In April, the Canadian federal government announced its budget for 2022 with a much-needed focus on building homes over the next decade. Initiatives in the proposal included the launch of a new Housing Accelerator Fund of $4 billion to aid in speeding up housing development, which highlights the obvious demand for homes in this country.

Canada led the G7 in percentage population growth over the last five years (the 5.2% population growth is double that of the United States’ 2.6%). Canada added 1.8 million citizens between 2016-2021 and the federal government has plans to welcome 1.3 million immigrants over the next three years. This population growth is being achieved against the backdrop of a chronic housing supply shortage.  It was reported this year by Consumer Choice Centre that among the G7, Canada has the lowest average housing supply per capita with only 424 units per 1,000 people nationally, a ratio that is lower than it was five years ago. Of all the provinces, Ontario leads this disparity with only 398 units per 1,000 people – requiring 650,000 units to be built just to meet the national average.

With the recent increase in interest rates and construction cost inflation, some developers are taking a pause on launching new products, which will only exacerbate the supply imbalance and contribute to upward pressure on prices in the coming years. Whether for rent or for sale, Canada needs to build more houses, and quickly.

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Increasing the housing stock puts downward pressure on prices and fosters economic growth

At both the federal and provincial level, Canadians and their legislators often look down their noses at American policy and politics, and sometimes with good reason: gun control and the abortion debate come to mind. But when it comes to tackling the housing crisis Canadian politicians could learn a thing or two from what is unfolding south of the border.

Earlier this month President Joe Biden announced that the federal government would be seeking to tackle the root cause of the housing crisis, which it believes to be exclusionary zoning — local rules that prohibit multi-family housing from being built and instead favour single-family units. In a White House statement, the administration said “Exclusionary land use and zoning policies constrain land use, artificially inflate prices, perpetuate historical patterns of segregation, keep workers in lower productivity regions, and limit economic growth.”

All of that is true. Increasing the housing stock puts downward pressure on prices and fosters economic growth. Research on zoning rules in the U.S. has shown that, by freezing workers out of high-rent areas like New York and San Jose where their productivity would be higher, local zoning rules lowered U.S. economic growth by fully 36 per cent between 1964 and 2009. There is no reason to assume similarly exclusionary zoning laws aren’t having the same negative impact in Canada. Toronto, for example, has nearly 70 per cent of its land zoned exclusively for single-family homes, making it illegal to build anything with increased density.

Elevating the conversation and targeting zoning reform are things Justin Trudeau and Chrystia Freeland could have done in their last budget. Right now, only two Conservative leadership candidates are talking about zoning on the campaign trail, Scott Aitchison and Pierre Poilievre.

But lessons about zoning reform aren’t just useful at the federal level. The U.S. offers plenty of examples of state and municipal legislators carrying out dramatic zoning reforms. In Oregon, for example, any land previously zoned exclusively for single-family homes can now, as of right, build a duplex on that site or even a four-unit dwelling if it is in a municipality larger than 25,000 people.

The same goes for Minneapolis, which abolished exclusionary zoning before the pandemic. The city now appears to be bucking the trend of rising rental prices. Rents for one- and two-bedroom units are actually lower in 2022 than they were in 2019. Some of that presumably can be chalked up to having made it easier to build for increased density.

Finally, the small town of Auburn, Maine, shows how local councilors can embrace “YIMBYism” (which stands for “Yes, in my backyard,” as opposed than “Not in my backyard”) to increase affordability. Auburn’s Mayor Jason Levesque, originally elected in 2017, ran on a pro-development platform that gave voters in his town of 24,000 three options: drastically raise taxes, cut public services, or bring in new residents. Having chosen growth, Auburn plans to increase its housing stock by upwards of 25 per cent, gutting zoning rules and taking an “all of the above” view on housing types.

That type of bold ambition is exactly what is needed in Canada’s major cities and the communities that surround them if we want to tackle rather than just talk about the affordability crisis. Nationally, average rents rose nine per cent in April compared to a year earlier. In Toronto and Vancouver, arguably the two Canadian cities most in need of increased density, rents rose 23 and 27 per cent, respectively. On the buying side, the national MLS benchmark price for a home was $882,000 in April, a 27 per cent increase year-over-year despite interest rate increases beginning to dampen demand.

Much of Canadian political culture is framed in opposition to what exists in the U.S. but on zoning reform, we should look southward and learn. It’s time to build but exclusionary zoning is in the way.

Originally published here

David Clement is North American affairs manager of the Consumer Choice Center. He’s one of the authors of a policy paper outlining why cities should allow more multi-family housing.

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Canada ranks dead last in housing units per 1,000 people in the G7, and Ontario is the lead cause, David Clement and Yael Ossowski write.

Ontario NDP Leader Andrew Horwath has unveiled the NDP’s platform in the lead up to the next election, with a policy plank putting an end to exclusionary zoning. For many, this is a bold move from the Official Opposition. It also happens to be a policy change that Ontario desperately needs.

Exclusionary zoning are prohibitions on multi-family housing units ultimately limiting the number of housing units available in a city. Simply put, peeling back exclusionary zoning gives property owners more freedom to build different types of housing, increasing the housing stock, something that Ontario needed yesterday.

