A perverse incentive is an inventive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally rewards people for making the issue worse.https://en.m.wikipedia.org/wiki/Perverse_incentive
The problem being addressed is a lack of access to housing for Canadian families. Recently, the average asking price for a house in Canada broke $800,000, with around 25 bidders for each house. Of those bidders, about 18 are families looking for a home, and the other 7 are investors looking for an asset that will generate revenue while appreciating indefinitely.
To get an $800k mortgage, a household needs an annual income of over $200k, a down payment of $40-$160k, and good credit. The average income in Canada right now is just over $82k, less than half what is needed to buy an average house.
It’s much easier for an investor owning a bunch of revenue-generating assets to get a loan to buy one more (as the old joke goes, borrower: “I need some money”; bank: “do you already have money?”).
So the true underlying problem is that as families seeking homes, we are fighting an uphill battle against investors armed with a portfolio of investment properties being paid for by tenants, and the entire system is designed and tuned to benefit the already-wealthy.
The proposed high-level plan is to “cool the housing market”. The idea is that if there are fewer bidders, there will be less upward pressure on prices and ultimately more families can own their own homes.
The metric we’ve decided to optimize is the number of bidders, with a desired outcome of fewer bidders meaning lower prices.
To achieve this, we are raising the interest rate. This directly makes mortgages more expensive, so fewer families are eligible to bid. Problem solved!
Well, actually, problem worse. Now, instead of 18 families bidding against 7 investors, we have 6 families bidding against 7 investors. The speculators aren’t limited by the more expensive loan, they will just charge higher rent to offset it — pushing more renting-class families further into poverty.
Any actual solution to the housing problem has to address the actual problem, which is that Canadian families can’t afford homes. To address this, we need to limit rental investments, not cut more families entirely out of the market.
As our government, you continue to fail the families of Canada, while propping up the investing class and further worsening economic equality.