Poor government policy, not foreign investors, exacerbating Canada’s house price crisis: MLI report by Sean Speer and Brian Lee Crowley

Press Release

Government regulations are choking off land supply, making housing an unaffordable dream for many Canadians

OTTAWA, Sept. 29, 2016 – Housing affordability has become one of the hottest media issues in Canada, as news reports pile up about rising prices in major markets such as Toronto and Vancouver. The trouble is, most of the debate has misidentified the key causes of rising prices, and ignored the fact that poor government policy is a major contributor to a housing affordability problem that is crushing middle class dreams, and constraining the success of those vital economic drivers: our big cities.

That’s the conclusion of a new Macdonald-Laurier Institute report by Sean Speer and Brian Lee Crowley.

To read the full paper, titled “A Home For Canada’s Middle Class: A plan For housing affordability and opportunity in Canada”, click here.

The government is right to be concerned about housing affordability and focused on supporting affordable and responsible homeownership. Homeownership is positively associated with a raft of economic and social benefits that strengthen families, communities, and the country. In fact widespread and affordable homeownership is one of the most effective ways to get people into the middle class and keep them there.

Yet notwithstanding the political rhetoric about the importance of the middle class in Canada, so much of government policy – such as greenbelts and land reserves, exclusionary zoning and obstructive building and construction regulations – make homeownership harder rather than easier, with little offsetting benefits.

A little understood aggravating factor is that virtually all the net job creation that has occurred in Canada in recent years has been in the Toronto and Vancouver markets. These cities are increasingly at the centre of investment, job creation, and middle-class opportunity.

High housing prices are almost certainly therefore a constraint on the continued success of the engines of prosperity for the entire country, as participation in the labour markets of these two cities is increasingly priced out of reach of Canadians who do not already live there and cannot afford to move there to pursue new opportunities. Median households must now dedicate 71.7 percent and 119.7 percent to own a single-family detached home in the Toronto and Vancouver areas respectively.

But in the current politically-charged atmosphere caused by runaway prices in Toronto and Vancouver, politicians and others have clearly fastened on to marginal factors such as foreign investment or unoccupied houses as the primary problem despite limited evidence and little analytical reason to think that such factors explain the rapid price rises of recent years.

Far more relevant is the basic economic principle of supply and demand. It was not foreigners who caused the number of single-family detached homes in the Vancouver area to remain essentially unchanged for the past quarter century, or who limited detached home construction in the Toronto area in 2015 to its lowest level in 36 years.

This paper argues that Ottawa should make itself the spokesperson and agent for the middle class on the housing file and use its spending programmes to spur provinces and municipalities to stop obstructing housing supply and the rise of the middle class and the chief engines of growth in the country. It presents a blueprint to restore homeownership as a key foundation for upward mobility, middle class opportunity, and economic growth:

• Ottawa’s new social housing and infrastructure funding to the provinces and cities should be conditional on reforms to restrictive zoning and housing regulations that support more housing supply. It is counterproductive to reward provinces and municipalities with affordable housing and infrastructure funding if these same governments are impairing housing affordability and in turn undermining the national economy and middle-class opportunity.
• Provinces and cities should revisit “urban containment” strategies with a clear eye to their impact on housing affordability. Policymakers must be more transparent about the trade-off between urban containment policies (such as anti-development greenspace and obstructive zoning and construction rules) and the real economic consequences that artificially constraining the housing supply imposes on low- and middle-income families and the broader economy.
• Future social housing spending should be reformed so that it supports responsible homeownership for low-income families rather than hastening further “class barriers” and a renter underclass. The emphasis should be on social housing which tenants can ultimately purchase on favourable terms. Partnership with Habitat for Humanity is one option to advance such reform.

***

Sean Speer is a Senior Fellow at the Macdonald-Laurier Institute. He previously served in different roles for the federal government including as senior economic adviser to the Prime Minister and director of policy to the Minister of Finance.

Brian Lee Crowley is the Managing Director of the Macdonald-Laurier Institute.

The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.

For more information, please contact Mark Brownlee, communications manager, at 613-482-8327 x105 or email at mark.brownlee@macdonaldlaurier.ca.

IBF3