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Ben Woodfinden: Canada needs to solve the problem of its own geography

Commentary

In The Spirit of the Laws, one of the foundational texts in the history of liberal political thought, the French political philosopher the Baron de Montesquieu devotes significant attention to what might be called the “geography of political culture.”

Montesquieu was among the first to pay close attention to the ways that geography and climate shape human behaviour, which in turn shapes political and social culture. The thrust of Montesquieu’s analysis is that the significant variation in geography and climate across the world in turn creates much variation in political cultures and systems.

Many of the specific claims Montesquieu makes about various political cultures are outdated, but the fundamental insight that geography shapes political culture and institutions remains valid. This shouldn’t be controversial to Canadians. Ours is a country defined by geography, and geographic challenges.

Canada is a sparsely populated transcontinental nation. The second largest country in the world, but only the 39th most populous. About 85 percent of the population lives within 160 kilometres of the U.S. border, spread out along a continent-wide strip. This population lives on different coasts, on open prairies, near towering mountains, next to Great Lakes. Our winters are mostly harsh and cold, while in some areas the summers are also hot and humid.

The fact that we are a sparsely populated place with harsh geography and an unforgiving climate sitting above a much larger global hegemon shapes Canada in significant ways. Our size and geography contribute to strong regional differences within Canada, and at times the idea of Canada as a single unified nation makes little sense.

Keeping Canada together means keeping it connected and overcoming the brute facts of our geography. This means transportation infrastructure plays a big role in both nation building and national preservation.

Canada’s own frontier spirit has often been focused on building transportation arteries that can connect Canada from coast to coast. Sir John A. Macdonald’s Conservatives won the 1878 election promising to connect Canada with a railway from coast to coast, a promise that eventually became the Canadian Pacific Railway, backed with significant public financial support.

The Trans-Canada Highway Act of 1949 led to the construction of a series roads and highways across the country to ensure there was a transcontinental road system that connected from coast-to-coast by road.

Pressure and decay on Canada’s transportation networks did not start with the pandemic.

Projects like national railways capture the imagination, but keeping Canadians connected today requires much more than just building transportation arteries between major cities. It requires connecting Canadians in remote and less populated towns and regions with the rest of Canada and making sure the country doesn’t just become a few overpriced metropolises spread out over continental flyover country.

But the pandemic has put serious pressures on Canada’s remote transportation links. This shouldn’t come as a surprise, after all, governments have spent the last year discouraging mobility and travel around the country. Provinces have done what was previously unthinkable and closed their internal borders. But there is a serious possibility that the drawback of local and regional links may end up being permanent and that’s something that should concern us.

During the pandemic Canadian airlines were “operating at about 10 percent to 20 percent of their usual capacity… Air Canada has suspended all flights to 25 of its 60 domestic airports, including Prince Rupert, B.C., Fredericton, N.B., and Yellowknife. Many cities and towns, including Sydney, N.S., are left with no commercial airline service.” And it’s not just air travel. In May, Greyhound announced it was closing up shop in Canada.

While the pandemic has exacerbated these problems, it’s important to note that pressure and decay on Canada’s transportation networks did not start with the pandemic. Greyhound might have just announced a Canada-wide closure, but in 2018 it had already decided to suspend service in Western Canada.

Most of the regional airports and routes should reopen once air travel resumes, but this is far from guaranteed and is an important part of federal negotiations with airlines for a COVID-related bailout. But even if these lines are restored, domestic air travel in Canada ranks among the most expensive anywhere in the world. Coverage gaps and affordability present significant barriers to internal travel in Canada, and this is something we should think about.

Why? Well because a country in which it’s hard or too expensive to travel in will increasingly become what Scott Gilmore has rightly called “a nation of strangers.” We tend not to travel, move, or vacation within our vast nation. We go south or across seas for our vacations, and we’re much less likely than Americans to move outside of our provinces.

Part of this is undoubtedly cultural. We are a regional country in ways that America is not. But there are material and geographic reasons for this too, and the danger in letting our internal transportation networks further decay is that we become more and more estranged from one another, and thus less likely to see a reason to stay together. Regional alienation is likely to follow from regional isolation and estrangement.

