Mark Milke is a Calgary author.
Vancouver Mayor Gregor Robertson's call to impose a tax on empty dwellings in that city, ostensibly to discourage speculation by wealthy buyers, is only the latest poor idea on how to make Canadian housing more affordable.
Of note, Calgary and other prairie cities have been the exception to the dramatic price hikes spotted elsewhere this year. But if Canada's energy-sector recession ever ends, expect that city and others to eventually join the ranks of those with swollen home prices.
The upward price pressure is the result of three factors: low interest rates, strong immigration – including the related effect of wealthy buyers from China looking to park money abroad – and a shortage of housing supply, starting with land.
Let's take each of these in turn.
In a paper released earlier this year, Fraser Institute founder Michael Walker argued that interest rates around the globe are likely to stay low. He notes that changing demographics have created "a dearth of borrowers and hence a relatively high saver-to-borrower ratio." That means central-bank monetary policy is ineffective on matters of inflation. In fact, deflation is more likely. Conclusion: Interest rates will stay low for decades.
Canada's relatively high immigration levels also matter. Add 300,000 permanent residents a year (in addition to other categories of admitted persons) to a country with a relatively small population – Canada's proportion of foreign-born residents, at 20 per cent, is significantly higher than that of Germany or the United States, for instance – and the demand side is boosting prices for shelter.
Related to this, offshore money sunk into Canada's housing market has had an effect. A small cohort of wealthy investors from a much more populous country – China has almost 1.4 billion people – can dramatically affect housing prices in places where city populations are relatively small, in the mere millions. Canada, in other words.
On immigration and investment, it is not clear much can or should be done. Politicians in the previous Conservative government and the present Liberal one have been sympathetic to high immigration levels. Moreover, many Canadians are sympathetic to immigration.
In theory, intake levels could be reduced. There is no "perfect" immigration level, including our current numbers. But absent dramatic reductions, which might carry negative unintended consequences of their own, slightly reduced immigration levels are not likely to affect prices.
Back to Mr. Robertson's idea of another housing tax. That would do nothing to counteract the effect of low interest rates, high immigration levels or China's rise in the world economy, which is restructuring housing but also many other markets. Besides, buyers who can already afford million-dollar homes are unlikely to be deterred by what they would see as a trifling new tax.
Another option is to limit foreign ownership of Canadian housing. But that's suboptimal and injurious to property rights. Homeowners should have the right to sell their homes to willing buyers, be they from Beijing, Boston or Barrie.
All of the foregoing deals with the demand side of housing. Overlooked is the supply side.
Since the 1970s, British Columbia has restricted land development by way of the provincial Agricultural Land Reserve. Ontario's Greenbelt regulations have done the same since 2005. And even cities such as Calgary are preventing more housing developments on the wide-open prairie, in an attempt to force higher density in the existing city.
Opening up more Vancouver-area land for more housing is unlikely to have much effect on prices there. A desirable coastal location boxed in by mountains and sea will always experience upward price pressure.
But that dynamic does not apply to every part of British Columbia, or to most land in other provinces, including Alberta and Ontario. So, a question: Why, in a country as large as Canada, are we allowing politicians to artificially restrict land development?
Part of the answer is found in green policy preferences. But one can like green space, as I do, without acceding to the notion that Canada should restrict development as if it were the size of Singapore.
If Canadians wants moderated price levels for housing, especially over the long term, relief is not likely to come from interest rates or immigration levels. That leaves land supply. Opening it up would help reduce a significant piece of the final price tag for Canada's single-family homes, townhouses and condominiums.