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Canada’s red-hot housing market is a recipe for disaster

Canada has seen dramatic inflation of house prices in the past decade, one of the highest in G20 nations

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Canadas red hot housing market is a recipe for disaster

Canada has seen dramatic inflation of house prices in the past decade, one of the highest in G20 nations (Figure 1). Amongst other factors such as foreign investment and economic growth, experts accredit this rise to increased mortgage accessibility. During the 2008 financial crisis, Canada remained largely immune to the global crash of the housing market due to government-mediated reduction in interest rates and easing criteria for mortgages. This encouraged house buying that not only stabilized the market but also inflated prices. 

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Figure 1
Percentage change in house prices of G20 countries between 2010 and 2020, adjusted for inflation. Data obtained from OECD.Percent change calculated as (new real price – old real price) / old real price. G20 members Argentina and Saudi Arabia omitted due to insufficient data. BRA: Brazil; RUS: Russia; ITA: Italy; ZAF: South Africa; KOR: South Korea; IDN: Indonesia; EU: European Union; FRA: France; TUR: Turkey; JPN: Japan; UK: United Kingdom; AUS: Australia; MEX: Mexico; CHN: China; USA: United States of America; DEU: Germany; CAN: Canada; IND: India.

Since then, efforts have been made by the Canadian government to prevent housing bubbles, including after the 2016-17 market overheating event, with some success. Subsequently, rising interest rates and stiffening mortgage criteria resulted in a partial cooldown of the market. However, the Covid-19 pandemic sparked anxieties regarding Canada’s economic future. Anxieties further heightened following a slight decline in house prices at the onset of the pandemic in early 2020. As a result, Bank of Canada once again slashed the interest prices driving eager investors and buyers into the market, thereby reversing the short-lived downwards trend.

The housing market continued to overheat beyond expectations throughout 2020 and early 2021. Today the average house price in Canada has soared to $678,091, a 25% increase from last year. A recent analysis of housing affordability by RBC Economics showed that housing is more unaffordable than ever in major metropolitan areas in Ontario, British Columbia, and Quebec. Such overheating has not been observed since the early 1980s, and has led many experts to believe that the housing bubble is on the verge of collapse. But the ever-growing demand for real estate shows that many still have unshaken faith in the housing markets of major Canadian cities.

Thus far, the Canadian government and Bank of Canada have expressed little interest in tackling the housing crisis, at least until the economy can recover from the effects of the pandemic. In a recent press conference Bank of Canada governor Tiff Macklem stated, “right now the economy is weak…I think we need the support – we need the growth we can get.” While investors rejoice, this trend is troubling for low-to-middle income Canadians and new buyers, who wonder if home ownership is now out of their reach.

In the fourth quarter of 2020, 50.3% of an average Canadian household income was required to cover costs of home ownership. These statistics were even higher in major cities like Vancouver and Toronto, where households spent 78.8% and 67.6% of their income, respectively, just to own a house. Such effects are no longer isolated to major cities as housing unaffordability drives buyers further from city centers, spilling the housing crisis into neighboring areas and smaller towns. 

Even more worrying is the immense mounting household debt as a result of increased housing prices and lowered interest rates. Between third and fourth quarter of 2020 alone, mortgage debt increased by $6.6 billion, bringing it to a total of $34.9 billion. Currently, the average household debt exceeds average income. While experienced and inexperienced investors alike, rush to cash in on the hot market, growing debt and subsequent imbalances in the housing market make it vulnerable to economic stress.

The threat of this imbalance worries even the Bank of Canada, as Macklem recently expressed concern; “what gets us worried is when you start to see extrapolative expectations, or people starting to speculate on this, and houses become assets as opposed to something we live in”. Unsurprisingly, at most risk are lower income households, for whom mortgage debt can be crushing. A recent study published by the International Journal for Equity in Health revealed that in Canada, high mortgage debt is strongly associated with high prevalence of food insecurity. Furthermore, this effect was found to be even more pronounced in lower-income homeowners.

Some experts believe strong federal intervention can make the housing market more affordable. The Liberal government has discussed plans for constructing affordable housing, as well as further taxing foreign investors, though little action has been taken so far. Some believe more needs to be done if Canada’s unruly housing market is to be controlled. Suggestions include additional aid to first-time home buyers, taxing investors, especially those hoarding vacant homes, and diversifying the economy. Nevertheless, the focus of the federal government at the moment seems to be limited to the pandemic.

