The centerpiece of the most recent budget brought forward by Prime Minister Justin Trudeau’s government was all about housing. Housing affordability has become an increasingly important issue in Canada as prices continue to rise out of reach for many families and individuals. At the same time, with interests rates on the rise, many Canadians are growing increasingly concerned about debt levels and being able to pay off their bills.
On this episode of Editor’s Edition, Yahoo Finance Canada’s Alicja Siekierska and the Public Policy Forum’s Sean Speer discuss the issue of affordability and how it become one of the top priorities in the post-pandemic recovery. They also discuss what this means for other key issues highlighted through the pandemic, including healthcare and long-term care, and how Canada’s response to the sixth wave of COVID-19 is being shaped by the response happening in the United States.
If you have any policy-related questions, or feedback about the show, please email firstname.lastname@example.org.
ALICJA SIEKIERSKA: Welcome to "Editors Edition." I'm Alicja Siekierska. On today's episode, Canada is in the midst of a sixth wave of the COVID-19 pandemic. We'll take a look at how this latest wave compares to previous ones. And a judge in the US has overturned the mask mandate for air travel and public transportation.
Now, while some public transit groups are still going to have mask mandates in place, such as in Chicago and New York, most airlines have announced that they will ditch the requirement. We'll discuss what that could mean for Canadian travelers. And as interest rates rise, Canadians are growing increasingly concerned about taking on more debt. We'll dig into affordability and the state of Canadian finances. And to get through all of these topics, I'm joined once again by Sean Speer.
Sean is a fellow in residence at the Public Policy Forum, and he was also a senior economic advisor to Prime Minister Stephen Harper. And he's here to help us dig through the policy issues that are shaping the post-pandemic recovery. Sean, welcome back to the show.
SEAN SPEER: Thanks as always, Alicja.
ALICJA SIEKIERSKA: So let's dig into this latest wave of COVID-19 in Canada, the so-called sixth wave. Cases and hospitalizations are on the rise, fueled by the BA.2 subvariant of Omicron. It's hard to actually know how many cases there actually are, because testing and reporting has become more limited across the country.
But at the same time, restrictions have remained lifted and there is more pressure on the federal government to continue lifting remaining restrictions on things like air travel. So, Sean, let's talk about this sixth wave that we're in. What strikes you about this recent wave and the government's response to it?
SEAN SPEER: One just get the sense, Alicja, that policymakers have, for all intents and purposes, stopped listening to public health officials. You know, I'm sure you're seeing and hearing public health voices ringing alarm bells. And in the past, those bells were often heard by governments in Canada and elsewhere.
And this time around, there just seems to be a growing disconnect, that governments have moved ahead with waiving restrictions and just don't seem prepared to revisit those in the face of these growing demands from public health officials. I think what that tells you is a couple of things. First of all, that there was something a bit kind of politically unsustainable, it seems to me, between the gap in the US when it came to restrictions and in Canada.
Canadians get so much of their news and culture from the US. And when they could see the US economy and society opening up going back now months, it just seems to me that it was unsustainable for Canadian governments to maintain strict restrictions when Canadians could see and, in fact, travel to the US and discover firsthand how open the American economy and society were. And then the second point I would make is we have in Ontario an election coming up, we have in Alberta a leadership contest involving the premier, Jason Kenney. In other provinces, we will have elections sooner rather than later. And so you just get the sense, the political class has decided that this pandemic is over and it seems to me that it would require or necessitate pretty extraordinary developments for that policy approach to change at this point.
ALICJA SIEKIERSKA: So is there anything that would potentially change the path that the government is on? As we've seen over the recent days, they are very much on different pages from public health officials, whereas, say, a year or two ago, very much the messaging was in line. And that was, I think, a comfort in the early days of the pandemic. But, Sean, do you see there being anything that would change the path that the government is on and bring them closer in line with what public health officials are saying?
SEAN SPEER: I think at this stage, Alicja, a run on the health care system is probably the only thing that would cause policymakers to revisit the path that we're on. Otherwise, I think we'll continue to roll the dice on, for all intents and purposes, reopening things to something resembling pre-pandemic normalcy. I'd just say the other reason that this gap exists between public health officials and policymakers is, fairly or unfairly, I think there's a perception that public health officials overstated the risks associated with the Omicron variant.
