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Matt Warren: The policy misstep that caused American and Canadian house prices to diverge


House pricing in Canada is both the engine of our GDP and a ball and chain on our global competitiveness. As house prices increase it requires higher wages to pay ever-larger mortgages or rent. High wages make businesses more expensive to operate which ultimately flows through to the price of all the goods and services we enjoy.  Every dollar we spend on rent is a dollar that doesn’t get spent on productive things—going to the movies, sporting events, concerts, or eating at restaurants.

There are many moving parts to the housing economy, and certainly there is no single lever any government can pull to fix the outrageous price of Canadian houses. But there is one that hasn’t been talked about much recently.

We can look south of the border for an interesting comparison.

The U.S. housing market shares a lot in common with Canada. The building codes are similar, we use the same materials, and build similar-sized houses. Zoning rules and suburban expansion have followed the same general trends. There are some foreign buyers in both countries, though the U.S. attracts more foreigners than Canada does. And yet curiously, the average price of a home in America is half the price of a Canadian home.“As of February, the Canadian Real Estate Association reported that the average price of a Canadian home stood at 816,720 Canadian dollars, or $646,809 — over nine times the average household income. In contrast, the US has seen slightly lower price increases, with home prices rising 27% over the same period, Fortune previously reported. In America, the median home price last month stood at $375,000, an all-time high and a 15% rise from a year prior.”

There are some construction cost differences, such as more undocumented laborers in the U.S. and slab-on-grade versus basement foundations. However, these costs alone cannot account for the $300,000 difference in the average house price. 

One meaningful policy difference? Canada has the primary residence exemption, which allows anyone who has lived in their home for at least one year to capture the profit of selling the home entirely tax-free.Income Tax Folio S1-F3-C2, Principal Residence This is incredibly generous. Other tax-sheltered assets in Canada have stricter conditions. TFSA and RRSP programs have annual contribution caps; they don’t allow leveraged investing. This makes housing the most incentivized place to put our money.

This plays out on nearly every house sale in Canada. The seller of a house gets a windfall of tax-free profits and that money has an obvious place to go—into the next house. They can take that to the bank and leverage it up 5X, 10X, or even 20X again. With this extra-budgetary flexibility provided by the bank, they can buy their next house with less price sensitivity, so bidding $100,000 over asking might not put the loan at risk. And just like that house prices in the neighborhood jump 10 percent.

Further, the person who just sold for $100,000 over asking may have netted it tax free and could leverage up 20x into their next property. This tax-free money cascades and multiplies through the system. The proceeds from a house sale tend to stay in the housing market.

It’s worth calling out here that in many cities in Canada, someone who has lived in their house for 10-20 years could net more than $1M in tax-free profit. 

The U.S. has a similar but slightly different policy. Firstly, Americans with a home mortgage get to write off their interest expense. This is a huge win for new homeowners who are paying a lot of interest in the first few years of paying the mortgage. This annual benefit puts money in people’s pockets at a time when they are likely to spend it back into the economy. Secondly, the capital gains exemption is capped at $250k, or $500k for a couple.Topic No. 701 Sale of Your Home Thirdly, it requires living in the house for two years.

These slight differences between the Canadian and American policies have resulted in different buying behaviours. 

The interest rate write-off encourages more frequent moving—and Americans do move about twice as many times in their lifetime than Canadians on average.How Many Times Does The Average Person Move?

The American capital gains limits can take just enough capital out of the system that it reduces the house price growth relative to Canadian houses. Not a huge amount, but compounded over the last 50 years it has diverged our housing affordability. However, It is not the case that we should copy the American model. Housing is not particularly affordable there. It’s just a bit better than in Canada. 

This suggests that government incentives intended to make it easier to buy a house have instead turned housing into an asset class that sucks up a significantly overweight amount of our money. That money inflates the prices.

Tax policy is not the be-all-end-all of housing policies that will fix Canada’s house prices. But, it is one of the few things that the federal government can directly influence.

Fundamentally, the government needs to re-align tax incentives such that investing in businesses, and R&D and making things is where we want to put our biggest allocations. Productive assets should make up more of what Canadians invest in. Overextending ourselves on a home purchase should feel like a mistake. When the most incentivized asset class is housing we shouldn’t be surprised to see prices continue to climb.

