Why Home Prices Are so High and What You Can Do (real solution)
Use trade-offs to solve your housing problem (this is what I did and you should do it too)
Recently, I posted on the subreddit r/canadahousing my latest post on Medium: “Why Home Prices Are So High?”
While the post wasn’t perfect — it could have been better structured and included some additional insights — the real eye-opener for me was the sheer amount of misunderstanding surrounding the causes of rising home prices.
In the face of complexity, people often gravitate towards simple solutions: blaming the government, vilifying landlords as greedy, and proposing “creative” fixes like higher taxes on the wealthy. But these oversimplifications neglect the nuanced reality. The truth is, neither we nor the government can solve this issue in isolation.
So, what can we do?
We can start by making smarter decisions, especially when our finances are tight. This means understanding and mastering trade-offs.
How do you make trade-offs? What do you prioritize — saving money or enjoying life? And what does the future hold for home prices? Will they decrease?
Before diving in, let’s clarify the root causes of rising home prices. I’ll focus on the Canadian housing market, though the situation echoes across the U.S. and Europe as well.
Let’s dig deeper:
Construction costs
According to the RBS report, “Soaring construction costs will hamper Canada’s homebuilding ambitions,” building a home in Canada has never been more expensive.
Since early 2020, the onset of the COVID-19 pandemic has driven the price of home building up by a staggering 51%. This surge vastly outpaces the general inflation rate, as measured by the Consumer Price Index (CPI), which has risen only 13% in the same period.
Why such a dramatic increase? Key materials are at the heart of the problem. The cost of concrete has soared by 55%, and the price of structural steel, essential for frameworks, has jumped by 53%. Even lumber, although it dipped close to $525 per thousand board feet in May, almost reaching the month’s lowest point, remains a significant factor.
These inflated costs extend beyond just raw materials. Rising fuel and transportation costs have added another layer of expense, making production pricier and disrupting supply chains.
The reality is clear: soaring construction costs are a significant hurdle for Canada’s homebuilding ambitions.
Labor Wages and Shortage
In the world of home building and renovations, we’re witnessing a unique challenge.
The demand to build and transform homes is sky-high, yet we simply don’t have enough skilled workers to meet this need. This imbalance is disrupting the job market significantly.
Because there are more job openings in construction than there are people to fill them, companies are now offering higher wages to entice potential employees.
This has created a golden opportunity for workers in the construction field. Since late 2020, the number of unfilled construction jobs has soared above that of other sectors.
Consequently, wages in this industry have surged. In 2022 alone, salaries climbed by a remarkable 9.4%, nearly doubling the pace of wage growth seen in other industries.
Housing Shortage
Once aimed at 18.6 million units, the housing need by 2030 has now been adjusted to 18.2 million units.
Although this revision shows a slight decrease, it still reflects a rise from 16.5 million units in 2022. To restore the affordability levels we enjoyed back in 2004, we face a pressing demand for an additional 3.5 million housing units.
But there’s another hurdle: persistently high interest rates. These elevated rates are impacting the buying power of prospective homeowners, translating into fewer purchases.
This, in turn, stifles new construction. In essence, without affordability and purchasing power, our housing shortage will only deepen, creating a ripple effect that exacerbates the issue.
It’s vital to recognize that solving the housing crisis isn’t just about adding more units — it’s about creating a sustainable, accessible future where everyone can afford to live comfortably.
The solution
Now, let’s talk about the solution.
The solution is simple: you need to give up something in order to gain something. This concept is known as a trade-off.
We can’t have it all. If you want to look lean, you must eat less and work out more. This means giving up foods you like and possibly skipping social gatherings that include those foods.
It might feel lonely and isolating at times.
Committing to the gym requires motivation. If you go to the gym, you might miss out on watching Netflix at night. You need to understand what you’re sacrificing in your day to make room for an hour at the gym.
And remember, it’s more than just an hour — there’s the commute, the shower, the meal, and resting afterward if you exert maximum effort like I do, which may take an additional half hour.
Trade-offs mean something has to go
The same concept applies to housing. It doesn’t matter if you’re buying a home or renting; the options are the same. I live in downtown Toronto, and let me explain this throw my perspective as someone who can’t afford a two-bedroom unit downtown.
Basically, I have two options:
- I can have a bigger home in a nearby city, but that means I will have to commute for two hours or more.
- I can have a smaller unit for the same money, but live downtown and walk to the office.
Living outside the city brings obvious benefits, bigger home, more quite and food expenses are less. YOur expenses are going to go down, no doubt
On the opposite Living downtown is expensive in any city
But, the job opportunities here add another layer to the benefits.
Finding a job has always been tough, and it isn’t any easier today. If you reside downtown where many big companies are located, you might meet your next boss just by standing in line for ice cream, and yes, everyone here loves ice cream.
Most networking events happen downtown, and at the last event I attended, people even traveled from London, Ontario — a two-plus hour drive each way — just to be there.
If you and I are competing for the same role and you live in London (its a city in Canada) because it is cheaper, I have a better chance of securing the job.
I can attend more networking events and meet potential employers in the city, all while enjoying ice cream, whereas you would be stuck shouting at people in traffic on the highway.
By living downtown, you’ll also gain access to cultural and recreational activities, diverse dining options, and spontaneous social gatherings, which are more abundant in the city center.
You’ll benefit from superior healthcare and educational opportunities.
Commuting not only costs time and money for transportation and car maintenance but also affects mental health and work-life balance.
When it comes to dating, is there any better place to meet new people than downtown?
Final Thoughts
Let’s wrap this up. All of the above points are, of course, dependent on your situation and personal preference.
My point here is to explain that everything is expensive, and there’s little you and I can do to change that, though perhaps the government might in the long run.
Yet, we have a problem that needs solving now, not ten years into the future. To make it simple, I’ve broken this down into two choices. Now it’s your turn to put in the work. Take the time to think and decide what is worth it for you.
Waiting for some miracle solution or blaming others doesn’t solve the problem. Taking a rational approach, like the one I’ve laid out here, is much better.
Nikita