You'll recall early on, given the level of transmissibility, many in the public health community, including, of course, the Ontario Science Table, were really ringing the alarm bells then. Policymakers responded accordingly. And I think, you know, in the aftermath of that, there's some question about whether the risks associated with Omicron were overstated.
And so I suspect that, in some ways, is coloring the way that policymakers are choosing to interpret these current calls from the public health community. But you know, I really wonder how much of it, as I said earlier, really reflects the fact that Canadians are consuming news and information from the United States. And you know, we're only prepared to live with significant differences in our policy approach relative to the US for so long.
You know, my brother is in Florida this week and, you know, COVID is over there. And it's hard after you see that to come back and live with masks and other restrictions. And I suspect his experience is pretty common across the Canadian population.
ALICJA SIEKIERSKA: Well, let's dig into one of those big differences that is going forward now. Here in Canada, the federal government still has several COVID-19 restrictions in place, particularly when it comes to travel. You need to be fully vaccinated in order to leave a Canadian airport, still required to wear a mask, both on the plane and in the airport.
And it's a very different situation from the US, where a Florida judge on Monday ruled that the mask mandate for air travel and public transportation is unlawful and vacated the rule. Here's one reaction to the lifting of the mask mandate in the middle of a Delta Airlines flight that was posted to Twitter yesterday.
- April 18, the Biden administration announced that the Transportation Security Administration will no longer enforce a federal mandate requiring masks in all US airports and on-board aircraft.
ALICJA SIEKIERSKA: It is quite the scene, and one that we're not seeing in Canada right now. Now, most airlines in the US have opted to make masks optional, but there are, as I mentioned off the top of the show, some local transit authorities are still keeping it in place, including Chicago and New York. But let's dig into that contrast that we are seeing that you mentioned between Canada and the US. Do you think this is going to put even more pressure on the federal government to start lifting those requirements around travel?
SEAN SPEER: I think the short answer is, yes. You know, the airlines, as we've discussed on previous episodes, have faced a lot of financial pressure during the pandemic. And that, of course, has necessitated pretty major public spending to try to deal with their balance sheet issues. If we have, Alicja, a different policy with respect to masking in Canada, one could see it pushing more and more passengers to fly to places like Buffalo or the state of Washington, especially since pricing already kind of tilts in that favor.
So I do think we'll see a change in policy sooner rather than later from the Canadian government. The only last thing I'd say about this, Alicja, as you know, I spend a lot of time in New York City these days. And even though on balance, I think the public health restrictions in New York are less stringent than they are in Ontario where I am today, I'm struck that even there, the social norm still seems to be masking in places like grocery stores, and pharmacies, and so on.
So you know, we talk a lot about government policy on this show for good reason. But it'll be interesting to see weeks, months, even years later, how much some of these public health actions remain kind of voluntary on the part of different individuals and organizations. And I don't see anything wrong with that.
ALICJA SIEKIERSKA: Yeah. We actually had our colleagues in the US with the Yahoo Finance team did a kind of informal poll on Twitter asking if people would still be wearing masks on public transit and things like Uber. And it was roughly split-- 50-50. Some would say yes and some would say no.
So I think you'll still see people wearing masks as we continue to go through this wave. But, Sean, mask mandates and vaccine requirements were among the key tools that public health officials and policymakers used to kind of fight COVID-19. Just taking a look back on how those were implemented and, perhaps, communicated, do you think these were the right approaches? Or could there have been improvements in terms of how these policies were enacted and communicated with the public?
SEAN SPEER: No. I think, generally speaking, you know, one can quibble, of course, in the moment. But I think generally speaking, you know, the Canadian performance was generally strong. And that reflected, Alicja, for instance, in our vaccine rates, which are relatively high, and in our hospitalization and death rates, which are relatively low.
And so I think, you know, in broad terms, we can feel generally good with our performance, both at the level of policy but, you know, as a society more generally. I think one of the kind of interesting questions, though, out of this whole experience is how do we think about balancing different sorts of risks and balancing different trade-offs? Which is complicated and not an easy conversation.
