Author: tomAV

Housing affordability

Housing affordability Vancouver

Raising supply, not blaming foreigners, can solve housing affordability problem.

Housing is a fundamental human need and a basic piece of economic and social infrastructure. For decades, housing affordability has been a challenge in British Columbia, particularly in Metro Vancouver.

Today, the issue of housing affordability has become of national concern as it besets many communities across Canada, and has become a flashpoint for increased social problems, ranging from systemic and social racism, resentment towards “foreign” real estate buyers (often, the “foreign” label is applied to Canadians from non-European backgrounds who are recent immigrants to Canada), resentment between generational cohorts, increasing baseline stress levels for those living with chronic housing insecurity (which undermines economic productivity whilst increasing healthcare costs), economic disparity between “haves” and “have-nots,” along with a host of other negative social consequences.

The shortage of housing also poses a significant challenge for economic development, and is counter to our national policy of encouraging immigration in order to mitigate the damage caused by the Covid-19 pandemic and to reduce the negative impacts relating to increasing healthcare and seniors entitlement costs associated with our ageing demography.

Canada needs up to two million additional homes to be built over the next few years, according to recent analysis from Scotiabank. Yet, during the recent election campaign, all the political parties only proposed a fraction of what is needed and most of the proposed solutions to the problem of expensive housing were focused on reducing demand through measures such as prohibiting foreign purchases. Although politically popular, real estate sales statistics throughout the pandemic have proven that even with virtually zero buying activity from foreigners, the massive influx of money-printing and debt issued by central banks in response to the pandemic have simply exacerbated the underlying shortage of housing, and today, prices across Canada are at all-time highs.

Reducing demand rather than increasing supply is popular. It doesn’t require us to reconcile ourselves to higher density in our neighbourhoods. But it lets politicians avoid admitting that the shortage of supply is the result of government policies that have driven prices too high.

Canada has huge areas of undeveloped or underdeveloped land, builders eager to supply new housing, and historically low rates of interest. Yet, measured housing affordability is declining at the worst rate since 1994, according to the National Bank Housing Affordability Monitor. What has gone wrong?

For generations, promoting home ownership created stable communities and promoted economic growth. A federal system of mortgage insurance and public investment in high-quality, affordable homes produced the postwar boom in housing construction that peaked in the 1970s.

Housing construction has slowed since then but prices continued to rise, fuelled by declining interest rates, immigration, mortgage innovation and changes in tax policy. Our recent election has been cast as an opportunity to confirm that Canadians will “Build Back Better” – yet, because we have simply not been building enough homes to meet the fundamental demand, national house prices will have been rising for more than 24 years without a correction – since before many voters were born.

Today’s extreme housing market is the opposite of the original goals of housing policy. Stratospheric prices are fracturing and destabilizing communities, increasing financial insecurity and distorting investment in other areas of the economy – negatively impacting productivity and economic growth.

If we built enough new homes where Canadians want to live, housing would be more affordable. For no good reason, Canada’s housing stock is shrinking relative to our growing population, leaving us with fewer homes per capita than any other G7 country and saving for a down payment in Toronto or Vancouver would take the median family more than 25 years.

It used to be easier to build new homes. Today projects face uncertain approvals, delivered through a long and risky process with additional costs. Zoning by-laws restrict use and density; neighbourhood consultations, impact studies, development fees and stricter building code standards are preventing new homes from being built. A 2018 study by the C.D. Howe Institute estimated that regulation added more than $200,000 to the prices of new homes in highly regulated cities. In extreme situations like Vancouver, the estimated impact was 50% of the cost of a new house. As a result, developers are forced to focus on high-priced supply instead of more cost-effective forms of housing. In a market short on supply, Increasing the buying power of homeowners is like pouring gasoline on a fire. Homebuyer’s incentives, tax breaks and looser mortgage rules only make things worse.

We need to demand ambitious policies focused on supply. Some might include:

1. Supply from existing homeowners: Increasing the minimum permissible density on existing housing lots would encourage increased density through individual initiative.

2. Embrace innovative ownership models: Legislation that embraces promising alternative forms of ownership – and investment – in housing through co-ownership, co-housing and shared equity mortgages could bring innovation to the housing market.

3. Build new communities: We know how to provide housing through new communities: Both public and private lands can be made available and new communities can explore growth that is environmentally responsible, sustainable, and well-governed.

There are several countries that face significantly greater intrinsic challenges to providing housing for their people, yet they have proven that the housing issue is absolutely solvable. A good example is the country of my birth, Singapore. Singapore is one of the world’s most land constrained places on the planet (population of 5.7 million people living on an island with a total area of 730 square kms, equivalent to over 7,800 individuals per square kilometer). In comparison, Metro Vancouver, which has the reputation in Canada for being the most expensive, land-constrained market in the country, has a population of 2.5 million people living in a land area of 2,900 sq kms, 862 individuals per square kilometer), yet in Singapore, there is virtually no street homelessness and over 80% of Singaporeans live in a home that they own.

Fixing housing will require new and better governance rather than another generation of restrictions or subsidies that will once again be self-defeating. It will mean that senior levels of government will need to mandate new supply and limit the power of local governments to delay or deny projects. The obstacles are political and not physical or economic. There is no better time for all stakeholders in Canadian society to collaborate to fix housing. There is nothing less at stake than the future of Canadians.

Ernest Lang is principal and CEO of the Promerita Group investment firm.