The housing market in Canada has historically been treated as a buffer to mediate periods of economic stress. This method has seen some success in the past and currently seems to be holding together a fragile economy destabilized by Covid-19. However, this approach is ultimately short-sighted. Rising house prices and household debt make Canadians and their economy increasingly sensitive to economic shock. Relying on the housing market to soften the blow of economic uncertainty is not a solution, rather it is delaying the inevitable. Moreover, this tactic benefits the wealthy, while furthering the plight of vulnerable groups. Canada must work towards building a robust economy more adept at handling unforeseen stresses without targeting affordable housing.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Graduate student interested in world politics, social issues, science and the environment.

Economics

African states refuse to back renewal of sanctions on Democratic Republic of Congo

African states refuse to back renewal of sanctions on Democratic Republic of Congo (DRC).

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African states refuse to back renewal of sanctions on Democratic Republic of Congo

Kenya, Gabon and Ghana are amongst the African states refuse to back renewal of sanctions as they voted against the UN Security Council renewing Western imposed sanctions regime on the government of the Democratic Republic of Congo on 30th June 2022. As well as these three countries, China and Russia also abstained from the vote.

The sanctions included an arms embargo, a travel ban and asset freezes, as well as the state being banned from providing weapons to non-government entities operating in the democratic Republic of Congo. One other facet of the resolution is a notification requirement which some representatives claimed served as a hindrance to the DRC’s ability to limit armed groups and defend their country. It is worth noting that the DRC has children as young as 6 working in mines for large corporations.

Gabon’s Edwige Koumby Missambo stated that the requirement impeded the Democratic Republic of Congo’s power to effectively and immediately counter the activities of anti-government armed groups, and that it should be lifted in definitive terms so the Congolese Armed Forces could defend their country. She said that the international community should respect the sovereignty of the country and put the interest of civilians first and foremost. Missambo said that, “Halting operational capacities in the area of security of a state that is led by democratically elected authorities is tantamount to giving license to armed groups whose agenda is to foment terror and chaos among civilians.”

Gideon Kinuthia Ndung’u of the Kenyan delegation, while praising the steps of the new resolution to lift the notification requirement on non-lethal military equipment used for humanitarian and training purposes, stated that it did not properly address the appeal made by the Democratic Republic of the Congo to fully lift the notification requirement. He said that there was a failure to acknowledge the recent steps that the government of the DRC had taken for better security and control of its weapons and ammunition management system.

Nicolas de Riviere of the French delegation which was the main drafter of the resolution voiced his regret that the resolution did not receive unanimous support as some African states refuse to back renewal of sanctions.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Africa taken Hostage on Ukraine – Russia Conflict 

Africa taken Hostage on Ukraine-Russia Conflict, which can be seen as in March this year, 26 African states failed to votes in agreement with the UN resolution condemning Russia’s invasion of Ukraine.

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Africa taken Hostage on Ukraine – Russia Conflict

In March of this year, twenty-six African states failed to vote in agreement with the UN resolution condemning Russia’s invasion of Ukraine. Seventeen African states abstained from the vote, eight were not present, and Eitrea remained the only African nation to vote against it. Out of the 54 nations that make up Africa, 28 voted in favour of U.N resolution.  In contrast of Africa’s 51%, 81.29% non-African countries represented in the U.N voted in favour of the resolution – and what’s more, only four heads of African states showed up, with the rest sending representatives.

But why is there such a marked divide on the question of Russia-Ukraine, compared to the rest of the world? Why is Africa taken Hostage on Ukraine – Russia Conflict? And what did they have to say about it? 

Memories of Apartheid

For some African nations, their reluctance to take sides in this world-engulfing conflict can be traced back to recent history. When Europe was backing the apartheid government of South Africa, it was Russia, then the Soviet Union – ever the opportunist superpower searching for political and financial hegemony -which provided military training, ammunition and morale to the South African movement fighting to take back their country from the racially discriminatory system of Apartheid headed by the government in Pretoria. 

As veteran South African freedom fighter Obbey Mabena said, speaking to the CNN’s David Mckenzie on the struggle for apartheid, “We had to decide if we wanted to continue living on our knees, or to die fighting.  We found that there is a country like the Soviet bloc that is ready to give us everything that we need. To give us food, uniforms, to give us training, weapons.”

Mackenzie asks, “So these were Russian soldiers treating you with respect?”

“With the greatest of respect, they came there, they were friends with us. For the first time we came across white people who treated us as equal beings …Russia is our friend. Our friend’s enemy is our enemy.”

