The Price of Housing (4)
To conclude this series on housing prices, a few last comments on the high cost of real estate:
The federal government is moving to end blind bidding in real estate transactions, where potential buyers don’t know what other bidders are offering. Blind bidding makes it much more likely that the winner substantially overbids compared to others. For the first three months of 2022, the average home in Aylmer sold for $50,000 over asking price. The federal government’s power to legislate in this area is however limited, as regulating real estate transactions falls under provincial jurisdiction. Provinces have been lukewarm to the idea of ensuring bidders know what others are offering, and realtors are in general firmly opposed. Still, ending blind bidding would eliminate one of the factors driving up home prices, so from a consumer rights point of view we can only hope for more transparency.
Yet cooling off housing prices is risky for governments, as more than 10% of economic activity comes from residential real estate, more than twice that of the U.S. A hard landing in housing could easily drive the country into a recession. Plus, older generations looking to sell their homes and rent in retirement communities are set to benefit substantially from this explosion in their wealth. Addressing what has turned into a massive wealth transfer from younger to older generations will be a touchy subject, and some are bound to come out of this worse off whatever we do.
Compensation of realtors is also blamed for the cost associated with owning a home. Estimates of the average salary in this industry vary widely, from $50,000 to $125,000. It’s hard to pin down exactly, because many realtors only sell houses part time. Still, having a compensation system in place which is less dependent on the selling price would eliminate incentives for realtors to keep the housing market as hot as possible, with all of the ensuing negative consequences for accessibility to owning a home.
Although realtors are seldom rich, a compensation system could be implemented that allows them to make a reasonable living while not just focusing on the short term market. One possibility would be starting with a lump sum payment and lowering the percentage of the proceeds they keep, reducing it from the current standard of 5% to, say, 1%. The lump sum payment could be set to make their earnings roughly on par with what they made before the explosion in prices of the last couple of years, accounting for the size of the home and its location. It could also be indexed for inflation to maintain their living standards.
In the end, we’ll need to address many factors contributing to the rise in housing costs, all the while facing pushback from those who gain from the status quo. However, ensuring the health of our neighbourhoods hangs in the balance. Many vacant houses and condos used for short term rental take away from the vibrancy of a community, and younger generations shouldn’t feel dread when thinking about finding a home in which to raise a family.