Like The Hub?
Join our community.
Join

Matthew Alexandris: How the ‘housing theory of everything’ explains Canada’s many converging crises

Commentary

Canada’s housing shortage is at the centre of its housing crisis.

With the lowest number of housing units per 1,000 residents of any G7 country, a ratio that has only gotten exceedingly worse since the uptick of immigration in recent years, Canada faces the highest prices for housing in the G7. 

Canada’s housing crisis has been heavily covered and analyzed, from how it is fuelling homelessness, pushing families out of big urban centres, and leading to more and more people living at home with their parents.

However, these viewpoints have only focused on how it affects people’s housing. In reality, the housing shortage affects everything. That is, according to a trio of analysts writing in the journal Works in Progress, housing shortages also impact many of the most pressing problems in the Western world, among them declining fertility, endemic chronic illness, brutal inequality, climate catastrophe, sluggish productivity, and slow growth.

They have dubbed these phenomena “The Housing Theory of Everything” and with the most acute shortage of any Western country, Canada is victim to many of its ills in particular.

For example, as Trevor Tombe recently noted, even though Canada’s economic productivity has trailed the U.S. for decades, is that the gap is getting wider. While high housing costs do not initially seem like a factor in this trend, it does play an understated part. 

Because many of the high-productivity cities in Canada also have some of the highest costs for rent, many workers are priced out of areas where high-wage jobs are concentrated. This makes it more difficult for workers with the right skills to get jobs in appropriate vacancies and limits their ability to accrue social capital that could give them even better job opportunities. 

One study estimates that in the Sydney metro area, the outward displacement of younger households—who, similarly to many Canadians, move further away from a large city—to more remote, lower-cost land and housing led to significant productivity losses for the Sydney and New South Wales economies.

Moreover, housing costs impact how many businesses allocate their resources and investments. As prices continue to rise, housing costs will absorb more and more capital and crowd out non-residential investment. Because housing investment can be a sector with high returns and few technology spillovers, many non-real estate companies will divert investment flows to housing from other, more productive activities such as business start-ups or expansion.

Productivity may seem like an abstract economic idea for how workers and businesses can earn more, but the housing shortage also has a strong impact on inequality. While many of the political debates about inequality typically are about people with higher and lower level incomes, what is less publicized is the inequality between renters and homeowners. 

According to a report from TD from last year, wealth inequality has been in decline over the last few years, due to, in part, rising home prices that have helped many Canadians see their most valued asset appreciate. However, the rising costs have exacerbated the gap between households that own a home and households that rent. For example, the average net worth of homeowners born between 1955 and 1964 is now 6.3 times higher than that of non-homeowners born during the same time.

With home prices rising significantly over the past decade, the rate of homeownership has fallen as many that do not have a high income and/or do not have financial help from their parents struggle to come up with a down payment. As the authors of the report put it, “[i]t’s too simplistic to define Canada’s wealth inequality as one of rich versus poor. Over time, it has proven to be one of homeowner versus non-homeowner.”

Most notably, the housing shortage has a critical impact on climate change. Despite the federal government making waves by introducing and expanding policies to reduce carbon emissions, they have overlooked the impact that housing policy can play to aid in the fight.

Dense housing development can often lead to lower per capita carbon consumption as it gives way to transit-rich and more walkable communities. Academics have found that low-density developments produced nearly four times the greenhouse gas emissions of high-density alternatives. Additionally, doubling urban density can reduce carbon pollution from household travel by nearly half and residential energy use by more than a third. This is why many in the YIMBY community were upset with Doug Ford’s decision to open up the Greenbelt for development, despite the justification that it would help address Ontario’s housing shortage.

The takeaway from all this is that all levels of government need to take the housing shortage more seriously. Even if they think some action to expand the housing supply is too ambitious, due to the multifaceted ways the dearth of housing creates problems, in actuality, it probably wouldn’t be ambitious enough.

