Housing and homeownership have climbed to the top of the policy agenda in the Conservative party leadership race. This past week, two candidates, Pierre Poilievre and Scott Aitchison, proposed using the federal spending power to push municipal land-use reform in the name of building more homes.
The basic idea is that Ottawa transfers billions of dollars for infrastructure and social housing to lower orders of government and it should attach conditions to these funds around liberalizing zoning rules and residential development policies.
These policy pronouncements are an implicit recognition that (1) a lack of housing supply is the principal reason for Canada’s housing affordability challenges and (2) local policy choices are mainly responsible for the lack of adequate housing supply.
The question, of course, is: what should the federal government do in response to such a supply-driven diagnosis?
The idea of using federal conditionality to drive municipal reform isn’t new. It’s something that Brian Lee Crowley and I first put forward in a 2016 policy paper for the Macdonald Laurier Institute.1A Home for Canada’s Middle Class It’s good to see that it’s now getting traction in the Conservative leadership race.
Yet it’s not a universally popular proposal among conservatives. There’s been some criticism from conservative-policy types on the grounds that the use of the federal spending power conflicts with the conservative preference for decentralization and subsidiarity. Long-time conservative policy thinker Ken Boessenkool in particular has argued that if aspiring federal leaders want to change municipal land-use policies they should run for mayor of a Canadian city.
His main point is that municipal decisions ostensibly reflect democratic preferences in those places and local voters should be free from federal or provincial interference in local decision-making. They should, in other words, be able to adopt stupid policies if that’s what they want. The federal government shouldn’t have a say in the matter.
There’s something to this line of argument. Subsidiarity is a fundamental part of the Canadian conservative worldview. I’ve argued elsewhere, for instance, in favour of the genius of Canada’s system of decentralized federalism2Ottawa needs a history lesson on the benefits of federalism in general and reforming the Canada Health Act to enable greater provincial autonomy in health care in particular.3Ottawa should get out of the way on health care
As a general rule, Canadian Conservatives (and conservatives) ought to be champions of a conception of federalism that legal thinker Asher Honickman has described as “watertight compartments.”4Reforming Canadian Fiscal Federalism: The Case for Intergovernmental Disentanglement But there’s a strong case that the housing file may be different. Ottawa’s constitutional role5The Constitution Act, 1867, 30 & 31 Vict, c 3 over the national economic union actually justifies some intervention in housing policy.
Let me explain: The key point here is that the effects of stringent land-use rules aren’t simply borne by the local community. The consequences—especially in the case of our large, most dynamic, job-creating cities—spill out into the national economy in the form of foregone economic activity and middle-class opportunity.
One way to think about it is as follows: the labour market functions like a big megaphone that enables communication between employers and job seekers across the country. In cities like Montreal, Toronto, and Vancouver, which have been disproportionately responsible for net new job creation in recent years, the labour market is screaming at the top of its lungs for workers and yet stringent land-use regulations and their effects on housing prices are impeding the ability of individual workers to answer.
The consequences are far-reaching. People remain stuck in places where there are fewer jobs and less opportunity and the national economy suffers as a result. As Crowley and I wrote back in 2016:
…housing affordability challenges throw up massive barriers for people to move to the cities with the highest growth and most opportunities. The national economy is undermined when the small number of cities responsible for net job growth are basically unaffordable for a share of the population. Housing costs are therefore obstacles to raising incomes, growth, and productivity for everyone.
This isn’t a conceptual point. Well-known research from the United States, for instance, estimates that stringent land-use regulations in its most dynamic cities such as New York and San Francisco lowered aggregate economic growth by 36 percent between 1964 and 2009.6Housing Constraints and Spatial Misallocation
NIMBYism isn’t merely a local or neighbourhood issue. Its implications for the functioning of the national labour market can be significant and therefore justifies the policy attention of the national government.
The upshot: while Boessenkool is generally right that conservative policy ought to preference local decision-making and outcomes, the externalities from local land-use rules for the national economy actually justify using the federal spending power to liberalize municipal zoning policies.
It’s also worth noting that the policy interventions proposed by Poilievre and Aitchison are still voluntary in the sense that municipal officials can keep their local land-use regimes if they feel strongly about them even if it results in fewer federal transfers. That seems like a reasonable balance between localism and the national interest.
Yet Boessenkool’s opposition is still highly valuable as an ideological check on the temptation to extend the federal spending power to any number of other issues that may be important or politically charged. He’s right that we must place significant constraints around the role of the federal government to avoid a slippery slope of greater and greater intrusion into provincial and municipal affairs. We shouldn’t, as he puts it, throw a big federal government at bad municipal government.
In this particular case, though, two seemingly conflicting ideas can be true at the same time. There’s a principled case for federal intervention in housing. And it should be an exception to the rule.