New homes are built in a housing construction development in the west-end of Ottawa on May 6, 2021.Sean Kilpatrick/The Canadian Press
City councils are at the root of what ails Canada’s housing market – the lack of supply of homes. For decades, councils have prevented new housing through strict zoning rules that reserve the majority of residential land for the least amount of density possible, the detached house.
While there has been a recent nationwide rise in home building, it is not enough. In the hottest markets of Ontario and British Columbia, and across Canada as a whole, home building has been mostly below average in recent decades, measured against the population. This contrasts with building sprees in the later 1960s and 70s, according to Statistics Canada data.
This housing scarcity – alongside factors such as low interest rates – has propelled home prices to record highs. This is common across the Western world, where the same civic political dynamic exists, in which existing homeowners hold sway over councils and oppose new housing.
Some senior governments have started to do something about the problem. New Zealand last year legislated that every city lot where only one home is allowed will be able to host three as of this August. California last September passed several measures to increase housing density.
Ontario looked like it was about to do the same – but it caved to local pressures. Last December, Premier Doug Ford struck an expert task force to figure out how to get a lot more housing built quickly. The report in February called for the doubling of home construction over the next decade, in particular by allowing four homes on lots reserved for one.
But cities, fearing a loss of power, revolted. The mayor of Mississauga resorted to the usual scaremongering, that new homes would “dramatically change the nature of our neighbourhoods.”
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Mr. Ford’s government, facing an election this spring, folded and, in tepid legislation introduced on Wednesday, mostly ignored the heralded housing report. What can be built where is still fully restricted.
Cities in B.C. are also fighting back. The NDP provincial government has said a “massive housing boom” is necessary. Last week, the Union of BC Municipalities issued a report that claimed housing is “not in short supply”.
It was a bald display of misused data. In one example, a chart shows home building at a current high. Everyone knows this. But the chart only goes back – conveniently – to 2000. If one looks back further, and adjusts for population, the picture is the opposite of what B.C. cities tried to argue.
Supply is the fundamental problem. But as this page noted last week, it can’t provide immediate relief. It will take time – if change actually happens.
What could shift things quickly is interest rates. In 2017-18, at the end of the last mania, rising rates helped cool prices. It could happen again. The outlook for rates has changed. The Bank of Canada last week hinted it could double its policy rate to 1 per cent in April – the first 0.5-percentage-point increase in 22 years. More hikes are expected thereafter.
Yet, as this page has said, even if prices fall a lot, homes will still be too expensive. They weren’t affordable even before the pandemic home-buying splurge.
Some governments are turning to smaller moves. Ontario this week increased its foreign-buyer tax to 20 per cent from 15, and it will now be applied across the province. But foreign buying is a nominal factor in a market dominated by domestic demand.
In B.C., the NDP is creating a “cooling off” period for people buying homes to allow for things like an inspection. That’s reasonable, but tangential to the real problems.
Canada’s housing market is out of control. Prices rising almost 30 per cent in a year should be a five-alarm fire for policy makers. A healthy, well-supplied housing market would see slow gains at the rate of economic growth, where people can buy or rent at fair prices. Housing is not supposed to be a casino.
Yes, supply is a broad term. All sorts of new construction is necessary, such as purpose-built affordable rentals, the kind Ottawa helped finance in the 1960s and 70s. Canada used to build a lot of housing.
While there is no singular answer, there are clear priorities – and in Ontario, Mr. Ford rejected the biggest one: getting rid of old rules that stop many more new homes from being built.
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