Some regional and local bus companies have already indicated they are interested in stepping up and replacing Greyhound. Rideshare technologies could also help play a role in filling network gaps. The high costs of domestic air travel in Canada are in large part because of minimal domestic competition and expensive taxes and fees associated with air travel. Opening up domestic air travel to more competition as well as limited government support for routes to places that are not commercially viable could help make Canadian air travel more affordable and accessible.

The pandemic has made us more regional and more provincial. Coming out of COVID and “building back better” should include bringing us closer together again.

Our geography presents significant challenges to national unity, and it’s something we are always going to have to work to overcome. A country full of various regions increasingly estranged from one another is one that may just slowly drift apart.

Finding ways to encourage internal travel by making Canada more accessible (and travel more affordable) to Canadians is one small thing we can do to help make sure this doesn’t happen.

Chris Spoke: Don’t overthink it. The solution to our housing problem is to build more

Commentary

Housing in our major cities is becoming increasingly unaffordable. I think we all know this by now.

Most people recognize that this is due to supply constraints that limit the amount of new housing being completed every year to house new people. That is, the price elasticity of supply (or responsiveness of supply to rising prices) is too low.

The CMHC studied this exact metric in a large 2018 research report on the drivers of home price growth in Canada’s five largest metropolitan areas between 2010 and 2016, and estimated that housing starts in Montreal, Calgary, and Edmonton rise one percent to two percent for every one percent increase in home prices. In Toronto and Vancouver however, housing starts only grow by 0.5 percent and 0.3 percent, respectively.

Unsurprisingly, Toronto and Vancouver are leading the pack in terms of our housing affordability crisis.

Most people also recognize that the most meaningful of these supply constraints take the form of land-use rules that set large parts of our cities aside as being effectively out of bounds for new housing development. These rules are informed by a not-in-my-backyard (NIMBY) sentiment that pits incumbent homeowners against newcomers, whether they’re young people or immigrant families.

As former CMHC President and CEO Evan Sidall puts it, succinctly, “homeowner NIMBYism makes affordability worse.”

But “most people” isn’t “all people.”

Some people reject this simple explanation to a simple (if serious) problem and think that new housing supply will not and can not improve the situation. They think this because, as they put it, the real problem is that housing has become “financialized.”

“Homeowner NIMBYism makes affordability worse.”

In 2019, a Toronto City Councillor wrote about this for Spacing magazine.

“That’s financialization and it has nothing to do with the simple supply and demand curves taught in high school. It makes housing more expensive. It increases the concentration of wealth. It is an insanely risky way to run the biggest economic sector in the world.”

This word, financialization, has gained traction among some progressive politicians and activists who recognize that housing affordability has become a problem but who reject the efficacy of supply side solutions, that is, of land use liberalization and increased development activity.

So, what does it mean? I understand financialization to mean three things.

First, the increased legibility of housing by global capital markets.

Thanks in large part to the internet, the housing market has become more efficient as information asymmetries have eroded. It’s now much easier for an analyst in New York City, London, or Hong Kong to get a good understanding of distant housing markets and allocate capital accordingly.

Second, the process by which housing in major cities has become attractive as a store of value, due in large part to its predictable scarcity.

Housing in most major North American cities is predictably scarce because a series of land use and other rules have made it hard to build. These are the supply constraints I mentioned above. As a consequence, housing values in these cities typically increase at a higher rate than inflation. This makes housing attractive as a store of value.

Finally, an inflating money supply that contributes to and exacerbates the increased demand brought about by both of the points above.

To restate the point, these are all demand-side factors impacting housing prices and affordability. They do directly have to do with the simple supply and demand curves taught in high school.

Which is not to say that financialization couldn’t be a problem, or that we shouldn’t explore relevant solutions. Predictable scarcity for instance could become predictable abundance given — you guessed it — land use liberalization and increased development activity.

Author’s note: Hub contributor Ginny Roth and I will be discussing the topic of housing affordability with GMU economist Bryan Caplan on June 7th at 7:45 PM EST. Register at blueforum.ca with promo code HUB for free access.