Giving people money increases home prices if you can’t build more housing

Giving people money to buy a home with the goal of making homeownership more affordable and thus accessible are demand-side housing policies which increase the demand for housing and are are widespread throughout the world.

Canada’s demand-side housing policies include the following housing benefits programs :

• First Home Savings Account (tax deductions)
• Home Buyer’s Plan (repayable, interest-free loan from yourself)
• Canada Housing Benefit (CHB) (rent subsidy)
• GST/HST new housing rebate (tax rebate)

A 2024 British study found that the government’s Help to Buy (HtB) program to give people interest free loans to make housing more affordable/attainable:

• increased prices in places like London where it’s hard to build new homes because of strict zoning laws and planning permissions. The extra government money was absorbed into higher home prices almost immediately.
• barely moved prices outside of London where its easier to build. Builders saw increased demand and started putting up new houses and the market kept up.

Giving people money pushes up home prices if you can’t build more housing.

Giving people money helps people afford housing if you can build more housing.

This is how markets work when supply can’t respond to demand.

It doesn’t have to be a housing subsidy for housing costs to go up. Anytime people get more money from any source, housing tends to swallow it up. When housing is scarce, much of that cash disappears into higher rent.

• Free childcare
• Income Tax Credits
• Wage increases
• Income supplements (GIS)

A portion, in some cases the whole, of every benefit which is laboriously acquired by the community is represented in the land value and finds its way automatically into the landlord’s pocket. If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or a new tramway or the institution of an improved service of workmen’s trains or a lowering of fares or a new invention or any other public convenience affords a benefit to the workers in any particular district, it becomes easier for them to live, and therefore the landlord and the ground landlord, one on top of the other, are able to charge them more for the privilege of living there.

Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted on so large a proportion of their earnings appealed to the public conscience, an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on. the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted.

Winston Churchill, The Menace of Land Monopoly