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Rudyard Griffiths: Want cheaper housing? Boost supply—but reduce demand too


Mike Moffat deserves congratulations for serving up some innovative and impactful policy ideas to address Canada’s gaping housing shortage. The federal cabinet would do well to zero in on his suggestions when he briefs them in Charlottetown this week for what is being billed as an important confab on the country’s housing “crisis.” The key point that government ministers need to hear more from Moffat on is reintroducing accelerated depreciation rates for rental housing. Government cannot and should not try to “solve” the housing shortage on its own. Large pools of private capital need to be attracted back into building rental housing and currently the incentives do not exist for this to happen on any meaningful scale.

What is striking about Moffat’s essay and much of the current conversation about housing is the relentless focus on increasing supply. It is as if the issue of housing demand has been erased from policymakers’ minds when it comes to tackling what has been rightly identified as one of the most complex and important issues facing the country.

Take immigration. Right now in Ontario we are adding every two years the population of Mississauga and building a city roughly equivalent in size to Cornwall. To state the obvious, this is completely unsustainable and likely unfixable in any reasonable period of time that voters could and should expect. Yet we know that returning immigration levels, and student and temporary worker visas, back to the twenty-year average of 300,000 people—versus the one million plus arrivals in the last twelve months—would have an immediate and salutatory effect on demand.

Immigration’s impact on housing looks like a live debate going into the cabinet meeting with the new housing minister (and former immigration minister) Sean Fraser publicly musing about putting a cap on the “explosive growth” of international student enrolments.

Let’s hope this is where government ultimately end ups or acknowledging the impact of record population growth on shelter costs. After all, expectations about the future matter as price signals in the here and now. They give buyers and sellers clues as to the direction of travel of a market, in this case, housing. Indicating to the market that demand via population growth will be slower for the foreseeable future would lower shelter prices today and is an easy win. 

Immigration of course is a sensitive issue that has many dimensions beyond economics and housing. But to argue that Canada wasn’t becoming more diverse and inclusive at annual migration levels a quarter of what they are today is preposterous. Also, migration isn’t the weather. It is a choice. It can be expanded or lowered according to the absorptive capacity of society. Right now that capacity, in terms of not only housing but a variety of other metrics such as health care and public infrastructure, is clearly beyond reasonable limits.

Missing also from the current discussion is some much-needed soul-searching about the role the federal government has played recently in stoking housing demand, and its corollary, a crisis of affordability. Much of the pandemic-era rise in shelter costs has its origins in a little-known mechanism called the Domestic Stability Buffer. This is the amount of capital that banks are required by the Office of the Superintendent of Financial Institutions to set aside to cover losses in the advent of a Black Swan-type event.

In the Spring of 2022, OSFI cut the DSB from 2.25 to 1 percent, providing Canada’s banks with a massive $300B in new lending capacity or 15 percent of total annual GDP. These funds overwhelming went into residential mortgage origination during the same period the Bank of Canada was slashing its overnight rate and pushing down borrowing cost by buying bonds hand over fist. The combustion of hundreds of billions in new capital and ultra-low rates explains much of the unprecedented runup in prices with average homes nationally now costing as much as average homes in Toronto in 2019. Think on that for a moment… 

As with immigration levels, OSFI made a policy choice. Some or all of the $300B in new lending capacity created out of thin air could have been mandated for corporate loans to create private sector jobs or fund new capital investment. But it wasn’t. Instead, OSFI joined the alphabet soup of other Ottawa financial organizations (CMHC, FCAC, etc.) and added to a policy environment already highly favourable to increasing shelter costs.

Part of this week’s cabinet deliberations should be a root-and-branch review of federal policy as it relates to the financialization of housing as an asset. What schemes genuinely help lower-income Canadians get into homes and rental accommodation? Which are in fact subsidies to higher-income Canadians, investors, the banks, and the real estate sector as a whole? Proof point: in what world does it make sense to have over forty percent of residential units in Ontario “investor-owned”, with some communities such as Windsor, Sudbury, and St. Catherines seeing that level approach 80 percent or more?

Here the biggest tool the federal government wields to increase housing affordability is the capital gains exemption on Canadians’ primary residences.

When this policy was instituted in 1971 it was never envisioned as applying to the housing market with an average home price at ten times the average national income. Nor was it meant to shelter millions of dollars of capital gains in luxury home sales in Canada’s major cities for the 1 percent. We need to have an adult conversation about this exemption. Is it really still in our national interest? Beyond its effect on shelter costs, are we OK with the large intergenerational wealth transfers it is increasingly facilitating? Transfers that allow the children of high-income families to “afford” housing in our largest cities, through nothing other than their birth, and price out the less fortunate. One-third of people don’t own a home, and don’t benefit from the subsidy—many not out of choice.