The response by Ukraine’s most powerful backer, the United States, did not seem to be pleased with the outcome of the African vote on the UN resolution in March, condemning Vladimir Putin’s invasion of Ukraine. As US ambassador to the African Union Jessica Lapenn said  that, “we look for a strong African response to Russian aggression and welcome the opportunity to partner with Senegal and other Africans on both the response to Russia’s aggression but also to address the implications of it globally”.

Global Food Crisis 

Indeed, that may be the case. In a recent address to the African Union, mirroring earlier attempts to garner support from the continent for Ukraine’s plight, Ukrainian President Volodimir Zelensky claimed that Africa  had been taken hostage by Russia citing the looming food crisis as shortages of grain and fertiliser to the continent come as a result of Russia’s naval blockade of Ukraine’s Black Sea port.

Africa taken Hostage on Ukraine-Russia Conflict-  image of Odessa harbour, Ukraine
Africa taken Hostage on Ukraine-Russia Conflict – Odessa harbour, Ukraine

Before the war began, Russia and Ukraine were Africa’s biggest exporters of wheat, accounting for about 40% of its total exports – currently twenty million tonnes of grain have been left stranded at the Black Sea port of Odessa due to Russia’s naval blockade, ushering in a new crisis for the continent. President Macky Sall, Head of the African Union met with Russian President Vladimir Putin earlier this month to highlight the detrimental effects of the blockade on Africa’s food supply.

While possible, it is more difficult to grow wheat in Africa than other countries due to the climate, and the lack of equipment available for timely harvesting, hence, much of it is imported.

The Red Cross reports that in Africa, “Over 100 million people are struggling without the food that they need.” One of the reasons cited for this is the global rise in prices due to the conflict in Ukraine. 

Divided Loyalties 

But that’s not the only way – nor the least detrimental – that the conflict between Russia and Ukraine is hurting Africa. Sanctions aimed at Russia by the West have particularly hurt Africa’s economy, from Russia being one of the main providers of Africa’s defence and military equipment, to Western sanctions halting investment into the Russian economy and impeding billion dollar nuclear energy deals that help provide electricity to many countries in the north of the continent.

That effect has petered out to impact the looming food crisis even further, as the Russian Swift banking system has been suspended by Western states, making it impossible for Africa to pay for its food imports like grain and fertiliser from Russia. Such has been the effect that some have considered diversifying the region’s wheat sources, the first time in years.

China, an ally to Russia in the war, is now Africa’s biggest trade partner.  Speaking to Forbes, Daan Roggeveen,  who writes about urbanisation in China and Africa, said, “Right now you could say that any big project in African cities that is higher than three floors or roads that are longer than three kilometres are most likely being built and engineered by the Chinese. It is ubiquitous.”

And of course, the West provides $134 billion of aid each year.

The foreign minister of South Africa, Naledi Pandor, the UN resolution vote against Russian activity in Ukraine states that, “The response we got was, take it or leave it. And in the face of that arrogance, we thought the only decision we could make was abstain. Perhaps our colleagues in the West don’t understand the fact that we are very weary of aligning to one position or another.”

For a continent in which its loyalties are immensely divided, between its trade partners, food exporters and aid providers, that indeed may be the case.

So perhaps Zelensky’s claim that it is only Russia that has taken Africa hostage- tha     needs to be re-examined. Rather, it seems Africa is being held hostage by the world, as each brings up past favours and debts to coerce the unaligned continent into fighting for their side, in a war that will reap no benefits for the continent itself. And perhaps, like in the past, it will be left struggling in the aftermath without support or compensation.


All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Daily Brief

Argentina’s Economy Minister Quits

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Martin Guzman
  • Argentina’s economy minister, Martin Guzmán, resigned from his post after a week of economic crisis in a 7 page letter published on Twitter.
  • Guzmán initiated office in 2019 taking lead in restructuring Argentina’s debt.
  • In addition to the global rise of food and energy costs, Argentina is battling with 60% inflation.
  • In his letter of resignation, Guzmán calls for a “political agreement within the governing coalition.”
  • Many speculate his statement was in reference to his deputy – Cristina Fernández de Kirchner – whom he was openly at odds with when approaching the country’s economic problems.
  • Prior to the resignation, Fernández took to criticizing economic policy starting with Guzmán’s inflation strategy.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Critics claim, G7 failed to combat food crisis

G7 failed to combat the food crisis. The summit which comprised diplomats from Canada, France, Germany, Italy, Japan, the UK, and the US, discussed several issues, with the Ukrainian War at the top of their agenda.

