“Kudos” to the Trudeau government for proposing the use of vouchers for low income housing and homelessness. It is too bad that even in the most successful economies, many people have insufficient means to provide their own housing. Vouchers are a better way to provide low-income housing than government built housing.
But there is a more daunting problem — the large number of middle-income households no longer able to afford middle-income housing in many cities, but especially in the Vancouver and Toronto CMAs. This is a new problem. The economy provided middle income housing that was affordable for decades, with prices rising about the same rate as household incomes, with the notable exception of Vancouver.
All that has changed. Since the mid-2000s, housing prices have nearly doubled relative to incomes in the Toronto CMA and have trended upward elsewhere. Vancouver prices, already exorbitantly high a decade ago have risen so much that it is now has third worst housing affordability among 92 major metropolitan areas in nine nations rated in the Frontier Centre’s 14th Annual Demographia International Housing Affordability Survey, trailing only Hong Kong and Sydney.
This threatens the standard of living of Canada’s middle-class, recently rated the largest in the world, which is a considerable accomplishment. Many younger households and others cannot afford housing that is the equal of what those of the same economic status could afford less than a generation ago.
Many have blamed foreign buyers and speculators — people buying for investment, not for lodging — for driving up prices, seeking quick profits. In response, the British Columbia and Ontario governments imposed foreign buyer’s taxes. The rapid price appreciation was interrupted, but the already out of reach housing prices were of no use to the households that had already been priced out of the market.
The problem is that the supply of land, so important to housing, has been severely rationed by governments in Vancouver and Toronto. This drives up land prices, just like restrictions on the supply of oil are soon reflected at the gas station. Indeed, much of the difference between house prices in Vancouver and the rest of the country is in the price of land. In both Vancouver and Toronto, regulation has made it virtually impossible to build the low-cost suburban tracts on the urban periphery that played such a big part in Canada’s home ownership rate of 70 percent not many years ago. Much of the housing affordability crises in Vancouver and Toronto results from public policies that lead to higher prices.
Foreign buyers taxes and other demand side strategies miss the point. The problem is supply restrictions on land. In this situation, big profits await those born in Canada and those born in China. Vancouver and Toronto are speculator’s havens.
Canada is at particular risk because so much of the economy is dependent on Toronto, heart of the Greater Golden Horseshoe, which accounts for a quarter of the national economy. Households with less money after paying the mortgage are unable to spend as much on goods and services that create the new jobs that are so important to an expanding economy. US research estimates that these kinds of regulation have reduced the US gross domestic product by $2 Trillion annually.
Further, high house prices increase the need for low-income housing subsidies, because fewer households are able to afford the higher prices. The Trudeau government recognized the importance of this connection in its 2017 Budget, noting the need ” to ensure that Canada maintains a stable and well-regulated housing market, and to ensure that investments made under the National Housing Strategy are effective.” The recent price escalation suggests little confidence that the housing market is stable or well regulated. The government suggests an important first step, in tasking the Canada Mortgage and Housing Corporation (CMHC) to develop a comprehensive housing reporting system, with Statistics Canada reporting the results.
This could not come at a better time. There is considerable evidence that the housing affordability distress of Vancouver and Toronto are spreading, as similar land use restrictions are imposed elsewhere. Prices in Montreal have risen more than 50% relative to incomes since the mid-2000s. Prices in Calgary have risen similarly, even after the economic reversals of the oil bust. Households are being driven out of Toronto’s overpriced market to places like Barrie, Barrie and Peterborough. But, subject to similar regulations, prices there are being driven up there as well.
Vancouver and Toronto style regulation is popular with urban planners. But it destroys housing affordability by skewing land prices far higher. It is important to stop the spread of land use regulation that retards middle-income standards of living and increases the need for low-income subsidies. People need to take precedence over planning.