As much as housing is a supply and demand problem, prices are ultimately set by how much people are willing to spend. With a long history of price increases, insured loans with low rates and lots of leverage easily available, and tax-free gains when sold, the logical thing for many people is to spend as much as they can possibly squeeze out of the bank. This leads to pricing at the limit of what people can afford.

It would be remiss to ignore the other major contributors to house prices that affect both sides of the border. A bevy of municipal rules for zoning, building codes, permitting, road construction, setbacks, lot sizes, and density limits make it hard to build things. Every objection to a new tower or infill or rental units or not enough affordable housing eats away at anyone’s appetite to propose a new building. Construction has also been left behind in productivity improvements over the last 50 years. Houses are still often built on-site by hand with hammers and nails. Canada also faces a labour shortage in the trades and many construction workers are already booked into next year. There are a lot of headwinds.

However, any changes that work to bring down prices, would also be lowering the asset values of the existing homes. It will be a battle to go up against homeowners defending the value of their homes, and cities that protect high property values for their tax revenue.

Will we have the conviction to actually see through a decline in house prices over the coming decade? It remains to be seen, but if it happens Canadians may finally be unburdened by the high cost of housing, and the country will be one step closer to improving its global competitiveness.

Harry Rakowski: How to fix Canada’s broken health care


The three determinants of optimal health care are access, quality, and affordability. Prior to the pandemic, our resources in Canada were strained as we struggled to meet the demands of an aging population and lacked the infrastructure and resources to provide an integrated, efficient care model. We now look back to 2019 and for all the challenges health care faced, those were the good times compared to the further strains on health care as a result of the COVID-19 pandemic. 

Post-pandemic wait times for non-emergent care, surgical procedures, and specialist visits are even more excessively long and unreasonable. Emergency rooms remain overcrowded with hallway medicine due to a lack of beds. Health-care workers increasingly feel the effects of burnout, with less work satisfaction and never-ending demands on their time. The bureaucratic and administrative process has never been more of a challenge and a time-wasting frustration. Current plans to resolve these issues are yet again a bandaid applied to a deep wound. 

We need fewer administrative staff 

Canada historically has had an inadequate number of hospital and ICU beds and low numbers of physicians and nurses. While physician numbers may superficially seem reasonable, many physicians work fewer hours than ever because of family obligations or a greater focus on quality of life. Physicians are seen by governments as cost centres driving up health care utilization and cost of care, rather than providing an essential service to patients whose health is something we value greatly. 

The Organization for Economic Co-operation and Development (OECD) ranks health care availability for 38 participating countries. In one of the metrics, Canada ranks 23rd in physicians per capita with only 2.8 practicing physicians per 1,000 people, similar to the U.S. but much lower than most European countries, especially those with universal care.Doctors: Total, Per 1 000 inhabitants, 2020 or latest available In another metric, we rank 10th in nurses per capita at 9.98/1,000. The ability to not restrict routine health care during the different waves of the pandemic required adequate ICU bed capacity. It is no surprise that Canada struggled greatly with only 12.9 ICU beds per 100,000 population compared to 25.8 for the U.S. and 33.9 for Germany. 

Aetna Health reviewed the relative increase in U.S. physicians and health-care administrators between 1975 and 2010 and showed that physician numbers increased 150 percent—a rate in keeping with the increase in population.The rise (and rise) of the healthcare administrator During the same period, the number of health-care administrators increased by a whopping 3200 percent. While some of the increase was necessary due to the increasing complexity of care and many new regulatory requirements, it represented a huge increase in non-direct patient care costs and added layers of bureaucracy. A similar situation exists in Canada. Susan Martinuk in her book on Canada’s health care crisisPatients at Risk: Exposing Canada’s Health-care Crisis noted that Germany, which has excellent health care, has one-tenth the number of health care administrators, one for every 15,454 citizens versus one for every 1,415 citizens here in Canada. It is hard to see how this large difference is justifiable.

Health-care spending 

The amount of money spent on health care doesn’t always relate to better outcomes. The Centers for Medicare and Medicaid Services (CMS) estimated that U.S. health-care spending grew 9.7 percent in 2020, over the previous year, reaching $4.1 trillion, about 19.7 percent of GDP and $12,530 USD per person.NHE Fact Sheet The potential availability of excellent care is unevenly distributed. Health care spending for Black and Latino people was much lower than for White people, and this imbalance may partly account for poorer outcomes in lower-income individuals with less access to quality care. Thus despite high levels of spending the U.S. trails greatly in metrics such as infant mortality and life expectancy. 

