Steve Lafleur is a public policy analyst and columnist based in Toronto.
Canada’s housing affordability challenges are well-known. But while it’s usually seen as a household-level problem, it’s also a broader economic problem that could become a headwind for Canada’s economy.
At the heart of the matter, the issue is simple: In a tight housing market, companies have difficulties attracting prospective workers, who might have difficulty finding accommodation. The scarcity of housing puts pressure on non-residential segments of the market as well, making it more difficult and expensive to rent offices or warehouses. This makes it hard to attract businesses.
Take Vancouver as an example. Strong demand for housing combined with restrictions on density mean that developers compete over a finite amount of land. This also pits residential and commercial uses against each other.
The Port of Vancouver regularly rings the alarm bell about loss of industrial land to service the port. The port is one of the most important economic drivers not only of the city, but also of the country. The Port of Vancouver ensures that we can get commodities to global markets and import finished products. Feeding and powering the world is Canada’s comparative advantage – and the housing crisis is chipping away at that.
This problem isn’t restricted to the port. Vancouver aspires to be a major tech hub. The city houses satellite offices for major tech firms such as Microsoft and Electronic Arts. But experts have said that future growth of the sector is in jeopardy because of the high price of real estate. To attract a bigger tech cluster – or perhaps just to maintain its current standing – the city needs more office space. And more places for people to live.
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The irony is that the growth of the housing industry owing to soaring real estate prices has been a major contributor to the Canadian economy over the years. But when Canadian cities struggle with a lack of housing to this extent, it is becoming increasingly clear that growth comes with tradeoffs.
Last year, the housing crunch out east was so severe that the University of Prince Edward Island suggested that students who couldn’t find accommodation should defer their education for a term. Imagine if this issue becomes more widespread – high housing prices would be having a direct impact on the education levels of the work force. The impact of the real estate problem is compounding, and a housing crisis could soon become an economic one.
This problem isn’t unique to Canada. Britain is having similar issues. Expensive housing makes it hard for workers to move to take advantage of new opportunities, making the economy less flexible. As another example, the New York metropolitan area has lost a considerable amount of industrial land over time, in part because of massive housing demand.
The solution is simple: If we want to attract new businesses and jobs, we need somewhere for them to move to. We need to build more on limited land. And if we don’t allow more density, existing businesses and jobs will get pushed out. This kind of Hunger Games dynamic isn’t inevitable. It’s a choice. We can choose better.