Making Housing Affordable

Even with shocking price increases for homes across the country, including increases of nearly 40% during a global pandemic and the greatest economic contraction since the Great Depression, there has been little in the way of ambitious solutions to deal with the crisis that is clearly unfolding in Canada’s housing market. There seems to be the concern that solutions would be too radical, or even that solving the housing crisis is not possible in a country like Canada where urbanization has concentrated demand too heavily to be counteracted.

Fortunately, solutions to improve our housing market are available to us, and not only are they not radical, they have been successfully applied already for decades in other industrialized nations.

The first three items on this list are a result of exhaustive research stemming from initial suggestions from r/canadahousing participants, while the last three items are some of the original policy suggestions adopted during the early days of our subreddit.

Rationalize & Standardize Zoning for Growth

One of the most powerful policy tools available for Canada comes in the form of rezoning. At present, single family zoning is the primary form of zoning used in Canada, a fact that is especially notable in Canada’s major cities. As a result, Canadian cities have far lower densities than our international counterparts, leading to far higher prices as more land is needed to produce the same quantity of available homes. In Asia, where there is far less available land and much larger population, the challenge of ensuring housing access has long been an issue that governments have sought to address, often with substantial success along the way. Japan holds one of the best examples of this, with zoning policies being at the forefront of its housing system. As a result, Japan’s largest and most expensive cities, such as Tokyo and Osaka, are competitive in price with Canada’s most affordable cities, with prices often less than one third that of Toronto or Vancouver.

While Canada has a strict and complicated system of zoning regulation, Japan’s system is simplified using only about a dozen zones. These zones have very wide varieties of usage options, and homes are allowed to be built in all of them except for heavy industrial zones. In nearly all of these zones, residential is defined very loosely, allowing for multi family homes and small apartment complexes to be built in the vast majority of available land.

Restrictions on home size are much less onerous as well, with homes able use the vast majority of the lot on which they are built, with less clearance needed between the the home and other buildings or the street. Japan also applies its zoning system nationally, so laws are are universal across the country, without having new and different systems in each city and town as Canada does. Canada is also primarily using single family zoning, which restricts the type of homes being built to only the lowest density option, excluding the far more affordable options such as apartments or multi family constructions that would reduce cost and ensure far better usage of land.

Zoning laws like those used in Japan have a second advantage as well. Construction can start far more quickly when zoning laws are simple, clear, and intended to encourage new construction rather then restrict it. As a result, more constructs can take place, at a lower cost, and completed in less time. All three benefits are desperately needed in Canada.

Japan’s system of zoning is neither radical nor complicated. There is no reason for Canada to continue under its current system of zoning, with the obvious failures that have resulted from it, when there is another option so easily available to us. We need only adopt it.

Citations

Transparency for Informed Decisions in Real Estate

Sydney property prices increased by 12% in June 2021 YOY (Year on year) [2]; by comparison, Toronto property prices increased by 28% in June 2021 YOY [1]. One of the factors that leads to Sydney’s property appreciation being significantly less than Toronto’s is the practice of blind bidding within Toronto. Blind bidding “is the process of submitting a bid without knowing what the other homebuyers are offering” [3]. It was once only common in the “Toronto and Vancouver markets” but has since expanded to real estate markets in Atlantic Canada and the Prairies [3]. By contrast in Sydney and all other parts of Australia, bidding wars happen out in the open through the open auction system. Within that system, there is a four-week period leading up to the auction where prospective buyers “can schedule visits and inspections on the home in order to prepare their bids” [4]. Then on bidding day, “interested buyers gather on the sidewalk outside the home and place their bids out in the open, in an auction led by the seller’s agent” [4]

Another aspect of Australian consumer protections with regard to real estate is that Australians have access to a lot more real estate data than most Canadians as “[buyers] can obtain home inspection results, sale-price histories and information on recent sales of comparable and neighbouring homes — without going to an agent to get the information” [4]. As a result of this, “most [buyers] don’t use agents” [4].

Given this, what can be done in Canada? Canada could make property, listing, bids, and sale data free, and publicly available online which would help disrupt realtor monopolies that inflate prices. This is the natural extension of the Supreme Court of Canada’s ruling in favour of opening up historical home sales data [5], a ruling which decreed that the Toronto Real Estate Board could not restrict it’s brokers from sharing their data online. This would be a natural extension of that ruling as it would remove the requirement for one to be a broker in order to access that data. This would enable consumers to understand how the value of a particular home has changed over time as well as determine how much they should offer relative to the other bids on the house; thereby, preventing overly high bids, reducing the amount of household debt taken on by consumers and enabling greater purchasing power for later.

Citations

  1. Toronto Housing Market Report
  2. Sydney Housing Market Insights: June 2021
  3. Blind bidding debate in Canadian real estate
  4. Here’s how to buy a home in Australia should Canada follow it’s lead
  5. Backgrounder: abuse of dominance by the Toronto Real Estate Board

Eliminate Artificial Scarcity Barriers

We are facing a crisis of housing affordability unlike anything we have witnessed before in Canadian history. This crisis has been borne of a layered multitude of mutually exacerbating factors, one such being zoning and city organization which this text will focus on. City organization in North America as we know it now can be traced back to a 1926 US Supreme court case in which the residents of Euclid Ohio fought off an industrial development near a residential area by the legal means of what is now commonly known as zoning. Single-use zoning in North America is often still referred to as Euclidean zoning to this day, as it has formed the basis of how we currently plan land use.

