I’ll be the first person to tell you that housing prices in Canada are too high. It’s one of the biggest challenges facing the country. If we fail to meaningfully accelerate housing construction very soon, we risk having a generation permanently priced out of the housing market.

Recently released Census data showed that roommates are the fastest growing type of household in Canada. Get used to it. If you’re hoping that the Bank of Canada will crush housing prices, I urge you to reconsider. Because if housing prices fall too far and too fast, we might have bigger problems on our hands.

Before I go any further, I don’t actually think we’re heading for a major decrease in housing prices in Toronto or Vancouver. It’s certainly possible that suburban areas that benefited from the COVID-era land rush will experience some real pain. But even if we rolled back five years of price appreciation, Canadian housing will remain expensive. And that’s not even accounting for the fact that rising interest rates increase the cost of borrowing. So even if prices go down, mortgage payments (and rents) can still go up.

It’s hard to see how housing prices could fall durably in the GTA or Lower Mainland in the near term. They’re not building new land in Toronto and Vancouver, and there’s no reason to believe that demand to live in the two cities will decrease. We can certainly wrestle down prices over time by allowing more density. But that won’t happen overnight.

It’s true that there are other cities in Canada with much to offer.^{1However, if you want to live in Canada in a relatively big city without winter, Vancouver is your one option. If you want to live in a major global (anglophone) city, your option is Toronto. If you’re fluently bilingual, you may be able to find a comparable job in Montreal for less money (but lower housing prices). Ontario and Quebec account for more than half of the population of the country. There are only so many cities to choose from if you want to live an urban lifestyle (fewer still if you’re not bilingual).} I spent nearly a decade working on the Prairies, so I’ve seen this first hand. But unless major parts of the GTA economy relocate to Saskatoon or Calgary (or if fully remote work remains widespread), a lot of people are going to have no choice but to live in the GTA.^{2Then there’s the small matter of family. Not everyone is willing to relocate to the other side of the continent. Calgary might only be a three-hour-and-forty-five-minute flight away from Toronto, but that’s a hard weekend trip. Especially if you’re visiting family who doesn’t happen to live right in Mississauga or along the Union Pearson Express route. Trust me, it’s hard.} 

Of course, it’s conceivable that we could see a big decline in housing prices while affordability worsens. I don’t think this scenario is likely. But I also think it’s the single most likely scenario involving a large, sudden decline in housing prices. It sounds counterintuitive until you think about the role that housing plays in the economy.

Most people own homes, and it is the biggest asset most people own—by far. In a country with expensive housing, even more so. How much money people have access to and are willing to spend is related to the value of their homes. When prices are going up, people feel better about taking a vacation or going out for dinner. The house is building your retirement wealth. No reason not to have that steak or fly to Hawaii. Until, of course, your home all of a sudden becomes a drag on your household wealth. And worse, in the short term, it gets harder to tap into your home equity. Then maybe you skip the steak and drive to your parents’ place for the weekend. That’s just prudent, after all. 

Here’s the problem. If enough people decide all at once that it’s time to hunker down and save money, a lot of businesses will suffer. That’s not necessarily a big problem. Economic fluctuations happen, and we adapt. Where it becomes a problem is when you’ve got a highly indebted country. If business closures and layoffs mean more people start to miss mortgage payments, you’ve got a slightly bigger problem. Now layer on higher interest rates, and you can see how this might escalate.

If all this sounds familiar, it should. The United States experienced a similar (but far more complex) issue in 2008. While the causes of the Global Financial Crisis were complex, economists Atif Mian and Amir Sufi in their book House of Debt laid out a useful framework for how falling home prices combined with high levels of personal debt can spill over into the broader economy. They describe their “levered losses framework” as follows.

1. The economy consists of borrowers and savers. In the context of housing markets, mortgage holders are the borrowers. Since lenders (banks) have a senior claim on the debt, they can foreclose if borrowers cannot pay. 
2. A shock to the economy can cause highly indebted borrowers to stop spending and increase savings. Since spending by borrowers is more sensitive to housing wealth than savers, the concentration of losses among borrowers can magnify the decline in economic activity.  

This sounds very simple, but it has profound implications. Borrowers, who tend to have lower net worth than savers, are more impacted by home price decreases (particularly since savers can foreclose, recuperating assets). High levels of debt combined with a sharp reduction in a household’s assets mean they will spend less money on goods and services as they attempt to build up savings or at the very least keep paying the mortgage.

