Ottawa’s housing plan isn’t bold enough to deal with the issue of chronic undersupply

Chrystia Freeland bought a brand new pair of shoes last week, as is tradition for the finance minister when the government introduces a budget, and Canadians are wondering what sort of tracks Freeland the Liberal-NDP “agreement” will be leaving on their day-to-day lives. The 304-page document has a lot to unpack, and plenty of policy changes that will impact consumers.

On the positive side, the federal government has repealed the excise tax on non-alcoholic beer. Yes, you read that right, there was a sin tax on alcohol-free beer. This is a big win for health-conscious consumers, and those who advocate for the principles of harm reduction. Alcohol-free beer doesn’t carry the same risks as traditional beer, so it was always nonsensical that the government would sin-tax these products.

Unfortunately though, the federal government’s smart approach to harm reduction and risk-based tax policy took a quick U-Turn on the topic of vaping. The federal government will implement a new tax on vaping at $1 per 2mL for vape liquid containers less than 10mL; $5 for containers larger than 10mL; and $1 for every additional 10 mL. This is incredibly problematic from a harm-reduction perspective because vaping products are a useful tool for smokers trying to quit, and 95 per cent less harmful than cigarettes according to Public Health England. Scaling taxes up on vaping liquids makes these reduced-risk products more expensive, and thus less attractive for smokers trying to quit. The harder we make it for smokers to access vape products, the more likely they are to continue smoking, and no one wins in that scenario.

On housing affordability, which is the most pressing issue for millennial Canadians, the Liberals are a day late and a dollar short. Unfortunately for millennials priced out of the housing market, like myself, the government’s housing plan is not bold enough to effectively deal with the issue of chronic undersupply.

They’ve proposed a ban on blind bidding, which has already been shown to have no impact on prices and does nothing to increase supply. Their foreign-buyer ban is yet another policy that is attempting to tinker with demand, without addressing supply. And while some of Ottawa’s response will allow for consumers to save more, like the Tax-Free First Home Savings Account, these tax policy changes also do nothing to increase the supply of housing.

The only supply side policy the federal government has announced is its earmark for communities that grow at a quicker pace than the historical average. The government’s own estimate forecasts that this could result in 100,000 new homes by 2025, but the problem is that Ontario alone needs another 650,000 new homes just to get to the national average, which wouldn’t be much to celebrate considering that Canada ranks dead last in the G7 for housing units per 1,000 people.

And while a rate increase will certainly help dampen unprecedented home price inflation, the real policy solution here is zoning reform. The federal government could have quite easily tied federal funding for affordable housing and public infrastructure to density goals, with zoning reform as the core mechanism to achieve it. This would be broadly similar to the recent childcare agreements which involve the transfer of federal dollars in exchange for a set of provincial deliverables. On housing, it looks like millennial consumers will be left waiting — at least until 2025 when the Liberal-NDP agreement expires — for meaningful policy change.

Originally published here

Tanya joins David Clement, North American Affairs Manager for the Consumer Choice Centre, and Elliot Hughes, Senior Advisor with Summa Strategies, to examine the new agreement between the Liberals and the NDP and what will become of this new alliance.

Canada ranks dead last in housing units per 1,000 people in the G7

To say that Ontario, and Canada, are in a housing crisis would be a significant understatement. Headlines for months have shown that home prices are rising at record levels, which is quickly squeezing out a generation of young Canadians trying to buy a home.¹

How bad is the situation in Ontario? Really bad. The average sale price for a home in January nearly broke the $1 million mark, at $998,629, which is a 25.6 percent annual increase. In Toronto, the average home price saw a 28 percent year-over-year increase, with the median home selling for a whopping $1.242 million.

And the crunch isn’t just felt in Toronto. Brampton, Mississauga, Hamilton, London, and Ottawa have had their home prices inflate, year-over-year, by 41 percent, 30 percent, 35 percent, 31 percent, and 15 percent respectively. These record-high prices are largely driven by the fact that Ontario has a terrible record for building new homes. Canada ranks dead last in housing units per 1,000 people in the G7 with 424, and Ontario (which has only 398 units per 1,000 people) is a major cause of the problem.

The province needs to build another 650,000 units just to get to the Canadian average, which would still be well below France, which lead the G7 with 540 units per 1,000 people.²

Prime Minister Trudeau campaigned on the issue of solving the housing crisis, but much of the Liberal plan does little to impact the issue of chronic undersupply. The risk of course is the country’s affordability challenges get worse rather than better.

Take the government’s proposed ban on blind bidding for example. First off, this proposal does absolutely nothing to increase supply. And beyond that, it has faced criticism from housing economists. William Strange, a professor of economic analysis at the University of Toronto, explains that a ban on blind bidding wouldn’t reduce pricing to any meaningful degree and that “there’s no economic evidence that it would matter.”³ Professor William Wheaton at the Massachusetts Institute of Technology’s Center for Real Estate called the ban on blind bidding “dubious” because bidding wars are a symptom of an extreme seller’s market and not the cause. And remember the reason why Canada’s real estate market is so tilted in favour of sellers is that virtually every city has an undersupply of housing.

Two additional proposals from the federal government may make it easier for Canadians to save but similarly do nothing to increase the housing stock. The first is Ottawa’s plan to create a new tax-free First Home Savings Account, which combines the tax aspects of a TFSA and an RRSP, allowing Canadians to put upwards of $40,000 into their account, deduct the savings from their income, and withdraw it to purchase a home without any obligation to repay it. The second is to double the First Time Home Buyers Credit from $5,000 to $10,000.

While both policies should help some Canadians save more for a downpayment, they risk being undermined by the ongoing supply issues. At the very best these policies will help those with already significant housing savings get across the finish line.

So what should be done to address Ontario’s chronic housing shortage? A simple yet profound policy change would be to end single-family zoning. This refers to prohibitions on multi-family housing units or rules that set minimum lot size requirements, which ultimately end up limiting the number of housing units available in a city. A ban on single-family zoning would give property owners more freedom to build different types of housing and increase the housing stock.

Upwards of 70 percent of Toronto is zoned exclusively for single-family homes, which significantly limits building options and in turn constrains housing supply. The impact of these zoning rules can’t be overstated. A family in Toronto needs an annual income of $180,000 to purchase the median home and $130,000 to purchase the median condo. The problem? The median income for a couple in Toronto is only $97,640.⁴

While zoning is ultimately a municipal issue, the federal government can still play a role. At minimum, Ottawa should be using the bully pulpit to talk about how restrictive zoning rules are the root cause of Canada’s housing crisis. More ambitiously, though, the federal government could quite easily tie federal funding for affordable housing and public infrastructure to density goals, with zoning reform as the core mechanism to achieve it. This would be broadly similar to the recent child care agreements which involve the transfer of federal dollars in exchange for a set of provincial deliverables.

The key point here is that the federal government ought reconceptualize its efforts to tackle the housing crisis. Rather than enacting policies that won’t increase the housing stock in any way, Ottawa should shift course and make zoning reform its key housing priority. That is what will ultimately cure Ontario’s housing woes.

Originally published here