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2022 - G7 failed to combat food crisis

The G7 gathered last week to discuss how to tackle the global food crisis that has been exemplified through the Russian and Ukrainian War, however critics claim that the G7 failed to combat food crisis issues. The summit which comprised diplomats from Canada, France, Germany, Italy, Japan, the UK, and the US, discussed several issues, with the Ukrainian War at the top of their agenda.

On 28th June, the G7 promised to spend $4.5 billion this year to address the global hunger crisis. Amid this pledge, the G7 has urgently requested for the Russian Government to end the blockade of Ukrainian Sea ports. The blockade has led to a halt of Ukraine’s exports including essential goods such as cooking oil and in particular, cereals such as maize and wheat. As of April 2022 the price of oils has increased by 137.5% compared to the averages of  2014-2016, whilst the price of cereals has increased by 69.5% compared to the 2014-2016 averages. In a statement on the support for Ukraine, the G7 stated, “We urgently call on Russia to cease, without condition, its attacks on agricultural and transport infrastructure and enable free passage of agricultural shipping from Ukrainian ports in the Black Sea.”

The $4.5 billion pledge is to help those who are the most vulnerable from hunger and malnutrition, but it will not be enough to help protect all those suffering from the global food crisis. 

Several activists have called out the G7 for falling short on what is needed to tackle the crisis. Max Lawson, the Head of Inequality Policy at Oxfam stated, “The G7 have simply failed to take the action that is needed”. Additionally, Lawson expressed that, “The $4.5 billion announced is a fraction of what is needed. The G7 could have done so much more here in Germany to end the food crisis and prevent hunger and starvation worldwide”. 

Furthermore, the World Food Programme (WFP) urged the G7 to, “act now or record hunger will continue to rise and millions will face starvation”. The WFP’s plan requires $22.2 billion from the G7 to help those who are suffering from the crisis, however, the G7 pledge is far from it, $17.7 billion less than what is needed. This comes after the WFP suspended food assistance to South Sudan due to a lack of funding and priorities elsewhere. South Sudan is one of the worst affected countries by the global food crisis as internal conflict, the effects of the COVID-19 pandemic and climate change has all led to inflated food prices within the country. 

South Sudan is not alone, extreme weather and the impact of the COVID-19 pandemic previously inflated global prices, the Ukrainian War only exemplified it. Climate change has led to the increase in frequency and intensity of extreme weather events such as flooding, droughts and megafires. The recent earthquake in Afghanistan and flooding in Bangladesh

are just some examples as to how climate change has increased the likelihood of extreme weather to occur. Extreme weather has damaged crops in several countries, thus, not only damaging the supplies of food for the countries themselves but also for the rest of the world. Alongside extreme weather, the COVID-19 pandemic has severely inflated global food prices. The pandemic caused supply chain disruptions which increased food prices. However, the downside of supply chain disruptions is panic buying and hoarding, which increased the demand leading to further inflated prices. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

World Food Programme suspends food assistance to 1.7 million in South Sudan

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south sudan flag

Conflict combined with poor weather in South Sudan has led to 7.74 million people facing a hunger crisis.

Despite the country facing food insecurity, the World Food Programme (WFP) has suspended food assistance to 1.7 million people in South Sudan. They require $426 million to be able to feed 6 million people in South Sudan throughout 2022. At the start of 2022, the WFP projected that it would be able to assist 6.2 million people in the country but has failed at achieving this target. This suspension of funding comes at one of the worst times for South Sudan, a newly independent country which not only has been facing internal conflicts for many years but also faced three years of flooding, a localised drought and like the rest of the world, the impact of the COVID-19 pandemic and soaring global food prices. Therefore, not only is food not available in the country, but it also comes at a much higher price making the country food insecure. This cut also comes at a time where South Sudan is facing lean season, which is the season between planting crops and harvesting them. During this season, food is already scarce.

The suspension of aid by the WFP is due to a funding shortage of $426 million. It is important to note that the primary source of WFP’s funding comes from governments around the world. This funding is entirely voluntary, meaning that the countries have the freedom to cut anytime they wish.

The Norwegian Refugee Council (NRC), a human rights group recently ruled that the world’s 10 most neglected crises are all in Africa with South Sudan being the 4th most neglected crisis. The Secretary General of the NRC, Jan Egeland said “The war in Ukraine has demonstrated the immense gap between what is possible when the international community rallies behind a crisis, and the daily reality for millions of people suffering in silence within these crises on the African continent that the world has chosen to ignore,”

The hunger crisis the people of South Sudan face is not new, rather food insecurity has been a challenge for years now. In 2017, South Sudan faced a famine and now another famine is predicted by the WFP this year if funding is not organised. Furthermore, South Sudan has recently been facing unrest which has only intensified the issue, leading to brutal violence upon civilians, including targeted attacks, gender-based violence, kidnappings and murders. This has led to nearly 2.3 million people fleeing to neighbouring countries whilst 1.87 million people remain internally displaced. Displacement continues to exacerbate the hunger crisis in South Sudan as many rely on food from their own land, something which is not possible during displacement. Internal conflict has thus meant that people have had to rely heavily on food assistance.