This isn’t a problem if we’re talking about a single household. But when multiplied across the economy, it can lead to a decrease in aggregate economic activity (e.g. a recession). In the case of a sharp decrease in housing prices in a country that has high levels of personal debt, it can be much worse than a garden variety recession. 

It’s easy for people locked out of the housing market to look at homeowners who have seen the value of their homes double or triple and think maybe it wouldn’t be so bad if they took a haircut. Or maybe something more than a haircut. It’s not their fault that housing prices have gone up, but the schadenfreude would be understandable. But it would likely be fleeting since many of the people currently locked out of the housing market would themselves get wiped out by a deep recession. If housing prices get cut in half but you don’t have a paycheque anymore, it’s hard to say that housing is affordable.

Fortunately, this seems like an unlikely scenario. The GTA and Lower Mainland aren’t the U.S. Sunbelt, not to mention the fact that our financial institutions could likely withstand a deep recession, preventing a financial crisis that would compound the downturn. There’s no excess of speculative housing developments and no obvious risks to our financial system. So housing prices probably aren’t going to plummet any time soon.

In fact, at this rate we’d need to double housing construction to keep housing prices from rising further. It seems likely that some of the excesses of the COVID-era will get flushed out (few people are rushing to move out of the cities anymore), but it’s more likely that transactions will decrease as sellers decide to wait out temporary weakness rather than that housing prices will collapse.^{3What makes Canada’s housing challenges even stickier is that short-term price declines could help fuel higher prices in the future. There’s an old saying: the cure for high prices is high prices. High home prices make building homes more attractive to developers. If prices fall too far too fast, some projects will get shelved. This is already a concern in the GTA. Perversely, it’s possible that even a mild short-term pullback in housing prices could add to our housing supply deficiency. Yet another reason not to cheer for a crash.}

None of this is to say that we shouldn’t want housing prices to go down. We need to re-balance housing markets, not crush them. A sharp downturn in prices would just compound problems by leading developers to cancel projects, preventing pent-up supply from meeting demand. But we need to be careful what we wish for. A deep recession isn’t going to fix our problems.

At a recent lunch and tasting for the wine press she hosted in Toronto, Priscilla Incisa della Rochetta described her role in the family business as “external relations”. Incisa della Rochetta was on the second stop of a four-city Canadian tour, which also included events in Montreal, Calgary, and Vancouver to promote the wines from her family estate, Tenuta San Guido, in the Maremma sub-region of Tuscany that stretches east from the coast of the Tyrrhenian Sea.

Tenuta San Guido’s most famous wine is Sassicaia, one of the original Super Tuscan wines made with French grapes, that came to prominence in the 1970s.^{1Sassicaia is made from mostly Cabernet Sauvignon (usually 85 percent or so) and Cabernet Franc grapes.} The vines for Sassicaia were planted in 1942 by Priscilla’s grandfather, Mario Incisa della Rochetta, sourced from another Tuscan estate owned by a friend. 

The vines and the wine they made from them were not intended as a commercial venture. They were planted as an act of self-sufficiency and comprised just one of many components of the 500-hectare agricultural property, along with fields of wheat, olive groves, and stables to raise thoroughbred horses. The idea of selling the wines from Sassicaia came in the 1960s when some other family friends and relations—the renowned Antinoris who were beginning to develop the neighbouring Tentuta Guide al Tasso—suggested it.

The first Sassicaia to go on sale was the 1968 vintage, which was released for public consumption in 1971. Tenuta San Guido continues to release Sassicaia no sooner than three years after harvest: it’s elevated in French oak barrels (about two-thirds new) for two years, and then left to rest and pull itself together for another one. Last year the Incisa della Rochetta’s released their 50th vintage, the 2018, and this year it’s the 2019 that is due to be available in Canada this October.

Sassicaia was formerly labeled simply as table wine until the appellation of Bolgheri DOC was extended to red wines in 1994.^{2In fact, it was awarded its own “monopole”, Bolgheri Sassicaia DOC.} By then the Super Tuscans of Bolgheri, which included Ornellaia (established in 1981 by another branch of the Antinori family), made with Cabernet and Merlot grapes were in high demand, where they have stayed. This year, a bottle of the 2019 Sassicaia will cost more than $250 from the LCBO, if one was lucky enough to gain the privilege of being able to buy it.