Alex MacDonald: What the government gets wrong on housing: Canada needs housing affordability, not just more affordable housing

Commentary

Evidence of Canada’s housing crisis continues to mount. Rising interest rates and more stringent mortgage regulations have seemingly done little thus far to slow down the market. Sale prices and rental costs continue to reach historic highs in major cities and increasingly outside of them.

The Trudeau government has gradually come to recognize the issue’s urgency. The appointment of Sean Fraser as the new federal housing minister reflects an effort to better address it through a combination of incremental policy and stronger communications.

The main problem however may be how the government and adjacent experts and scholars have come to conceptualize the problem. So much of their attention is focused on increasing the supply of affordable housing rather addressing housing affordability in the market-based share of the housing market. Yet the distinction is key to developing policies that actually respond to growing public concerns.

The housing market can be understood as a spectrum or continuum across which all forms of housing “stock” is accounted for: shelters, social housing, rental, and every shape and size of single-family homes (e.g. townhouse, duplex, single detached, and so forth). This spectrum of housing types has corresponding prices, ownership and rental models, and demographics. 

As part of this spectrum, there’s non-market housing which includes public housing, non-profit housing and non-profit co-operatives and market-based housing which refers to homes that are sold or rented according to market forces. The former represents about 6 percent or so of the overall housing market. The vast majority of Canadians live in the latter.

Both, of course, are important and inter-related in some broad ways. But the government has failed to explain how its focus on expanding affordable housing (which may be a good idea in and of itself) will manifest itself in the market-based sharing of the housing market. There’s evidence that it may help those on the margins of market-based housing but it’s far from obvious that it will improve housing affordability for most Canadians.

It’s important therefore that the Trudeau government and its provincial counterparts turn their collective attention more fully to the entire housing market, including the more ambitious construction of market-based housing.

New home construction sets the economic, or market, baseline for housing in any given area. After all, “affordable housing” is pegged to new home construction, hence why it’s often referred to as “below market value housing.” There’s a case in fact that the causal relationship between affordable housing and market-based housing goes the opposite way than one would think based on the government’s disproportionate focus on the former. Slowing the growth in market-based prices (or even reducing them) through more building would actually help to stabilize prices for affordable housing.

But, more fundamentally, the best way to stabilize prices in the market-based share of the market is to bring supply and demand into greater equilibrium by expanding supply. Population growth exceeded 1 million in 2022. Yet we have historically built something like 285,000 homes per year. That gap will need to close or the country’s housing affordability challenges will continue to persist.

It speaks to the inherent problem with the federal focus on affordable housing over market-based housing. The longer that governments narrowly focus on affordable housing as the rest of the housing continuum continues to become less accessible to Canadians, the risk that more and more people fall out of market-based housing and overall demand for government-funded affordable housing will grow. The calls for more government funding from advocates will inevitably follow. Suffice it to say, it’s expensive to build affordable homes when the entire market is increasingly unaffordable. 

Recent data for Scotiabank Economics makes this point quite clearly: “While the National Housing Strategy has provided an important framework to anchor actions, its $78.5 bn funding pales in comparison to Canada’s housing stock at $3.8 tn (or 2 percent which doesn’t even keep pace with annual depreciation).”

The government simply cannot spend its way to affordability when it only focuses on one end of the spectrum—particularly the one that touches on a relatively small share of the overall market.

Thus far, however, Minister Fraser hasn’t signaled a major policy departure from his predecessors. He recently doubled down on the government’s emphasis on affordable housing while at the same time proclaiming that, “Our goal is not to decrease the value of [a homeowner’s] home.”

The Conservatives, by contrast, seem to understand the magnitude and nature of the problem. They’re focused primarily on the market-based share of the housing market and are prepared to use public policy to “build, build, build.” It’s no surprise therefore that their housing policy seems to be connecting better with Canadians.

It’s bigger than politics though. This “whole-of-market” approach is a useful framework for actually addressing housing affordability. It’s up to the Trudeau government for a proper reset on the housing file and match the Conservatives with its own whole-of-market approach to Canada’s housing crisis.