The Housing Crisis – Simplistic solutions don’t work but there are things that we can do
Whether you want to rent or buy the costs are very high relative to people’s income. Everyone is talking about the housing crisis and many poorly thought-out solutions are being bandied about. I will cover a number and explain why they do not work. Then I will suggest some things that will help.
Simplistic solutions:
Bring down inflation
“The only way to avoid this crisis is to fight inflation in the next two years, so the Bank of Canada can reduce interest rates. Bring Home (sic) lower prices and homes people can afford. It’s common sense.” Pierre Poilievre
Like many simple solutions, this idea is flawed. It is affordability that counts, not house prices alone and even house prices are affected by more than just inflation. The National Bank of Canada’s Affordability Index shows that monthly mortgage payments relative to median income increased by 84% from 2000 to mid-2023 for houses across Canada. For condos the increase was less but still 60%. Most of the increase was over the past 3 years but even from 2000 to 2020 the increase was 20% and that was during a period of low inflation and low interest rates. If house prices climb faster than income, affordability decreases. If they climb more slowly than income, houses become more affordable. Inflation is a factor but it affects both income and house prices so what counts is whether income or house prices rise faster. Houses can become more affordable when inflation is increasing, decreasing or stable.
Reduce foreign student visas
That would reduce demand and lower housing prices but at what cost? Universities need the revenue from foreign students and we need the educated students to make their homes in Canada after they graduate. Certainly, we need more medical professionals, engineers and many other professionals.
Reduce the number of immigrants that we take each year
Again, this would lower demand but Canada has the space and needs more immigrants of all types. Aside from professionals, we need skilled workers to, among other things build houses. We need farm hands, teachers, plumbers, electricians and so on.
However, we do not need illegal border crossers, drug dealers, criminals, etc. We need to immediately deport anyone who crosses our borders illegally or who commit serious crimes. Our criteria for accepting immigrants who apply should be heavily weighted towards those with the skills we need. Well selected immigrants lead to a growing economy, better productivity, and demand for homes which, in turn, can lead to the supply increasing. Reducing immigration is a short-sighted solution.
Require developers to build the types of housing we want
Mayor Valerie Plante imposed new rules on developers such as 20-20-20 (20% social housing, 20% affordable housing and 20% large units for families). Well how did that work out? It didn’t. Developers walked away so not one bid for land in the Hippodrome area was received. The developer of the Montreal Children’s Hospital site was told to follow certain rules if they wanted to build another high rise. They walked away. Any developer would tell you that imposing these rules is a recipe for no development and now we have seen that the developers were right and we have a shortage of housing. As a result, we are faced with apartments and houses that most people can’t afford unless they live far from downtown.
Solutions that will help
It is all about supply and demand. As anyone who has taken even one Economics course knows, supply and demand are rarely in balance. When demand is greater than supply, prices rise and suppliers produce more until there is a glut, prices fall and less is produced. It is a recurring cycle but that does not mean that governments cannot try to reduce the peaks and valleys. Reducing demand as discussed above will lower prices and increase affordability but the cost is much too great. We need smart students and skilled immigrants so let’s examine how to increase supply.
First, we need to ask what type of housing do we need most. The answer is high rises in central locations in major cities. These must be near public transit. Montreal already has a master urban plan calling for more density near public transit. That is good. Such developments (whether rentals or condos) will provide the maximum housing as quickly as possible and will reduce cars and pollution. We don’t need single family homes in far flung suburbs although they will still be built if there is demand for them
Cut the red tape
Developers will build high rises if demand and prices are high enough but another factor is the cost to build. Time is money. The more rules and regulations, the less likely a developer will build. Some rules relating to safety and designs that fit with the neighborhood are necessary but the process to get approvals must be sped up. Other rules such as Mayor Plante’s 20-20-20 rule must be scrapped. Regulations requiring Green buildings also add to costs and time to build. As I have argued previously, (Some inconvenient truths about climate change) there is no climate emergency but there is, indeed, a housing crisis which will get worse if we don’t act now. Further, more dense housing near public transit is good for the environment and will reduce the use of fossil fuels.
Free up apartments and condos
In Quebec, short-tern rentals under 31 days, such as Airbnb’s, are legal only if they are registered as a business and ads for them show the registration number and expiry date. Currently 70% of Airbnb’s do not follow the law. As of September 1 both Quebec and Montreal intend to strictly enforce the law with very large fines. If the law is enforced and if other provinces follow Quebec’s lead, thousands of apartments will become available. It will be good for hotels who do follow the law and pay taxes. It will also greatly increase the supply of units available and put downward pressure on prices.
Another idea that has been used in Toronto and Vancouver is to apply an extra tax on non-residents who purchase condos purely for speculation and leave them unoccupied. This, too, will lead to more units available for rent.
The above ideas will increase supply without the construction of any new buildings.
Don’t allow the NIMBYs to prevent residential development
NIMBYs (Not In My Back Yard) regularly stop development projects that are in the best interest of the majority of residents in a town. I think the current laws strike a fair balance between residents near a development project and those in the town as a whole. However, in practice the NIMBYs usually get their way. This is true all-over North America. It happened in the last municipal election in Hampstead and in Pointe Claire. I’ll discuss what happened in Hampstead since I know that story very well but the lessons are basically the same everywhere.
In Hampstead, I wanted to upzone most of Cote Saint-Luc Road from six storeys to ten storeys. It would have enticed developers to tear down the old building stock which was very run down and to build new higher apartment buildings along a road with two buses going to two different Metro stations, exactly what Montreal’s master urban plan calls for. In addition, it would have increased Hampstead’s tax revenue dramatically. It would have happened if the councillors backed me but, sadly, the councillors except for Cheryl Weigensberg, were more interested in playing games and getting votes from the NIMBYs. The NIMBYs (tenants and Queen Mary Road residents living behind the potential new buildings) came to council meetings and were very vocal. The self-serving councillors saw an opportunity and argued for 8 stories instead of my proposed 10 storeys. So, the zoning was not changed and it became an election issue. The NIMBYs all came out to vote but a very small percentage of the rest of Hampstead voters came out. The councillors against me and for the NIMBYs won.
Were the councillors motivated by politics when they said they wanted 8 storeys? They were all elected and yet they haven’t upzoned to allow 8 storeys. They won because of the NIMBYs so they won’t allow any development at all. It is bad for Hampstead and bad for those who want a greater supply of rental units at lower prices. It is also bad for the environment.
What is the lesson we can learn? Don’t elect self-serving politicians. It is not always easy to tell who is sincere and who is not but if residents paid attention, they would have realized that my arguments made a lot more sense than those of the councillors who pushed for 8 storeys. In fact, a survey of residents showed that a large majority were in favor of upzoning to at least 8 storeys and most wanted 10 or more. However, surveys don’t count. You must vote for your best interests because you can be sure that the NIMBYs will. 55% of Hampstead residents did not vote in the last election. Les absents ont toujours tort.
If you enjoy reading my Uncommon Sense articles, share them or forward them to others and invite them to subscribe. It is free and there is no advertising on my web site. Readers may agree or disagree but I hope they will be stimulated to consider other points of view
2 Comments
Excellent analysis
Strong and logical arguments…
Thank you,
Marilyn Cooperman