Solving Canada’s housing crisis shouldn’t require more than a single lesson in economics. When prices are high, a free market always responds and supplies more. Yet amidst Canada’s severe problems of housing affordability, this foolproof mechanism is continually frustrated by governments that are either ignorant of how markets work, fixated on preserving the status quo or display naked contempt for the profit motive. Peter Shawn Taylor looks at the scorn heaped on land developers, landlords and the rest of the housing supply industry and wonders how they became the villains of this story.
Canada’s housing market has an Alonzo Hawk problem.
Alonzo Hawk was a stock villain played by veteran actor Keenan Wynn in several Disney movies of the 1960s and 1970s, including The Absent-Minded Professor and Son of Flubber. In Herbie Rides Again he was the conniving proprietor of Alonzo A. Hawk Wrecking & Building Corporation, intent on tearing down an old firehouse where a certain Volkswagen Beetle lived with its elderly owner. “His skyscrapers cast a cold and grey shadow over the children’s playgrounds all day long,” sneered one character. He’s “despicable, greedy, grumpy and wholly without principle or pity,” said another.
Watching Herbie Rides Again at a drive-in back in 1974 marked the first time your correspondent had ever encountered the occupation of land developer. And it seemed obvious to this nine-year-old moviegoer that they were on par with Nazis, bank robbers and dog-nappers in terms of routine villainy. Whatever land developers were up to – tearing down quaint old buildings to put up soulless new ones, or ripping up bucolic farmland – was evil simply by definition. It wasn’t until much later I considered how unfair it was to caricature the supply side of the housing market in this way.
Unfortunately, governments that ought to know better still cling to an Alonzo Hawk view of land developers and their trade. And it’s making life very difficult for Canadian families.
Amid the current and more pressing COVID-19 crisis, Canada is also widely considered to be experiencing a housing crisis. Earlier this year Ottawa City Council declared an “affordable housing and homelessness emergency” due to rapidly rising housing prices. Vancouver has done likewise. According to RBC Economics, housing affordability in Vancouver and Toronto “remains at crisis levels.” The share of average household income required to buy a home in Vancouver is an untenable 84.7 percent. In Toronto, it’s a still-crippling 66 percent. Rents in these markets, meanwhile, are also escalating.
“Every component of housing supply – materials, labour, financing, architectural expertise − is responsive to demand,” observes researcher Frank Clayton. “If prices go up, the market supplies more. Except for one thing: serviced land.” Unlike all the other factors of housing production, the supply of land is directly controlled by municipal and provincial bureaucracies. X
“Seattle doesn’t have rent control, they don’t have rent-only zoning, they aren’t dictating suite size or taxing their industry to death,” Goodman notes. Two years ago, Seattle’s providers built over 17,000 rental units; Vancouver added fewer than 2,000. Last year, average rental costs actually dropped in Seattle due to excess supply. X
Most of Vancouver’s major apartment buildings are at least 50 years old, predating the condo boom that began in the 1980s. During the boom’s early years, many apartment buildings were torn down to make way for new condos. In response to complaints from displaced tenants, Vancouver City Council established a policy requiring a one-to-one replacement of demolished rental units in certain parts of the city. This policy − still in effect – has become a de facto moratorium on redeveloping land in some of Vancouver’s most desirable residential areas, by taking away landowners’ discretion to put properties to their most effective and rewarding use. “It is politically expedient to protect existing tenants by preventing the demolition of existing buildings, but this is making the problem worse,” says Goodman. So Vancouver’s rental stock simply sits and rots while developers look elsewhere for better opportunities.
The city claims to be addressing its rental apartment supply problem by allowing modest density increases in certain areas. Yet a suite of remaining policies still discourage new supply. For evidence of how a developer-friendly environment can solve such problems, Goodman points to Seattle, Washington, just a three-hour drive away. “Seattle doesn’t have rent control, they don’t have rent-only zoning, they aren’t dictating suite size or taxing their industry to death,” he notes. Two years ago, Seattle’s providers built over 17,000 rental units; Vancouver added fewer than 2,000. Last year, average rental costs actually dropped in Seattle due to excess supply; landlords have even been known to tempt new tenants with sweeteners such as two months’ free rent.
Vancouver could add a lot more housing – but doing so would require slashing government regulation. Consider the Senakw project in the Kitsilano neighbourhood on Squamish First Nation land. Freed from labyrinthine city controls due to its Indigenous status, Senakw will inject 6,000 new housing units, 70 percent of which are planned as rentals, across 11 buildings, providing a massive dose of density when and where it’s most needed. As for political approvals, a simple majority vote of Squamish First Nation’s 827 members last December did the trick. Construction is to start next year. “The fact this project was approved in months, rather than years, shows what’s possible when the city gets out of the way and we can simply concentrate on building a lot of new supply,” marvels Cynthia Jagger, a partner in Goodman Commercial.
Kitchener, in southwestern Ontario, similarly complains of an affordability crisis, with housing prices up by 88 percent and rents up by 35 percent over the past decade. “The solution is always more supply,” offers Andrew Macallum, president of the Waterloo Region Apartment Management Association, which represents 300 property owners.
Yet Macallum notes that most of what passes for local housing policy seems designed to forestall more rental housing, including regional apartment property tax rates that are double what homeowners pay, as well as rental unit licensing requirements and often conflicting municipal and provincial government regulations. “Over the years we have seen so many policies try to control the market that it has simply choked the ability of property owners to look after their own needs,” he says. Without a sufficient profit motive, Macallum adds, investors will inevitably look to put their money elsewhere.
Scratch a housing crisis and you will inevitably find government policies meant to protect existing homeowners and tenants at the expense of future supply. Zoning rules that forbid innovative or higher-density developments are the biggest obstacles to owner-occupied homes. Rent control is the most widely cited and pernicious issue when it comes to rentals. While average monthly rent for a one-bedroom apartment in Waterloo Region is $1,045, Macallum reels off numerous local apartments where tenants are currently paying just $600 to $700 per month after being protected for many years by provincial rental control. “Why is that fair?” he asks. The owners of these properties are being robbed of the market rate for rent by government policy, which inevitably reduces their willingness to invest in additional rental housing.
A 2019 study in the American Economic Review repeats what is common knowledge among economists: “Rent control leads to a long-run decrease in the supply of rental housing.” While the Ford government in Ontario eliminated rent control for buildings constructed after November 2018, in Vancouver talk has recently shifted from rent controls, which limit rent increases during a given tenant’s tenure, to vacancy control, which imposes government-mandated limits on rent increases for the life of the apartment itself. If implemented, vacancy control would mean a conclusive end to any new construction in that city’s rental market.
A whole new vocabulary has been invented to heap scorn on landlords and land developers, including “renoviction” and “demoviction,” to delegitimize the process of renovating or demolishing apartment buildings to put up something newer and bigger. “These are slang terms that assume a greedy landlord is trying to toss helpless tenants out of their homes,” says Macallum dispiritedly. X
Peter Shawn Taylor is Senior Features Editor of C2C Journal and a freelance writer based in Waterloo, Ontario.