Nationally, Canada ranks dead last in housing units per 1,000 people in the G7, and Ontario is the lead cause. Ontario only has 398 units per 1,000 people and needs to build another 650,000 units just to get to the national average.

In Hamilton, buyers and renters are feeling the pain caused by the chronic undersupply of housing. Average home prices are now over $1 million, inflating 25 per cent year-over-year. And the pain isn’t just being felt by those looking to buy a home. Undersupply is putting upward pressure on rental prices as well. The average rent for a two-bedroom apartment is $1,841. That rent requires an income of at least $82,000, but the average family in Hamilton has a pre-tax income of only $66,460. As the housing crisis worsens, the average home, both buying and renting, is out of reach for the average family.

Beyond making life more affordable, increasing the housing stock also grows the economy. Research on zoning rules in the U.S., which mirror what we see in Canadian cities, showed that housing constraints lowered U.S. aggregate growth by 36 per cent from 1964 to 2009.

But, some who oppose density will likely rehash the argument that increased density, despite growing the economy, is bad for the environment. Time and time again, NIMBY voices argue against increased density because of the perception that increased density is a net negative for the environment. It’s not true.

In fact, according to the Intergovernmental Panel on Climate Change (IPCC) more compact cities could reduce urban emissions by upwards of 25 per cent. This should be intuitive for policy-makers. If people can live closer to where they work, the stores they shop at, the restaurants they dine at, or where they seek entertainment, they ultimately drive less. Whether it be by foot, transit or bike, compact cities actually allow for people to reduce their carbon footprint, not increase it.

And it isn’t just emissions that are reduced by zoning reform. The same goes for water usage. According to the peer reviewed journal Landscape and Urban Planning, single family irrigation rates are 48 per cent higher than multi family housing units.

While the NDP is making steps in the right direction on zoning reform, they are taking a giant step backwards with their proposal to give municipalities more decision-making power by reforming the Ontario Land Tribunal. Giving more power to local councillors is exactly what got Ontario, and Hamilton, into this mess. Zoning reform is needed, but emboldening local governments with more decision-making power is bad policy, and one that could undermine the value of zoning reform.

Hamilton needs more homes. Ending exclusionary zoning is a great step in the right direction. Whether blue, orange, or red, all political parties, both federally and provincially, need to make zoning reform a priority. 

Originally published here

“The issue of chronic undersupply is having a devastating impact for both prospective buyers, and those who are renting in major Canadian cities.”

One of the core components of Ottawa’s 2022 budget was a focus on housing. While it’s appreciated that the government is now taking a serious look at housing affordability, much of its plan will do very little to dampen the chaos, like its ban on blind bidding, primarily because it fails to properly address the issue of chronic under-supply.

The supply of homes in Canada, per capita, is the worst in the G7, and it has actually gotten worse over the past eight years. In 2016, Canada had 427 housing units per 1000 people. In 2020, that number actually decreased to 426 units per 1000 people, and in 2022 it fell to 424 units per 1000 people. France by comparison leads the G7 at 540 units per 1,000.

The issue of chronic under-supply is having a devastating impact for both prospective buyers, and those who are renting in major Canadian cities.

In Toronto, for example, the average home price is now more than $1.3 million dollars. A family needs an annual income of $180,000 to purchase the median Toronto home, and $130,000 to purchase the median condo, all while the median income for a couple in Torontois only $97,640. As the crisis worsens, buying an average home is becoming virtually unattainable for the average family.

Unfortunately, the issue of chronic under-supply is also being passed onto renters as well. The average rent for a two-bedroom apartment in Toronto is $2,715, which, based on the CMHC’s affordability metric, requires an annual income of $118,000.

So, housing prices are inflating at rapid levels, while wage growth is lagging far behind, and the response from Ottawa could largely be described as “tinkering with demand.”

Take the federal government’s ban on blind bidding, which is the process where prospective buyers submit their bids on a house without knowing the amount of the other bids. The thought process here is that blind bidding is causing bidding wars that are artificially inflating prices upwards. But is that true?

Not according to housing economists. William Strange, a professor of economic analysis at the University of Toronto, explains a ban on blind bidding wouldn’t reduce pricing. 

“Not to a meaningful degree. There’s no economic evidence that it would matter.” 

Economic analysis comparing bidding models, such as blind bidding versus open auctions, finds different types of auction do not produce dramatically different sales prices.

In addition to Professor Strange, 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 sellers’ market, and not the cause. And the reason why Canada’s real estate market is such a sellers market is because virtually every city has an under-supply of housing.

Beyond the policy being ineffective, it completely ignores the issue of under-supply and raises questions about competition between auction types. So long as there is nothing mandating all home purchases be done in a blind auction, the market should remain open to competing auction types. Sellers may choose to sell their home in a blind auction, but if buyers demand otherwise, we could see some shift and competition between the two auction types. That would be a preferred outcome, in comparison to picking one auction type over the other, because it ultimately leaves that decision between buyers and sellers.

And while some might read competition between auction types of free market zeal, we are seeing changes from the industry itself. For example, the Canadian Real Estate Association already announced it’s piloting a real time tracking system for bids, streamlining the buying process and increasing transparency for consumers.

So will a blind bidding ban do anything to alleviate the housing crisis? No, not really. At best, it tinkers at the margins of demand, while leaving the housing shortage problem unaddressed.

Originally published here