While the need to plan cities is indeed intuitive and necessary, our current approach to it introduces problems of administrative scarcity and a slow legal framework that introduces roadblocks to good development, often creating supply and demand imbalances (Filipowicz, 2015). Administrative scarcity can be defined as a scarcity of land not directly caused by a logical or practical shortage of space in which certain structures can be developed, but a scarcity caused by zoning laws which have produced a shortage of a certain type of zoning which is in demand for development and use. With the extreme specificity of Euclidean Zoning, it is often seen that logical uses of land by owners and prospective owners are blocked, adding administrative scarcity, and driving up the cost of areas zoned in sought after classifications. In Vancouver, you can see this imbalance in the vacancy rates of various zones with office, industrial, and multi-family housing at 9.7%, 3.7%, and 2.2% respectively (Filipowicz, 2015) A counter-example to this is Montreal, which until recently, was seen as one of the most affordable large cities in Canada, with a vacancy rate for residences at near 3% in 2017 (Filipowicz, 2019). By zoning in a hyper specific single use manner, reacting only to the impetus of small city councils, we have created a systemic barrier to developing supply to the level asked by demand.

Even when zoning eventually moves to make plausible supply meet demand, there is a speculative dollar cost for acting too little and too late. A recent report written in Australia, another country that shares our common-law framework and real estate woes, found that while zoning has benefits it also can carry costs in the way of raising the price of a detached dwelling by as much as 73% by introducing administrative scarcity that makes land more prone to speculative price increases (Kendall & Tulip, 2018). Because development is so in demand, just the act of zoning an area correctly, and specifically too little and too late, will cause the pent-up demand to attract a speculative price raise. The degree of this effect also seems to be modulated by the imbalance between zoned density and demanded density within a given area. People have a desire to live near amenities and infrastructure, both of which are predicators of quality of life, which makes certain areas more desirable; poor zoning laws, or even zoning laws designed to keep out density in these desirable areas, is one of the key roadblocks to affordable living in good quality of life areas (Gray 2019).

Piecemeal zoning change, and even some moderately scoped reinterpretations of zoning structure, are not enough on their own to affect the kind of paradigm shift we need to ensure that Canadians have affordable access to quality housing. Natural experiments in Vancouver and Chicago have found that even some moderately sized upzones or reinterpretations of zoning do not lead to rapid increases of development in the short and medium term, with most starts still occurring in desirable areas, while one of the short-term effects is an increase in speculation on the newly administratively reorganized land (Freemark, 2019) (Filipowicz 2018). In the worst-case scenario, poorly led attempts to increase density without supporting systemic change can incentivize gentrification and worsen affordability, which is something that we have seen begin to happen in some Toronto neighbourhoods as luxury condos become the preferred construction of developers over more affordable dwellings capable of housing families (Lehrer &Wieditz, 2009). This highlights the need for systemic change with a multitude of focal points, not the least of which is zoning. But we cannot finish there, as systemic zoning reform must be accompanied by policies and programs which incentivize the market to account for the societal benefits of making sure that Canadians can afford housing.

Recent circumstances have highlighted this need for a multifaceted approach to housing affordability, one which must incorporate a shift away from single-use zoning to a system that is still capable of addressing local concerns about safe development. We need to strive to ensure that the way we administer our cities can reconcile the supply of housing to meet demand and ensure equitable access to homes for Canadians.

Citations

  • Filipowicz, Joseph.Zoning, What’s the Use? Canadian Student Review, Fraser Institute, 2015 Winter, p. 26-36
  • Filipowicz, Joseph. Fewer Vacancies Bad News for Montreal Renters.Fraser Institute Blog, 2019-01-04
  • Filipowicz, Joseph. More Duplexes in Vancouver- One Small Step in the Right Direction.Fraser Institute Blog, 2018-09-20
  • Freemark, Yonah. Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction. Urban Affairs Review,2020-01-29; Vol. 56(3):758-789
  • Grey, Nolan. Why is Japanese Zoning More Liberal Than US Zoning?Market Urbanism, 2019-03-19
  • Kendall, Ross; Tulip, Peter.The Effect of Zoning on Housing Prices.Reserve Bank of Australia Research Discussion PaperVol. 2018-03, 2018-03-08
  • Lehrer, Ute ;Wieditz, Thorben. Condominium Development and Gentrification: The Relationship Between Policies, Building Activities and Socio-economic Development in Toronto. Canadian journal of urban research, 2009-01-01, Vol.18 (1), p.140-161

Increase Minimum Down Payment for Investment Properties

Investors purchase homes that would otherwise go to families, reselling them in a few months or years for massive profits. To discourage this behaviour, we must limit the access investors have. This includes increasing the minimum down payment required to purchase investment properties.

Increase Capital Gains Taxes for Investors and Speculators

Investors and speculators over-leverage themselves to purchase several properties, allowing them to sit vacant or renting them out temporarily. They soon resell the home for significant profits. Such transactions harm homebuyers and do nothing to provide stable rental housing. We must increase the capital gains tax from 50% to 70% for investment properties. As New Zealand does, the tax would fall each year of ownership until it reaches 50%, encouraging investors to think long-term about their housing purchases.

Introduce New Taxes on Vacancies and Short-Term Rentals

Property should primarily give people a long-term place to call home. But speculative investors are outbidding working families for properties that they ultimately use for short-term rental income or leave vacant while prices rise. New taxes would reduce investors in an already tight market and ensure that houses are primarily for families and long-term renters.

Renters are impacted by the increase of short-term rentals due to a lack of tenant protections governing them. This, in turn, breaks communities, increases rental prices and disturbs the well being of existing tenants and owners nearby alike.

Many localities have already curbed, taxes, or outright banned short-term rentals in Canada and around the world. Enacting rules and bylaws to suppress these types of rentals is a good start, but lacking any real enforcement makes any of these enactments ineffectual.