Growth Management: Focusing on Priorities

Commentary, Wendell Cox

The Notley government promises a new Municipal Government Act in the fall, following a consultive process. In its September announcement, the Government said that new Growth Management Boards would be established in the Calgary and Edmonton areas. “Growth management” may seem like an innocuous term, but it has been associated with severely unaffordable house price increases in Canada, as well as in Australia, New Zealand, the United Kingdom, the United States and elsewhere.

Growth management typically strengthens land use policies, usually by “imposing urban growth boundaries” or other “urban containment” strategies that ban or severely limit new housing on or beyond the urban fringe.

As a result, urban containment policy reduces the land supply, while the continuing demand for more houses drives up prices. This is consistent with the basics of economics. Where the supply of a demanded good or service is limited, higher prices result, other things being equal. This means demised middle-income housing affordability.

Even before the proposed Municipal Government Act, recently adopted growth management policies in the Edmonton area and in the city of Calgary have been accompanied by unprecedented middle-income house price increases. This is a significant turnaround. Between 1970 and 2005, house prices rose at approximately the same rate as household incomes in both metropolitan areas. Yet, since 2005, house prices have raced 40 percent ahead of incomes in both areas.

These price increases are not just for large houses in the suburbs. Virtually all house prices have been driven up. Condominium prices have risen so much in Calgary that they are 20 percent higher than those of two-storey houses just 10 years ago, according to RBC Economics data.

People recognize the problem. A recent Angus Reid poll found that approximately one-half of residents in Edmonton and Calgary considered house prices to be “too high” or “unreasonably high.” Yet, the house price increases of the recent decade could be just the beginning.

House prices have doubled or tripled compared to household incomes in metropolitan areas that have restricted peripheral housing development for longer periods of time. This has occurred in vibrant metropolitan areas like Sydney, Auckland and San Francisco. But is has also been the experience in areas that have had depressed economies for decades, such as Liverpool and Glasgow.

Vancouver house prices are approximately three times as costly relative to household incomes as they were before urban containment was implemented four decades ago. RBC Economics recently characterized Vancouver prices as dangerously unaffordable, and estimated that costs for the average house (detached and condominium) would take more than 80 percent of a typical household’s pre-tax income. The detached houses so important to raising families would take 109 percent of typical incomes!

Investors have flocked to Vancouver to make fortunes on the “sure-thing” of Vancouver housing. This drives prices even higher. According to Gary Mason of the Globe and Mail there are many “houses and condos with no lights on because no one actually lives there,” as Vancouver becomes an “investor haven for the rich.” Similarly, investors have flocked to other urban containment markets, such as San Francisco, Sydney, Auckland, and London.

Housing affordability is important to families. Housing is the largest element of household budgets. As housing costs rise, households have less to spend on other goods and services. Some households can be driven completely out of the home ownership market, as prices rise well beyond what they can afford.

There is an increasing recognition urban containment policy has driven urban planning “off the rails.” In a recent book, London School of Economics and Political Science economists Paul Cheshire, Max Nathan and Henry Overman contended that “improving places” (a principal objective of contemporary urban planning) “is a means to an end, rather than an end in itself.” They added that “the ultimate objective of urban policy is to improve outcomes for people rather than places.” Cities are not improved by policies that reduce the standard of living by driving up house prices relative to incomes.

In her November address to the Alberta Association of Municipal Districts and Counties (AAMDC),

Municipal Affairs Minister Danielle Larivee referred to the importance of strong sustainable communities for Alberta families. A prerequisite to strong, sustainable communities is strong, sustainable families.

The Municipal Government Act review should have as a principal focus restoring and maintaining middle-income housing affordability.