There have been many attempts for a peace agreement in the country, but so far, all these attempts have failed.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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Economics

Is Rwanda a dumping ground for the UK?

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rwanda kigali

The UK is planning to send its illegal immigrants to Rwanda. In return, the country is paying the Government £120 million in the form of an economic development program. This controversial decision was made to deter any future illegal immigrants from entering the country via dangerous routes.

The East African country suffered genocide and civil war in 1994 and has been trying to recover since. The effort made by the country, however, was halted due to the pandemic.

Only recently, authorities in Rwanda prosecuted opposition members, commentators, and journalists for voicing their opinion. Anyone who doesn’t agree with the government is thrown in jail and threatened, and people have even mysteriously disappeared.

However President Kagame defended his country’s human rights track record: “As far as values are concerned, we don’t need any lessons from BBC or from anyone” adding that no one has better values than Rwanda. He went on to say: “There is nobody in Rwanda who is in prison that should not be there, because we have a justice system that is actually functional, and fair.” 

Rwanda is also one of the smallest countries in the world and the rate of population growth is already more than the country can handle. With 10,000 square miles and a population density of more than 1,000 per square mile, starvation and malnutrition is prevalent because the country struggles to feed its growing population. Accusations abound that the government has burned farmers’ fields that could not produce an adequate amount of crops. The country is obsessed with modernising whilst ignoring its internal issues.

Poverty is a huge concern. Its true extent is unknown as the government has been accused of misinterpreting the actual data. Similarly, the education level of children is low with a high drop-out rate.

Rwanda is struggling with its own domestic problems, and now the UK is seen to be turning the country into a dumping ground for illegal immigrants which could possibly set the economy back. The plan has been accused of being unethical and cruel.

The UN Special Rapporteur on Trafficking in Persons, Siobhán Mullally talked about the dangers of increased human trafficking when large numbers of people are transferred from one country to another and how easy it is for traffickers to pick vulnerable victims in this situation when they have no control over where they are going. “People seeking international protection, fleeing conflict, and persecution, have the right to seek and enjoy asylum – a fundamental tenet of international human rights and refugee law,” she said. Even Prince Charles, heir to the British throne criticised the decision made by the government calling it “appalling”.

There have also been accusations that the UK is not playing its part in its handling of its refugee problem. Chief Executive of Refugee Action, Tim Naor Hilton said that the government was “offshoring its responsibilities onto Europe’s former colonies instead of doing our fair share to help some of the most vulnerable people on the planet”.

Meanwhile, UK-based non-profits run by Congolese nationals in the Diaspora sent a letter to British Prime Minister Boris Johnson, in which they expressed their fear that the money sent by the UK government could be used to propagate the war in the eastern Democratic Republic of Congo instead of improving Rwanda.

According to Phil Clark, Professor of International Politics at SOAS University of London, the government of Rwanda could use this deal as leverage. So whenever the government is accused of human rights violations they can threaten to pull out of the deal. Already once, the country has “threatened to pull its peacekeepers out of Darfur when foreign donors were threatening to pull foreign aid out of Rwanda.”

Whilst the focus is on Rwanda violating human rights, the country is known however, for looking after its refugees well enough. The problem is that the UK is using the country to shed itself of its own responsibility while Rwanda is not equipped to deal with a large number of refugees.

Numerous British celebrities, such as, Olivia Coleman, David Harewood, Robert Rinder, Emma Thompson, Sophie Okonedo, Lemn Sissay and Benjamin Zephaniah have taken a definitive stance with an open letter sent from Together with Refugees, which states: “The prospect of being transported to Rwanda, and African countries like it, is enough to put off even the most desperate people fleeing war and persecution from coming to the UK.

“This tells us much about the British government’s colonial and insulting view of Africa, as a place that is no better than a dumping ground for things – in this case people – it considers a problem.” 

The irony of the situation cannot be lost to global observers as one commentator wrote: “Only a couple of hundred years ago, the situation was reversed. Ships full of Africans were being forcefully deported from their homeland to Britain, Europe, and the Americas. Now, the descendants of slave traders are paying the descendants of their would-be slaves to take a burden off their hands.”

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

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