Executive Summary
Housing affordability has deteriorated markedly in the Saskatoon metropolitan area since 2006. While Saskatchewan has had the largest increase in household of any province over the past five years, house prices have escalated at a far greater rate. As a result the share of Saskatoon household that could qualify for a mortgage for the average priced house has dropped approximately 20 percent. Things could get even worse if the city of Saskatoon continues its efforts to implement compact cities (urban containment) policies. Urban containment policies severely restrict residential development, driving up prices. Wherever there are exceedingly high house prices relative to incomes in the Western world, there are urban containment policies.
This poses a challenge for policy makers and households. Housing costs are the largest element of household budgets. If housing costs rise faster than income, there will be a reduction in the standard of living and it is likely that poverty will increased.
Over the past two centuries, the world has become urban, as people have moved to the cities to better their lives. Yet the results of the dominant strain of urban planning urban containment policy, works against the economic aspirations of households (which is why households moved to cities in the first place). Urban containment policy seeks to limit or prohibit development on or beyond the urban fringe, which creates land scarcity and raises house prices. Since housing is the largest item in household budgets, this materially reduces discretionary incomes, leading to a lower standard of living and higher rates of poverty.
Where urban containment policy is the strongest, such as in Vancouver, Sydney, Auckland and London (UK), house prices have doubled or tripled relative to incomes. Moreover, urban containment policy has been associated with generally negative economic impacts, including lower population, lowered real incomes and lower levels of employment.
Urban containment policy is now spreading across Canada, which could lead to substantial losses in household discretionary income unless stopped. A number of metropolitan areas, such as Saskatoon have such an opportunity.
The Bank of Canada and international credit rating agencies have expressed concerns about the rising levels of household debt, which could interfere with economic growth. These levels are principally driven by the large mortgages that are necessitated by higher house prices. The monetary instruments of the Bank of Canada are largely incapable of controlling house price increases that are driven by urban containment policy that is implemented at the provincial or regional level.
Based on his research, Paul Cheshire at the London School of Economics indicates that urban containment policy is incompatible with housing affordability. Because of the importance of housing costs in the household budget, urban containment policy is also incompatible with maintaining or improving the standard of living.
