Douglas Todd: Why more housing supply will not solve affordable prices

Opinion: Five reasons why this superficial solution to combat house price escalation often does not work

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Things are so out of control in Canada’s overly expensive housing market that some politicians and experts are asking the country to emulate a new New Zealand policy in which many are behaving as if it is the answer to affordable prices.

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They say Canada should quickly join New Zealand in banning single-family zoning and allowing residents, for example, to build up to three storeys without requiring consent. Property developers claim getting rid of annoying city approvals will allow them to build more homes faster.

Admittedly, their argument may seem logical: Build more homes and prices will fall.

But there are at least five reasons why this superficial solution to combat price escalation does not often work – and has not been effective in Canada, especially in Greater Toronto, Vancouver and other overheated markets.

Housing prices have always been affected by supply. But self-interest is trying to ignore the fact that they are also affected by demand (especially population growth), by mortgage rates and by investors’ perpetually enthusiastic strategies for how to commit a murder.

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The issue of supply, supply, supply, not surprisingly, is relentlessly pushed forward by the real estate industry and its allies. But here are five reasons why their mantra often sounds hollow:

Canada has normal supply levels

The push for greater supply started fueling this year after Scotiabank economist Jean-Francois Perrault largely claimed that Canada has the lowest number of homes per capita. 1,000 inhabitants in any G7 country. It turns out, however, that his analysis is misleading.

Kwantlen Polytechnic University geographer John Rose said Perrault’s claim “gave to a big headline” but is weakened by investigation.

Though correct, Canada has slightly fewer homes per capita. per capita than seven other advanced economies, including France, Japan and Germany, Rose said Perrault did not bother to look at one crucial factor: Is housing cheaper in the countries with more housing?

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More importantly, the Scotiabank economist did not take into account that, on average, more people live in a Canadian household than in most other G7 households. If the banking economist had done so, Rose said, he would have seen Canada “is not the last” in the housing supply.

“Canada comes in fourth place, which is not a particularly sexy headline.”

2. Vancouver is already close but still unaffordable

UBC city planner Patrick Condon, author of Sick City, warns that it is not possible to build on an economic crisis in which prices are criminally separated from wages. The city of Vancouver already has the densest population in Canada.

“The city of Vancouver has added more housing units per capita than any city in North America over the past 30 years, but housing prices have risen faster in Vancouver than any other North American city,” Condon said.

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Up-zoning in itself, he says, mostly just increases land values ​​and brings unexpected profits to landowners.

If politicians choose to hand out neighborhoods for higher density, Condon says they should only do so on the condition that developers provide affordable housing to people with average incomes. A formula could be reached whereby developers still make a profit, he said, albeit a more modest one.

While Canada's housing industry goes to great lengths to trumpet New Zealand's attempts to erase zoning regulations, it is silent on other, arguably more effective, measures introduced by Prime Minister Jacinda Ardern.
While Canada’s housing industry goes to great lengths to trumpet New Zealand’s attempts to erase zoning regulations, it is silent on other, arguably more effective, measures introduced by Prime Minister Jacinda Ardern. Photo by MARTY MELVILLE /AFP via Getty Images

3. The rewards of New Zealand’s new zoning rules are greatly exaggerated

Developers and their allies constantly complain about zoning restrictions are too harsh in hot spots like Ontario and BC

But arguments that Greater Vancouver and Toronto are dominated by “single-family” zones are light. People who make such claims do not take into account that so-called detached houses in the city of Vancouver, for example, can now have at least three separate units, including a suite and a house with a path.

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While more supply may be helpful, it has to be the right kind. Too many homes under construction in urban Canada are of the luxury variety that appeals to the domestic and foreign elite. And offer developers bigger profits. It does not help young local workers.

4. Why the deep lack of interest in New Zealand’s other affordable policies?

While Canada’s housing industry goes to great lengths to trumpet New Zealand’s attempts to erase zoning regulations, it is silent on other measures introduced by Prime Minister Jacinda Ardern.

She has gone much further than Justin Trudeau in tightening the mortgage rules, which are designed to prevent potential buyers – and especially investors – from overstimulating the market by taking on ridiculous debt.

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In 2018, New Zealand also banned most foreign nationals from buying housing. Meanwhile, Trudeau is failing to fulfill promises he began making in 2019 to restrict or ban home purchases by “non-residents, non-Canadians.”

Unlike Canada, New Zealand also announced this year that it is cutting back on new immigrants and guest workers.

For business reasons, Canadian business leaders and experts rarely discuss how large-scale immigration is the main source of population growth and housing demand in cities such as Vancouver, Toronto, Calgary and Montreal.

Their silence prevails, even as groups like BC’s Urban Development Institute quietly confirm the arrival of more than 100,000 new immigrants, foreign guest workers and international students to Metro Vancouver each typical year is the main reason the supply has to be screwed up.

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Although Statistics Canada’s surveys show that new immigrants spend significantly more on housing than home-born ones, Trudeau is going in the opposite direction of the popular Ardern – he has raised the number of immigrants to record levels.

If the ScotiaBank economist had looked more closely at the data, says Kwantlen's John Rose, he would have seen that Canada
If the ScotiaBank economist had looked more closely at the data, says Kwantlen’s John Rose, he would have seen that Canada “is not the last” in the housing supply in the G7. “Canada comes in fourth place, which is not a particularly sexy headline.” Photo at distribution by topic /jpg

5. A frenzy among investors is overheating of homes

Investors and speculators are on a crazy streak in Canada. People who already own more than one home, for example, have suddenly become so largest shopping cohort in Ontario.

Such investors are confident that prices will continue to rise, as they have done for decades in Canada. Their speculations about housing as a commodity rather than as shelter have led to mass hoarding.

Canada now has 1.3 million empty homes, meaning a tenth of the country’s supply is not even being used. It is the fifth highest of the 26 advanced economies in the OECD. China, which has also experienced speculative mania, now has 65 million empty homes. But its authoritarian leaders are cracking down.

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This army of housing investors in certain parts of the globe is running on confidence. But it’s also the exciting feeling speculators had in Spain, Ireland and parts of the US before 2008 – when the bubble burst.

Many of the cities and suburbs that at the time had relaxed their zoning rules to enable massive construction boom ended up looking like ghost towns.

dtodd@postmedia.com

Twitter.com/@douglastodd

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