But we made choices, for instance, around closing schools for long periods of time, for instance, which pushed students online. And I think it's fair to say that that had negative consequences for some children. And some of those consequences we won't even be able to measure or understand for some period of time.
And it puts real difficult issues before policymakers. You know, how far are we prepared to go to protect lives, you know, at the expense of some of these other trade-offs? Those are the types of conversations I think that we need to have as a society so that we're better prepared to deal with these types of issues in the future.
ALICJA SIEKIERSKA: Mm-hmm. And how should the government kind of tackle that? Is that part of-- you mentioned it before-- having some kind of commissioner look back on the policies that were implemented? Is that the best way to kind of make sure that these lessons are learned and that down the road, we're more prepared for the next time it comes around-- but hopefully not. Like, what's the best way there?
SEAN SPEER: Yeah, I think that certainly is the primary means. There'll be a kind of generation of PhD dissertations written about this whole experience. But let's be concrete about it-- like, we, Ontario, was one of the most locked down jurisdictions in the world over the past two years. That resulted in a better performance than, say, the state of Florida when it came to deaths or hospitalization rates.
But there were some upsides to Florida's approach on the other hand. It meant that schools were open and functioning more normally for a longer period of time. It means that the kind of economic costs of lockdowns were less pronounced in the state. How do you kind of think through those different pros and cons of different approaches and the kind of inherent trade-offs before policymakers?
You know, it seems to me, as important as evaluating different public health measures-- did we have masks in place early enough and long enough, and, you know, where the communications more or less effective-- at a kind of fundamental level, thinking about and analyzing these different trade-offs embedded in the choices that we made I think will be key for Canadians in general and policymakers in particular to understand. And you know, sometimes I say this, only partly facetiously-- I wish, Alicja, I could be around for another 100 years or longer to see how future generations kind of talk about the choices that we've made over the past 24 months and counting.
ALICJA SIEKIERSKA: Yeah, definitely. Now, the pandemic, obviously, raised many issues, including the ones we've discussed here about those trade-offs. And the last time we were on the show, we were talking about what the federal government's potential priorities will be in this post-pandemic recovery, because the pandemic did really raise a lot of issues and, essentially, options for the government to focus on going forward.
You know, the pandemic highlighted things like investments in Canadian health care, fixing the long-term care system, big ticket items like dental care and pharmacare-- essentially that care economy that you've talked about before. Some of these items were, of course, a part of the budget. But a major policy focus this time around was actually housing-- offering tax free savings accounts specifically for first time homebuyers was included here, creating a new housing accelerator fund to help boost supply, and a proposal to end blind bidding. Sean, among all the policy options and priorities that the government had to choose from, why do you think it made housing such a focus this time around?
SEAN SPEER: It's a great question. There's the kind of policy explanation and there's the political explanation. I think the policy explanation is we've just seen an extraordinary increase in the average housing price really across the country. Obviously, you know, it's extraordinary in a small number of major centers, but the truth is we've seen upward pressure across the country.
And it's making the likelihood of average or median households being able to purchase a home in this country increasingly at-risk. And so, you know, it seems to me there was a kind of policy logic to focusing on housing. The political one is interesting, Alicja. I think it's kind of twofold.
The first, of course, is the specific individuals who are feeling like homeownership is out of reach, but then there's also their parents. You know, if you accept that owning a home is a major guidepost or milestone of middle class progress, if you're seeing your children not being able to own a home or be able to purchase a home, you know, it contributes to that kind of negative psychology about the country and the economy.
And so I think for those reasons, you know, it makes a great deal of sense. Let me just make one other point about this. I was-- you mentioned that I worked for Stephen Harper. I was actively involved in the 2015 election, which now seems like a lifetime ago. In that campaign, you were starting to pick up that these concerns about housing were emerging. And in that election, some of the different parties put forward policy proposals.
But what's amazing is it's gone from a kind of peripheral issue in 2015 to, as you say, by 2022, the centerpiece of the federal government's budget, which gives you a sense of how quickly, yet dramatically, this issue has kind of shot up the list of political and policy priorities.
