A young couple I know are trying to find a decent starter house in Toronto. Their budget is a million and a half. They have good jobs and parents who can help out. So far, no luck. There's hardly anything on the market. Would-be sellers figure that if they hang on, they'll get more money next year. Besides, where would they move?
But these kids aren't complaining. They know most of their contemporaries are shut out of the market altogether. House prices have soared far beyond Toronto. Renters suffer, too. A friend of mine is desperately searching for a modest one-bedroom apartment in Barrie. The going rate: $1,100, plus utilities. That's more than half her income.
Wendell Cox, a senior fellow with the Frontier Centre for Public Policy in Winnipeg, is an expert on housing affordability around the world. I asked him when the bubble will burst. He had discouraging news. "It won't," he said. "There isn't going to be a housing bust." That's because there's a big shortage of the kind of housing people want to buy. "It's wholly a supply problem."
The main reason is a policy known as urban containment, which has been adopted by progressive land-use planners in Canada, Britain, Australia, New Zealand and the crunchy-granola cities of the United States. Their intentions are good: to contain urban sprawl by strictly curtailing development beyond the urban periphery. But the result is like "a pot on the stove with the top welded on. The pressure is intense."
Mr. Cox is co-author of the largest housing affordability survey in the world. It measures affordability as the ratio of the median house value to the median income. Anything under three means the housing market is affordable. Anything over five means it's unaffordable.
In 2004, Toronto's ratio was 3.9. Then the province adopted an urban containment policy, called "Places to Grow," that removed vast tracts of land from development. By the end of 2016, Toronto's ratio was a severely unaffordable 7.7 (and going up fast). Vancouver's was at 11.8. Vancouver's market cooled a bit after the B.C. government slapped on a foreign buyers' tax last year, but now it's heading up again. As urban containment policies spread across the country, even Montreal, Calgary and Edmonton have become "seriously unaffordable." Saskatoon and Regina, once among the most affordable markets in Canada, have ratios over 4. Want an affordable house? Try Moncton.
The United Kingdom, Australia and New Zealand are having the same problems. The connection is clear: Greater land supply for development equals lower house prices, and vice versa. So what about those other villains – population pressures, cheap mortgage rates, rampant speculation, the dreaded overseas investors? Mr. Cox says that all of these are secondary factors. And he points out that when you restrict supply speculation will run rampant. That pile of foreign money isn't flowing in to loosely regulated markets like Dallas or Houston, where ample supplies of development land (also known as "urban sprawl") have kept prices low. It's going to places where your investment is essentially a sure thing.
The affordability crisis is shaping up as a huge challenge for the middle class – and for governments. High prices don't mean that people will stop buying houses. They'll just live poorer in other ways. Their ability to save will be strangled. They'll postpone having kids, and have fewer of them. If Mr. Cox is right, high house prices will lower living standards for the next generation and create a new precariat. They will also create a sharply more stratified society, where affluent professionals take over the cities and everybody else moves out.
No wonder politicians are being pressed to bring house prices down. But everything is window-dressing unless they tackle the root of the problem: supply and demand. Don't count on action any time soon. Urban containment policies are broadly popular with the public (especially the progressive and already well-housed public). And they are gospel among an entire generation of planners and strategists who are convinced that containment, densification and compact cities are the formula for urban bliss.
"I wouldn't have any problem with urban containment, except that it destroys the standard of living for the middle class," Mr. Cox explains. The trouble is that policies that are good for places may be very bad for people. It's time to ask ourselves the question: Which comes first?
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