House prices in Canada have risen more than in most other high-income nations. Housing has become severely unaffordable, especially in Vancouver and Toronto. Housing affordability has also deteriorated markedly in London, Sydney, Auckland, San Francisco, Los Angeles and other metropolitan areas. The common thread is “urban containment policy,” which severely limits the expansion of urban development. Consistent with the basics of economics, these supply limitations have been associated with rising house prices. The resulting higher house prices are a substantial problem for both households and the nation.
As house prices rise, households have less to spend on other goods and services, which leads to lower standards of living and greater poverty. Claims that the losses in housing affordability are the result of improved amenities are countered by weak internal migration to urban containment metropolitan areas. However, the consequences are far greater than the impact on middle-income households. Research indicates that strong land-use policies have “large negative externalities,” including the substantial reduction of economic growth and increased inequality.
The losses in housing affordability associated with urban containment policy have been concentrated in Vancouver, Toronto and Montréal. Other metropolitan areas are beginning to adopt urban containment policy. This could spread the severe housing affordability crises now limited to just a few metropolitan areas to many more. Urban policy needs to be redirected toward the higher-order public objectives of improving the standard of living and reducing poverty while encouraging job creation and economic growth.