ALICJA SIEKIERSKA: And I think you definitely saw through the pandemic, it turned from this issue that was mostly concentrated in Toronto and Vancouver-- you always heard about how crazy real estate is in those two major cities-- to across the country and that home prices just skyrocketed everywhere. And the real estate market has been, actually, a driving force within our economy over the last several years, and particularly through the pandemic.
So was there another opportunity for the government to kind of enact some of these policies or move forward with this focus on housing that could have made an impact before the prices got to where they are today? Was there an opportunity before that the government should have taken a look at?
SEAN SPEER: That's an interesting question. I would say a couple of things. You know, these issues have been slow-moving. And so to the extent to which blame is allocated, it certainly shouldn't be solely to the Trudeau government or the federal government itself. You know, the outcome of these housing affordability challenges have kind of multiple factors, everything from the low interest rate environment that we've been in for the better part of, like, 20 years almost, along with provincial and local land use policies, which have made it costly and slow to build housing supply.
And I would just say one last thing-- there does seem to be something of a degree of kind of irrational exuberance going on here. It's hard to measure. You know, it's hard even to think about what you might do about it. But these housing supply issues that are at the center of the debate today have been around for a long time, right? But something has happened in the past 12 or 24 months that has created this kind of extraordinary spike in prices.
And you know, I don't have a good solution. I mean, the steps that the government has taken may improve things on the margins. But I think it's probably going to take a pretty major correction in the housing market for things to stabilize. And that starts with the interest rate hikes that we saw the Bank of Canada announce just late last week.
ALICJA SIEKIERSKA: Now, I do want to get into kind of the affordability question in relation to the rates. But just in terms of the government priorities and some of the stuff we saw arise and get really highlighted through the pandemic, what do you think this kind of focus means for those priorities, given this could have been the moment where those issues were tackled?
SEAN SPEER: Yeah, it's a great question. So in effect, we've talked on previous shows about whether the government's post-pandemic policy agenda would focus on health care, or innovation, or supply chains, or any other number of issues. And as you say, when push came to shove, they essentially chose housing, at least as the most recent budget goes.
I would just say, Alicja, that in the past month or so, I've spoken a few times with Darrell Bricker, the CEO of Ipsos Public Affairs, the polling company, and Darrell tells me that one of the issues he continues to pick up in his polling is a sense that middle class progress in Canada has stalled and that the housing affordability issues we've been talking about is the way in which those sentiments are expressed by people that him and his team speak to.
And so that is a really kind of dangerous political idea-- that is to say if a growing share of the Canadian public feels like middle class progress is stalled and that their ability to kind of climb the economic ladder is inhibited, that's the kind of sentiments or feelings that can contribute to a zero-sum politics, to the rise of polarization, and populism, and so on.
And so it seems to me that the government is clearly kind of picking up what Darrell is picking up in his polling. And that ultimately led to this focus on housing. Just one last thing on this point, Alicja, if I may. I've worked for politicians before.
When they go door knocking and they hear directly from voters the issues that they're struggling with, you're not in a position to give them a treatise on Canadian federalism and explain that these issues are primarily of a kind of provincial or local responsibility. And so, you know, the reason I said most of the things that we saw in the budget are probably on balance pretty marginal is because the truth is, most of the policy levers that can really drive increasing the housing supply reside at lower orders of government. But Ottawa ultimately felt like it needed to do something. And the budget was that something.
ALICJA SIEKIERSKA: Right. And I do think this is going to be an issue that crops up in the next election here in Ontario. You're already seeing the Ford government move to push forward other policies and proposals. So it's definitely something that all levels of government are being forced to grapple with.
And just addressing that issue of affordability, especially in this environment where we're seeing soaring inflation, costs going up, and interest rates also on the rise-- I wanted to take a look at this other survey, which says kind of similar things to what you were talking about-- the concerns that Canadians are having.
Debt is definitely one of them. According to the MNP Consumer Debt Index, nearly half of Canadians are concerned they will not be able to cover living expenses in the coming year without going into debt. Nearly half, 49%, say they are $200 or less away from not being able to meet their financial obligations. And 31% say they don't have enough to cover bill and debt payments right now.
