Canada is under a state of toxicity. It’s unfashionable to say so in centrist circles, but it’s true. The country faces escalating radicalism, toxic polarisation, and low trust. Wealth disparity is increasing. Its federal system could be better, notably in the relationship between Alberta and the national government. Monopolies and oligopolies go amok, exploiting customers.
There are numerous other issues. However, the convergence of a few big obstacles screams House of Cards collapsing! The country’s housing crisis, consumer debt, and high – and potentially rising – interest rates are among them.
They present a picture of hardworking individuals living lives they can’t afford daily. This dreadful scenario occurs no matter how hard people work or how strictly they adhere to the game’s rules – laws they were assured were fair and just.
The Exorbitant Cost of Housing
In Canada, housing is completely expensive. The average home costs around CAD$700,000, while a one-bedroom rental costs close to $1,900 per month.
According to the Canadian Centre for Policy Alternatives, the hourly wage required to rent a one-bedroom flat exceeds the provincial minimum wage. The analysis discovered only three urban regions in Quebec where the minimum wage was more than the rent for a one-bedroom flat.
Housing starts — breaking ground on new buildings — are falling behind as the country booms. They were down 10% in July after a significant increase in June.
No Affordable Homes in Canada
According to the CMHC, the country needs 5.8 million homes by 2030 to achieve affordability, but construction is on track to reach only 2.8 million, less than half of what is required. Building costs, government policies, and labor shortages impede construction attempts.
Even when units are produced, there are far too few purpose-built rentals and non-market options to assist people needing affordable housing.
Those who are lucky enough to own a home face their own set of challenges. Mortgage payments are growing due to high-interest rates, which may climb again in the autumn. Now, 40% of mortgage holders borrow to cover day-to-day expenditures, and nearly 20% need to catch up on their payments.
According to Robert McLister of the Globe and Mail, that is based on data from December, and things have most likely worsened since then. Despite new measures from the Financial Consumer Agency of Canada aimed at keeping people in their houses and pricey financial gimmicks such as extra-long mortgage amortization periods, the prospect of default looms.
However, something has to give at this rate — especially since debtors will face renewal periods and high-interest rates in the coming months and years.
Canadians Floundering in Debt
Households are also heavily in debt. The CMHC cautioned in May that Canada’s household debt, which leads the G7 and will reach 107 percent of GDP in 2021, “makes the economy vulnerable to any global economic crisis.” It also puts it vulnerable to an internal crisis of its own making.
Mortgages account for most household debt, although auto loans and credit cards also contribute. Consumer debt in Canada reached a new high of $2.32 trillion in the spring. People need to catch up on their payments. Simultaneously, inflation and rising prices remain.
The Bank of Canada raised interest rates by 25 basis points to 5% in July, largely due to mortgage expenses, which were the key inflation drivers in June and July. As it struggles to achieve its 2% inflation objective, the bank may raise rates again in September.
In the near term, the bank and Canadians are locked in a vicious mortgage-inflation circle in which mortgage rates fuel inflation, and the bank boosts interest rates to combat inflation, which raises mortgage costs. Even if the long-term goal is to reduce inflation by limiting money supply and expenditure, the short-term spiral is hell.
It will take a long time to reach the 2% inflation target. Meanwhile, Canadians are in a precarious position with high mortgage rates, a lack of home supply, high prices, and a massive consumer debt burden.
As interest rates climb, so does the likelihood and possible number of mortgage, auto loan, and credit card defaults. The chance of job loss is similar.
The Austerity Dance of Justin Trudeau
The Bank of Canada is not mandated nor disposed to care about persons in financial difficulty in the short term. Its long-term goal is to keep inflation at a sustainable level. On the other hand, national, provincial, and local governments are supposed to care about those in need at all times. And yet, if there is a plan in place to protect Canada’s house of cards from collapsing or to make people whole, if it does, it is still being determined what that plan is.
Imperfect and insufficient social welfare programs, such as dental care and prescription drug coverage, are being implemented, but they are insufficient to address Canada’s serious financial crisis.
The Liberal government of Justin Trudeau may also be considering budget cuts. Ministers have been directed to cut $15 billion in spending by October. This could indicate a government less willing to spend significantly in the coming months and years, even as the Liberals sag in the polls and face an election in the autumn of 2025 or sooner.
Governments must be prepared to support individuals experiencing economic difficulty and will be crushed if the country’s house of cards collapses.
These folks work and strive for the things they’ve been instructed to strive for: a house, a car, an education, and a few respectable consumer goods. They are now abandoned due to a confluence of economic systems, pandemic repercussions, inefficient government policies, and unpredictable global geopolitical processes.
These employees, who ensure the buses run on time and the grocery shelves are filled, make up 40% of the country’s wages yet own only 2.7 percent of its net worth. In contrast, the wealthiest 20% of income controls about 70% of the total.
This wealth disparity is terrible at any time, but it’s especially disgusting in the aftermath of the last few years when the powers that be paid so much lip service to workers — as “frontline” and “essential.” They must not be abandoned in the wilderness while the country fights to resolve its economic problems.
This article by By David Moscrop was first published in Jacobin.com