Canada now spends about 12.5 percent of GDP on health care,Health spending an amount similar to Germany and Switzerland. While we need to spend more in the future for greater access to quality care, it is also essential to better allocate how we spend it. 

New paradigms of care

Canadians continue to view universal health care as a highly important and valued right. There are important short and long-term measures needed to fix and preserve universal health care. We need to reduce unnecessary visits, decrease bureaucracy, fix wait times, increase efficiency and increase access. This requires a shift towards a greater focus on supporting those providing direct patient care such as physicians, nurses, and nurse practitioners, and less on bureaucracy and administrative costs. In addition to training more nurses and physicians, we need to allow highly qualified foreign-trained physicians to have an easier path to active practice. 

Canada already has models for private care, such as concierge services, that have not impacted universal care, as well as allowing direct payment for many uninsured services. Some additional private care will not be harmful. The long wait times for essential imaging tests can be reduced by supplemental insurance without depleting universal access to timely care. 

Improving ambulatory care 

As development director of a hospital-based imaging centre, I experienced firsthand the bureaucracy and extra cost associated with mandated hospital-grade ambulatory clinic and imaging space. Most ambulatory care should be provided in high quality, efficiently run, less expensive commercial space, either purpose-built or rented. This will reduce capital costs of construction and operating costs and improve the patient experience. 

Develop dedicated specialty surgical centres

Current long wait times for many surgical procedures are due to a lack of allocated OR time and guaranteed scheduling. Hospital operating room time is limited and highly competitive. As a result, highly trained surgeons with large patient backlogs have confided to me that they sit idly by, unable to book procedures and operate efficiently because of this challenge. One important solution is the creation of dedicated surgical centres of excellence. A model already exists in Toronto for cataract operations.

The Kensington Eye Institute is an excellent example of a highly efficient, stand-alone, not-for-profit ophthalmology centre that provides state-of-the-art day surgery in an out-of-hospital setting. Such models would also work well for orthopedic and other surgeries that can be done as day surgery. 

New care models can improve care & reduce cost

Reducing current hallway medicine is a problem that requires complex, innovative solutions. We can reduce hospital ER visits by greater availability of 24-hour urgent care clinics. Better triage of who needs to visit a hospital can be achieved by broader use of nurse practitioner telehealth calls, as well as the use of artificial intelligence-based decision making about which level of care is required. Such a program has already been developed by an Israeli company, Diagnostic Robotics. 

A number of in-home care models have been developed primarily in the U.S. that can be trialed in Canada. Dispatch Health has a care model that sends emergency care trained teams to patients’ homes armed with mobile blood work labs, IV fluids, nebulizers, and much of the other equipment found in ERs that are used to treat patients. Tufts Medical Center in Boston has partnered with Medically Home to test hospital-level acute care in patients’ homes. The Mayo Clinic has an Advanced Care at Home program that provides 24/7 access to a care team of physicians, nurses, nurse practitioners, and physician assistants as required. At-home equipment includes a telephone connecting directly to your care team, a personal emergency response bracelet, vital sign monitoring devices, internet connectivity and mobile imaging testing, and at-home IV services. 

Such in-home care can potentially reduce admissions to the hospital, as well as allow for earlier discharge, shortening the length of stay and reducing high in-hospital costs. 

Improve access to care for under-serviced areas. 

A hub and spoke modelThe hub-and-spoke organization design: an avenue for serving patients well can bring integrated care teams to remote areas. This can be achieved by increased virtual care, locally-based nurse practitioners, and increased use of telemedicine via secure smartphone links. Mobile health teams can also visit periodically to provide required in-person specialized care or determine the need to transfer care to an urban area. 

In summary, high-quality universal health care can be preserved with extra funding targeted to those providing direct patient contact and the use of cost-saving innovation. We need to develop integrated care teams that reduce the need for emergency and in-hospital care. We also need to use hybrid in-person and virtual care models that can broaden ambulatory care, making it more efficient for everyone and also more accessible to remote areas. Models for much of this already exist and we can leverage existing experience to meet our needs. We need governments and health care organizations that are finally willing to walk the walk not just talk the talk.