Municipalities need to stop trying to ease housing demand by increasing obstacles. Instead, they should increase the supply of housing by cutting red tape
BY SAMANTHA GALE, CMBA EXECUTIVE DIRECTOR
WE HAVE BEEN TALKING ABOUT housing affordability challenges in some of the globe’s largest metropolitan cities – such as London, New York, Sydney and Hong Kong – for some time now. While house prices have escalated in Canada’s urban centres over the past decade, we could always peg affordability in this country to those international cities where a new-home buyer might only be able to afford a shoebox apartment, such as Manhattan’s 78-square-foot mini-studios or the 25-metre units in the heart of Paris’s Left Bank.
However, urban centres in Canada – namely, Toronto and Vancouver – have recently distinguished themselves by making it to the top of many international least-affordable-cities lists. A cool million or two will no longer buy a palatial luxury abode in those places; rather, just an average – perhaps even basic – single-family home.
The daily media is now replete with commentary from economists, housing experts, politicians and other analysts offering their views on the problem (that is, if they believe there is a problem) and potential solutions. There is no consensus as to whether we are in a housing bubble or the extent to which wealthy foreign buyers (particularly from China) are impacting housing prices. In addition to the generally accepted goals of increasing density and improving public transit, proposed solutions focus on new taxes; the proposed solutions include a speculation tax on property flippers, a new property purchase tax on
foreign buyers and an annual tax on owners of vacant homes. The Prime Minister, the premier of British Columbia and the mayor of Vancouver are now discussing housing-affordability solutions. As of July, the Premier has given the mayor the green light to proceed with a plan to tax the owners of vacant homes.
One B.C. commentator (1), real-estate marketer Bob Rennie, has cautioned that we don’t need just the optics of a solution – we need a real solution. While a speculation tax could ease pressure at the lower end of the market, a foreign-ownership tax would not impact the demand or supply of housing and, ultimately, would have no impact on affordability. In the end, he argues, a foreign-ownership tax will only lead to racially charged conversations, and we must also recognize our need and dependence on foreign investment. For example, foreign students contribute to 26 per cent of the University of British Columbia’s revenue and as much as 41 per cent of the revenue for the Emily Carr University of Art and Design. In Ontario, meanwhile, the Minister of Training, Colleges and Universities has acknowledged that “Each international student contributes about $35,000 to our economy” and concluded that “$35,000 is creating a job.”(2)
We must also ask ourselves whether Canadians have a right to affordable housing and what the metrics of affordable housing look like. (We know that no one is trying to solve the housing-affordability challenge in affluent neighbourhoods like Toronto’s Rosedale, Montreal’s Westmount or Halifax’s South End.) We also need to ask whether people have a right to live in single-family housing in a city’s core, in all neighbourhoods or in close proximity to where they work. Rennie suggests we need to redefine our concepts of affordability and livability – both require moving out of the city centre into outlying areas, and out of single-family homes and into condos and townhouses.
City planners can assist here by ensuring that growth into surrounding suburban areas is supported by efficient public transit systems, transportation infrastructure and appropriate zoning to accommodate population expansion. However, our municipalities must get a failing grade on the housing affordability issue; the Fraser Institute has recently reviewed the red tape imposed by municipalities and concluded that it adds significant and unnecessary costs to housing construction, which are ultimately passed on to homeowners.
Last year, in the Greater Toronto Area’s King Township, the cost of permits and other compliance requirements added $57,500 to the cost of an average single home, while similar costs in the City of Toronto added $44,092 to the cost of each housing unit.3 In the City of Vancouver, the Fraser Institute
found that it takes an average of 15 months to obtain development approval, while permitting and other costs added $37,000 to the cost of each unit.(4)
In addition, it’s not just out-of-pocket fees that add to housing costs; debt servicing and carrying costs can mount with approval delays, which, in many cases, can run for months or even years. Even a small red-tape delay of six months can add carrying costs of over $20,000 to the initial price of a million-dollar home.
Municipal zoning rules also create affordability problems. American housing economist Edward Glaeser suggests that overzealous zoning restrictions by municipal authorities and land-use planners are a clear contributor to skyrocketing house prices in some cities, as zoning changes to accommodate appropriate housing are too challenging to obtain. Houston, Texas, is one of the fastest-growing cities in North America, and can serve as a model for Vancouver and Toronto bureaucrats to follow
on the issue of zoning. Between 2010 and 2014, Houston issued more building permits than any other American municipality. It was able to accommodate housing demand with the use of loose land-use policies and the lack of restrictive zoning, which helped to keep housing affordable. By comparison, Vancouver has poorly thought-out zoning rules, with over two thirds of areas ripe for housing development needing to be rezoned, which either adds to the cost (due to delay) or prevents housing from being built at all.
It goes without saying that we do need municipal land-use planning and approval processes, and those processes cost money to implement and manage. However, before politicians try to solve our problems with yet another tax for which there is no empirical evidence to support, perhaps they ought to look in their own backyard. The message is especially poignant for Vancouver mayor Gregor Robertson, who is proceeding with his plan to introduce a new empty-home tax, despite not having taken steps to address housing costs that he is directly responsible for imposing on the public. If municipal governments are unwilling or unable to cut red tape and delays in the housing-approval process, perhaps it’s time for the provincial and federal governments to step in.
1 Bob Rennie, UDI speech 2016