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The Canada Mortgage and Housing Corp. estimates Canada will have to construct an additional 3.5 million units by 2030 to restore housing affordability.Christopher Katsarov/The Globe and Mail

Canada has the tools to address its housing crisis. The problem is assembling the political will to use those tools.

Stratospheric home prices in Toronto, Vancouver and several other major cities are the predictable result of supersized immigration targets colliding with local governments opposed to ambitious homebuilding programs.

The possible remedies aren’t complicated, but they are politically fraught.

Ottawa could, for instance, rethink its ambitious immigration quotas. The Liberals’ desire to bring in nearly 500,000 newcomers a year – roughly double the pre-2015 level – is putting major stress on local authorities and homebuilders.

“Ottawa should consider revising its immigration targets to allow supply to catch up with demand,” Stéfane Marion, chief economist at National Bank of Canada, recently declared.

David Rosenberg of market analyst Rosenberg Research agrees. He estimates home prices would have to fall nearly 30 per cent from today’s “crazy-stupid” levels to restore housing affordability to historically normal levels.

“The bizarre way the Trudeau government has dealt with an epic housing affordability crisis in Canada has been to exacerbate the demand-supply imbalance by pursuing the most aggressive pro-immigration policy on record,” Mr. Rosenberg wrote this week. He, too, suggests the Liberals dial back their immigration ambitions, at least temporarily.

Yet Ottawa shows no signs of bending. Perhaps that stems from a profound belief in the long-run benefits of immigration. Or maybe the government’s position reflects electoral calculations about how many votes its pro-immigration stand will deliver.

Whichever is the case, the political reality suggests that those who want to fix the housing problem may want to focus their attention on the other obvious remedy – vastly increasing the supply of new homes.

Ottawa keeps talking up its good intentions in that regard, but has yet to deliver much. Its Housing Accelerator Fund aims to help build 100,000 additional homes across Canada over the next four years. Most calculations suggest far, far more are needed. To restore housing affordability, Canada would have to construct an additional 3.5 million units by 2030, Canada Mortgage and Housing Corp. estimates.

To be fair, construction is largely a matter that falls under provincial and municipal jurisdiction. The local barriers to building can be enormous, according to a report this week from Benjamin Dachis, associate vice-president, public affairs, for the C.D. Howe Institute think tank.

Many municipalities deter building by imposing zoning restrictions that discourage higher population densities. They also charge developers hefty upfront fees to construct new water and sewer connections. Yet they often fail to deliver that infrastructure as quickly as they could.

The cumulative impact of such barriers on construction can be staggering. Mr. Dachis’s number-crunching suggests that a typical single-detached home in Vancouver costs $1.27-million more than it would in a market without regulatory barriers to discourage new housing supply. In Toronto, the gap between the market cost of an average detached home and the construction cost that would prevail in a barrier-free market is $350,000, or about 40 per cent of the market price as of 2021, he calculates.

The cost of red tape

Regulatory barriers to building impose big costs on homebuyers in

several Canadian cities. Market prices for new homes are generally

well above the construction prices that would prevail in a market

without barriers to supply,according to C.D. Howe Institute research.

Construction cost gap as share of sale price

80%

70

Vancouver

60

50

40

Toronto

30

Edmonton

20

Calgary

10

Ottawa

0

Montreal

-10

-20

2011

2013

2015

2017

2019

2021

john sopinski/the globe and mail

Source: c.d. howe institute

The cost of red tape

Regulatory barriers to building impose big costs on homebuyers in

several Canadian cities. Market prices for new homes are generally

well above the construction prices that would prevail in a market

without barriers to supply,according to C.D. Howe Institute research.

Construction cost gap as share of sale price

80%

70

Vancouver

60

50

40

Toronto

30

Edmonton

20

Calgary

10

Ottawa

0

Montreal

-10

-20

2011

2013

2015

2017

2019

2021

john sopinski/the globe and mail

Source: c.d. howe institute

The cost of red tape

Regulatory barriers to building impose big costs on homebuyers in several Canadian cities. Market prices

for new homes are generally well above the construction prices that would prevail in a market without

barriers to supply,according to C.D. Howe Institute research.

Construction cost gap as share of sale price

80%

70

Vancouver

60

50

40

Toronto

30

Edmonton

20

Calgary

10

Ottawa

0

Montreal

-10

-20

2011

2013

2015

2017

2019

2021

john sopinski/the globe and mail, Source: c.d. howe institute

It doesn’t have to be this way. Mr. Dachis says policy changes could help encourage homebuilding and lower home prices in overheated markets.

The trickiest but perhaps most necessary change would be finding a way around the not-in-my-backyard contingent. To circumvent the forces of homeowner obstinacy, Mr. Dachis suggests that provinces should set minimum targets for municipal housing construction. They should then hand enforcement of those targets over to a non-political regulatory body “with the power to enforce fines on laggard cities.”

One has to wonder, though, if provincial politicians and bureaucrats would ultimately show themselves to be any braver than municipal ones when it comes to confronting voters angry about plans to build more housing in or near their leafy neighbourhoods.

You also have to wonder if the two-thirds of Canadian households who own their own homes would line up, year after year, to support measures intended to help drive down – or at least cap – the value of their biggest single asset.

Perhaps what is needed is a mechanism that would persuade homeowners to embrace more development. The simplest, most obvious way to do that would be through the tax system.

One idea that would enrage homeowners but might deliver more housing would be to rethink the tax exemption on capital gains from the sale of principal residences. If that exemption depended on living in an area that was meeting federal targets for new homebuilding, homeowners might discover a new passion for urban development.

An even more controversial idea would be to revive the ideas of Henry George, a 19th-century reformer and economist. He argued that if governments taxed the value of land – but not the structures on it – people would have an incentive to direct that land toward its most productive use.

In today’s economy, a land tax could promote greater densification of our major cities. It could also deter land speculation, decrease income taxes and boost productivity, according to The Case for Shifting Taxes onto Land, a study by a group of senior U.S. and British economists published last year.

If that sounds too good to be true, read the full paper. At a time like this, when leaders seem determined to ignore our housing crisis, we shouldn’t rule out anything.

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