Here’s a familiar story.
A well-to-do country’s culture worships home ownership. Its economic policies promote it. Ownership is treated as a marker of success, especially if it’s a single-family home. Apartment living is lesser; renting lesser still. Yet new construction in the most desirable locations is restricted, and the country consistently fails to build enough housing to account for population growth. Then the pandemic hits. Too little housing supply meets rock-bottom interest rates, and already-high prices surge some more, in cities in particular. Those cities are where job opportunities are greatest, yet all that unaffordable housing discourages people from moving to where economic prospects are best.
This is Canada’s story. It is also the story of New Zealand. The difference is the island country of five million is trying to do something about it.
This week, New Zealand’s government introduced a bill to allow for the building of up to three homes, of three storeys each, on most single-family lots in the country’s cities. No additional municipal approval would be needed. The new policy is paired with plans to eliminate minimum parking rules – which force developers to build a certain amount of parking per housing unit – and to encourage apartment buildings near rapid transit.
Zoning tends to be set at the local level and that creates problems of the kind New Zealand is trying to overcome. City councils are understandably beholden to existing homeowners, and they – also understandably – want the neighbourhood they live to remain unchanged, forever. The result is zoning that freezes neighbourhoods, and entire cities, in aspic. From Toronto to Vancouver and Auckland to Wellington, a lot of residential land in cities is restricted to the least density possible. It makes it hard to add housing, and hence people, to the central parts of town where people want to live, and limits developers and new residents to the periphery or beyond.
All of which translates into higher home prices. In Canada, the average home price in September was $686,650, up 27 per cent from $540,000 before the pandemic, according to the Canadian Real Estate Association. The Teranet-National Bank national house price index has more than quadrupled since 2000. It’s driven by the biggest cities. The price of the average home in Greater Toronto – single-family, semi-detached and condos – is almost $1.1-million. In Greater Vancouver, it’s close to $1.2-million. And the dynamics driving up the price of home ownership are also doing the same for rental housing. That’s not just a problem for those priced out of Canada’s cities. It’s a drag on the entire Canadian economy.
The Greater Toronto Area has a larger economy than every province except Ontario, and it’s growing fast. Canada’s cities are its engines; if housing costs prevent people from moving to them, the result is likely to be less economic growth. New research from economics Nobel laureate David Card, looking at American data, showed that while bigger cities offer jobs with higher earnings, those moving to cities for those higher incomes end up worse off, because of excessive housing costs. This finding should set off alarm bells.
The pace of change at local levels is snail-like. Toronto in 2020 started a process to examine more density in older neighbourhoods, but a report is not expected until next year. Vancouver is going even slower. Meanwhile, as civic officials ponder and ponder, housing prices continue to spiral.
The extremity of price increases pushed housing onto the federal election stage, with Liberals and Conservatives both promising interventions from Ottawa. The Liberals pledged $4-billion to cities that “tackle NIMBYism.” The Conservatives wanted to tie transit funding to increased density near new transit.
The ideas are similar to California – a state whose strict zoning is strangling its economic dynamism. Despite being the centre of the global tech industry, the state’s population is barely growing. In September, state lawmakers finally passed legislation to end most single-family zoning, to allow for duplexes, and add higher density in cities near transit.
In Canada, as in California, the big metropolitan areas are where the jobs of today are, and where those of tomorrow will be. They need more housing, and more affordable housing. More sprawl, and more two-hour commutes, isn’t the answer. Canada has to get this right. If we don’t, it will cost us dearly.
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