The survey results are obviously quite concerning, particularly as we see interest rates rising and forecasts that they are going to continue to rise. So, Sean, do you just expect this affordability problem to continue to play an important role when it comes to policy for all levels of government?
SEAN SPEER: Yes. Yes. You know, I filled my car up a couple of days ago, and it was striking how much the price of gas has gone up. Late last week, Alicja, Scotiabank posted its five-year fixed mortgage rate at about 5%. Which means that if people's five-year terms come up and they renegotiate, they're going to see a meaningful increase in their monthly carrying costs-- an increase that they may not be able to account for in their current household budgets without significant adjustments.
And so I think that's exactly right. One of the reasons previous generations were so focused on the issue of inflation is because they had gone through the awful experiences of high inflation and then, in turn, the dramatic increases in interest rates to bring that inflation under control. And I listened to a podcast today, Alicja, the well-known economist Tyler Cowen described what we're going through is something like the great forgetting, that we kind of lost touch with those historical experiences, and as a result, we're going to be forced to go through them once again and relearn them. And the cost of that will be borne disproportionately by the very people that you outlined in that poll.
ALICJA SIEKIERSKA: And it's hard to-- speaking of forgetting-- before the pandemic, the Canadian levels of debt were so extraordinarily high, and that was often coming up in surveys, and that that was actually a concern is paying down those high debt levels. Part of it, obviously, due to mortgages and being highly leveraged because of the housing market, but debt has been a problem. And in the pandemic, it seemed that there was some progress made because people were not spending as much and kind of forced to stay home.
But it seems like we're back to where we've started. Do you think that maybe the pandemic has just further exacerbated the fact that some people did really well through it and some people are worse off than before? And how do you address that if that's the case?
SEAN SPEER: Yeah. I think the short answer is, yes. You know, we've talked in previous episodes about how there's different experiences during the pandemic for different individuals and households. And yeah, the cost of rising inflation and, in turn, rising interest rates is going to be tough-- not just for household budgets either, Alicja.
It's worth recognizing it comes with significant economic risks. You know, Larry Summers, the former US Treasury Secretary, has predicted something like a 50% chance that the US economy tips into recession over the next year because of now the Fed's dramatic action to try to bring inflation under check. So we're about to go through a kind of pretty tumultuous economic context.
And you know, it'll be interesting to see the policy and political fallout of this sustained period of high inflation and rising interest rates. You know, think about this-- the Trudeau government come 2025, which will be the end of its current parliamentary agreement with the NDP, will have been in power for about a decade. The average lifespan of a Canadian government is 10 years.
So it'll already be kind of long in the tooth. If you add to that the period of the inflation that we've seen in rising interest rates, I think we'll be kind of operating in a political context in which the demand for change will likely be pretty high.
ALICJA SIEKIERSKA: How do you see this in the more near-term playing out or having an impact on things like the Ontario provincial election? Do you think that these pocketbook issues will be the top priority on the campaign trail?
SEAN SPEER: Yeah. I mean, you know, the Ford government has been mocked, mostly understandably, for the cash payments that it sent out in recent days, of returning fees that were charged for license plate renewals. You know, my in-laws received $300 each or something like that. But for some of those households in need, that would be a much welcome $300.
And I only mention that particular case because, again, it sort of reflects that the government is interpreting and seeing some of these same trends that you outlined in your poll and that Darrell Bricker has been finding in his own-- that people are feeling stretched. And I think you'll see the liberals and the NDP in Ontario with their own kind of competing policies that speak to those sentiments and concerns.
ALICJA SIEKIERSKA: Lots to watch for as the campaign slowly begins to ramp up. Sean, that's all the time that we have for today. Thank you so much, as always, for joining us.
SEAN SPEER: Thank you, Alicja.
ALICJA SIEKIERSKA: And as always, if you're looking for the latest business news, please check out the Yahoo Finance Canada website. And if you have any questions or feedback about the show, please feel free to email me. I'm at Alicia@YahooFinance.com. Thanks for tuning in.