Although today’s article in the Globe and Mail might not make me popular in my native land, I think a housing crash might not be such a bad idea for Canada – and indeed most anywhere for that matter.

It was a big mistake to ever sell housing as a good investment. First off, it rarely is. Plot the long-term returns of property and stocks in the world’s most dynamic economies and you’ll see that it’s almost always a laggard (as the one percent know all too well, which is why they seldom put much of their portfolio into real estate).

Secondly, where it is the best investment you can make, as it was in Canada over the last few years, it’s because the rest of the economy has been so anaemic. That’s not accidental. The anaemic economy is, in part, due to the housing bubble. Let’s always remember that whatever incomes they create for estate agents, builders and owners who cash in their capital gains, houses themselves produce nothing. They add nothing to the economy and do all but nothing to raise labour productivity (in which Canada is now a star underperformer).

But when government and central-bank policies incentivise investment in real estate, investment gets diverted from productive activities. A bank that might hesitate to lend you money to start a business won’t blink an eye at giving you the money to buy something which sits idle. Meanwhile owners grow rich while the young workers struggling to get onto the property-ladder are forced to pay inflated rents to a class which is doing little to energise the economy.

Let it crash, I say. Let government policies protect those most vulnerable in a property crash, but let young people get back on the property ladder once more and let investment look for new opportunities in things that will really improve the world (like the energy transition).

Read the full article here.