelligence to anything. They prefer to be misinformed and misled by misinformation because it is easier to be angry and miserable and blame others instead of looking in the mirror. Projection of grievances has become an art form but an ugly one at that.

This leads to a divided population with divisive leaders capitalizing on anxieties and ignorance — leveraging it for political expediency and gains. Without any shame!

The housing crisis boils down to supply and demand: If you just add more people to Canada’s population but are restricted from building new properties due to municipalities not budging on zoning laws. Then housing prices and rents go up…a lot! The windfall group benefit the most. The “rich” get richer and the young and middle-class suffer.

The Federal Reserve Chairman Jerome Powell has highlighted similar concerns: “The real issue with housing is that we have had, and are on track to continue to have, not enough housing… It’s hard to find — zone lots that are in places where people want to live… Where are we going to get the supply?” Powell said.

We can’t build more if we can’t zone more, and even so, inflation plays a meaningful role in the upward trend in home prices. When inflation rises, property values often increase as well, reflecting the higher costs of materials, labour and land to build homes and renovate rental units.

We’ve seen, however, a meaningful drop in inflation but not enough, and it will still take some time to work through the system, but it’s unlikely developers are going to pass on any savings on materials to home buyers.

Canada is vast…and there lies part of the problem…lots of land with tons of diverse towns, cities, and real estate markets for future homeowners to consider. Areas like Quebec’s Mauricie, and eastern Ontario’s Cornwall offer relatively great value for money for real estate. But no one is moving there! And when immigration happens it does so in search of the desirable locations — being at or near urban centres, i.e., Toronto, where people/immigrants see the most education and economic opportunities – cultural diversity. And even if zoning laws change in those urban areas like the GTA, the demand also stays there too – changing nothing.

It is difficult, therefore, to change the minds and feelings of people and how they make decisions, so the inelasticity of it all makes it difficult to take advantage of Canada’s vast land from a fundamental real estate supply and demand perspective.

The applied intelligence | ai objective

The objective of applied intelligence is not to have all the answers but to have an unwavering commitment to reality, knowledge and critical thinking, underpinned by the objective truth. And the conscious avoidance of wilful ignorance that manifests limitations in our minds.

Therefore, ai is a disciplined, systematic and advanced analytics and intelligence-based approach to strategy development that works to augment our creativity, innovation and ingenuity. Accelerating those high-value-generating tasks that drive our human potential for greatness.

Providing honest and responsible ai-based explanations about the reality of our existence is a central mission of ai. Getting us there, however, requires honesty because we can’t effect change if we don’t become honest about what true change looks like against the realities that we must confront. So ai is a relevant, robust and focused information retrieval, that we can build reliable strategies with to be taken as empirically warrantable. To see us past the horizon boundaries of ignorance to the many possibilities that the application of intelligence fosters.