Canadian housing policy is, for the most part, a mess. Politicians talk endlessly about making housing more affordable. But most of their interventions in the housing market have had the opposite effect. At the very least, they’ve generated unintended consequences that have distorted the incentives faced by homebuyers, builders and lenders.
In the parts of the country where the need for additional housing is the highest, zoning restrictions and development costs make it near impossible to build new homes that are within financial reach of average Canadians. And yet, politicians refuse to fix this basic problem. Instead, they tinker at the edges.
The governments of British Columbia and Ontario have imposed hefty taxes – 20 per cent and 15 per cent, respectively – on non-resident buyers. B.C. also has a speculation and vacancy tax, which is on top of – and not to be confused with – the City of Vancouver’s empty-homes tax.
While such policies are politically popular, and may help tame speculation, they have done nothing to increase the supply of housing. And it is a lack of new supply – not in the downtown condos favoured by foreign speculators, but in the single-family homes Canadians want to live in – that remains our biggest problem.
By focusing almost obsessively, if not exclusively, on the demand side of the housing equation, governments have left us with half-baked housing policies.
And when it comes to half-baked policies, Ottawa’s new First-Time Home Buyer’s Incentive takes the cake. The plan, introduced by Finance Minister Bill Morneau in his March 21 budget, is thin gruel disguised as progressive policy to entice millennial voters.
It will do nothing to make housing more affordable in Canada’s hottest markets and will end up raising housing prices everywhere else, thereby nullifying the subsidy for first-time buyers in those places. Thinking up a more poorly designed policy would be difficult – unless, you know, you were making it up on the fly.
Yet, the First-Time Home Buyer’s Incentive, which can’t be implemented until Mr. Morneau’s budget becomes law, fits a pattern of demand-side policy initiatives that avoid having to take on powerful NIMBYs and municipal governments blocking zoning changes that might disrupt, however minimally, their idyllic neighbourhoods or affect property values near them.
A report prepared for the Building Industry and Land Development (BILD) Association this week estimated an accumulated shortfall of 98,900 housing units across the Greater Toronto and South Simcoe region since 2006, owing mainly to restrictive zoning laws and red tape. “It probably takes 10 years to get through the approval process,” BILD chair Cheryl Shindruk told The Globe and Mail’s Janet McFarland. “That’s a long time, and it’s probably getting worse.”
BILD, which serves as a lobby group for GTA home builders, is not exactly a disinterested party. But that does not mean its attempt to sound the alarm on the housing supply shortage should be ignored by policy-makers. The moment cries out for leadership on this issue – otherwise, the GTA’s housing-affordability problem will only worsen as its population approaches 10 million by 2040.
“Let’s treat the source of the problem, not its symptom,” Royal Bank of Canada senior economist Robert Hogue wrote in a prebudget analysis of the housing market. “That won’t happen with measures that boost demand but do nothing to address housing supply gaps. … What millennials in Vancouver and Toronto really need is more inventory of homes they can afford, and a better mix of housing options – be it to own or rent.”
Mr. Morneau ignored this advice – although, to be fair, Ottawa has fewer levers than other levels of government to influence housing supply. Most of those tools lie at the provincial and municipal level, but neither seems capable of considering the needs of future generations.
GTA municipal councils, which overwhelmingly favour the interests of current residents rather than future ones, have long been in the throes of the NIMBYs. So was the previous Liberal government in Ontario, which only made matters worse with greenbelt policies and zoning restrictions that drove housing prices up and new real estate developments further into exurbia.
Protecting environmentally sensitive areas and preserving agricultural land are hugely important and worthwhile objectives for policy-makers to consider, and are just as critical for future generations of Canadians as current ones. But if future Canadians are to be able to afford a home to raise their families, a semblance of balance has to be restored.
We don’t need higher densities in the downtown core. Toronto should be forced to loosen zoning restrictions in its yellow belt, the nearly 70 per cent of the city that is reserved for detached and semi-detached housing. Significantly more land outside the city proper has to be freed up for new housing, and the approval process for new developments needs to be sped up.
It sounds simple. We know it’s not. But unless governments demonstrate the courage needed to tackle the NIMBYs, our kids really won’t be all right.