How to deal with the high cost of housing and energy - CanadianInvestor CanadiansInvest
Housing and energy markets both face inflationary pressures but are being dealt with very differently. Neither is working
The same logic applies when dealing with inflation. Prices rise when there is excessive demand, insufficient supply or both. Capping prices increases demand since the good is now cheaper and reduces supply as it is now less profitable to produce. Often the blame is laid on banks and mortgage lenders. If only they would require smaller down payments and offer housing loans to those with lower incomes, more Canadians could get homes.
Canada has avoided this trap in the past and continues to maintain lending standards, but we still need to deal with the high cost of housing. Since we want all Canadians to have homes, we cannot reduce demand. But we can and should lower housing prices by increasing the number and types of homes built using zoning changes and other policy means.
The reflex reaction of political leaders in Britain, France and elsewhere is to cap energy prices. But far from solving the problem, this will only make it worse. Lower prices will encourage people and businesses to use it more freely. Since the problem arises because there is not enough energy to go around, rationing may be required – a solution neither politicians nor the public wants.