The cautionary tale for not using all the tools at our disposal to address our national housing crisis is what is happening right now to real estate in China.

The Chinese also took housing to their largest asset class by far and trebled, like Canada, over a generation, its contribution to GDP. They used similar tools such as cheap credit from government via the banking sector and tax subsidies to individuals and corporations to engineer a massive explosion of real-estate-related wealth.

Their entire real-estate-led economic growth model has hit a wall. High prices slowed family formation. Ever higher debt levels curbed purchases. The real-estate portion of Chinese GDP is now falling precipitously, and it seems Beijing has few if any tools left to prevent a deep recession that could end up structurally damaging their economy.

Canada has all the same raw ingredients to replicate the toxic housing and real-estate endgame China now faces. The stakes are high. We need bold action and yes there is a case for increasing housing supply. But let’s also think about the policy levers that we have to sensibly curtail demand and unwind the financialization of housing as an asset class. Both are factors that China’s experience indicates can quickly flip an unaffordability crisis into long-term, intractable economic malaise.  For all our sakes let’s hope the policy deliberations needed to avoid this “own goal” begin this week in Charlottetown.

Mike Moffatt: Canada’s housing crisis demands a war-time effort


A war-time-like effort is needed for Canada to build the 5.8 million homes the Canadian Mortgage and Housing Corporation (CMHC) estimates need to be built by the end of 2030 to restore affordability. This goal can only be achieved through a robust industrial strategy, as a “more of the same” strategy is doomed to fail in at least three different ways.

The first failure point is speed. The CMHC target requires Canada to triple homebuilding in a short period, and we cannot scale that construction sector that quickly without innovation. The second is labour shortages. Canada needs a robust housing workforce strategy to increase the talent pool from electricians to urban planners, but that will not be sufficient. Housing construction must experience rapid productivity increases. The third is climate change. Simply tripling what we are doing now will not be compatible with Canada’s climate targets due to emissions from construction and land-use changes. Furthermore, we must ensure that what gets built is resilient to a changing climate.

A federal industrial strategy can address all of these by changing what we build and how we build to make the process faster, less labour-intensive, and more climate-friendly. The government can begin by curating a list of climate-friendly, less-labour-intensive building methods that exist today in Canada but need support and expansion financing to grow, such as mass timber, modular homes, panelization, and 3D printed homes. 

Next, a strategy is needed to create a market for these technologies. The CMHC can facilitate this by creating a free catalogue of designs as they did in the 1940s. This catalogue would include designs for various housing types incorporating these technologies, from midrise apartment buildings to student residences, with diverse designs appropriate for different climate conditions. Builders using these designs could be fast-tracked for regulatory approvals, such as ones from the CMHC, since the building design had already been approved.

Government can act as the first customer for these projects, further accelerating uptake. It can build homes to address the estimated 4,500-unit shortage for Canadian Armed Forces families. Social housing can be built with the use of an acquisition fund. Colleges and universities should be given funding and instructed to build on-campus student housing to support a rapidly growing population of international students or risk losing their status as designated learning institutions, which would eliminate their ability to bring in those international students.

Tweaks to the tax system will be needed to help make these projects viable, from removing the HST on purpose-built rental construction to reintroducing accelerated capital cost provisions. The approvals process at all orders of government must be streamlined, and agencies must be staffed up to address backlogs, such as in the CMHC’s MLI Select program. Building codes will need to be amended to be compatible with these technologies, and zoning codes will need to be amended to allow for more as-of-right construction, such as in New Zealand, where six-story apartment buildings are permissible as-of-right within 800 metres of any transit station.

The federal government cannot alter municipal zoning codes, but it can offer incentives to do so. It could set up a set of minimum standards (call it a National Zoning Code), and any municipality that altered its zoning code to be compliant could be given one-time per-capita funding to spend on infrastructure construction and maintenance, no other strings attached. For example, a $200 per-capita fund would give the City of Toronto an additional $600 million to upgrade infrastructure and cost the federal government a maximum of $8 billion should every municipality in Canada sign-up. It could also follow Australia’s lead, which is giving states an extra $15,000 for every home built over a target. These incentives would not only cause provinces and municipalities to approve more homes, but they would also give them the infrastructure funding holding up current homebuilding. 

We should view this strategy as an investment, not a cost, as the economic opportunities are enormous. New housing will allow workers to live closer to opportunities, and scaling up these technologies creates manufacturing jobs across Canada and new products to export worldwide.

The key to this industrial strategy working is speed. The federal government must avoid setting up new approvals processes and micromanaging the system. Instead, it should set straightforward standards, and as long as those standards are met, approvals should be granted and payments made. New infrastructure funding to municipalities should not be on a project application basis, as it slows the process, and cities know best what they need.

We are in a crisis, and a war-time-like effort is needed. The federal government must prioritize speed and act now.