Since Sassicaia sells out all the wines it makes, save those bottles they keep for their library, it begs the question of why Priscilla Incisa della Rochetta must manage external relations at all. Most export managers buy airplane tickets for the singular purpose of selling more wine. There is no more Sassicaia to sell, and the other wines Tenuta San Guido makes, Guidalberto (a blend of Cabernet Sauvignon and Merlot) and La Difese (a blend of Cabernet Sauvignon and Sangiovese) do just as well.

One of the reasons that Priscilla Incisa della Rochetta was in Canada, pouring wines and answering questions, is that Sassicaia is sold from the winery by allotment.^{3The system whereby wines that are in high demand are distributed across many markets so that one or a small group of markets do not dominate sales.}

Allotment protects the winery from shocks to the supply chain, which Incisa della Rochetta agreed was a lesson pertinent to the current marketplace, what with wars and lockdowns. She also agreed when I suggested that by spreading Sassicaia across the world and in front of wine enthusiasts, Tenuta San Guido was investing in the long-term value of the label. I suspect, too, that the family and winery are proud of the wine and would like as many people to try it as they can manage.

Stephen Marentette, the Ontario Sales and Marketing Director for Tenuta San Guido’s importer, Sylvestre Wines & Spirits Inc., was at the table. He explained that this year the Liquor Control Board of Ontario, which sells its allotment to consumers in the province, had devised a kind of lottery that prospective buyers can subscribe to online in hopes of being able to purchase Sassicaia. He was unsure how many bottles a single buyer might be able to take home. Licensee buyers (restaurants) could purchase directly through the importing agency, but would be subject to its own allotment regime.

The wines presented that day went in escalating order of prestige, beginning with the latest release of each label. We began with the 2020 Le Difese, which Incisa della Rochetta said was, “meant to be drunk young”. First made in 2002, it’s a blend of Cabernet Sauvignon from Bolgheri and Sangiovese from Chianti Ruffino, so is labeled simply as Toscana IGT (“wine of Tuscany”).^{4It should be in Canada next spring for about $40 a bottle.} It showed a juicy play between blackberry and cherry with lively acidity.

Next, we moved on to two vintages of the Guidalberto blend of 50 percent Cabernet Sauvignon and 50 percent Merlot. First, the 2020, which will come to Canada around March of next year and retail for about $60 a bottle. Incisa della Rochetta does not like Guidalberto to be described as a “second wine”, but rather “another wine”. Another beautifully balanced wine, but now with black and blue fruit lifted with a bit of Mediterranean herbal spice. Next, the 2015, whose fruit was what the British call hedgerow (raspberry and blackberry), with black currant on the finish, still very much lively and brought water to the mouth.

For the stars of the show, we tasted three vintages of Sassicaia: 2018 now in release, 2019 released last year, and 2010 to see what happens to the wine with a bit of age. I’ll cut to the chase and describe what we tasted in reverse order. The twelve-year-old Sassicaia was a kind of Platonic ideal of Old World Cabernet, very much on the order of big growth Bordeaux. Cassis and maybe a bit of cranberry on the very, very long finish. It was hauntingly good and purred like a finely tuned performance car.

The 2018 Sassicaia, was from what is considered a cooler vintage and showed a brighter, more lively style of fruit with more blackberry than currant, and maybe black cherry. Incisa della Rochetta said that she liked the wine for its lighter touch, saying it showed a “style we like to display”. Again, in lovely balance with food-friendly acid, it was still showing young with grippy tannins and promise of what is to come.

By contrast, the 2019 Sassicaia, which we had at lunch actually started with, showed more dark red, crimson fruit, and tannins that stuck a bit. But for a wine that wants age, it was still so beautifully balanced and immersive. Some wines spur conversation, others stop it. Cabernet was planted at the Sassicaia vineyard because it reminded Mario Incisa della Rochetta of Bordeaux, with its sandy and gravelly maritime soils. He wasn’t wrong; the expression of the grape is elegant yet strong. Nice wine if you can get it.

Correction: The author regrets that a previous version of this post included erroneous pricing, quoting $1,100 for a double magnum (3L) bottle of Sassicaia 2018.