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Sean Speer: The 2024 Hunter Prize takes on our biggest public policy challenge: housing affordability

Commentary

“Securing the promise of Canada is not only about creating jobs and keeping our air clean, it’s also about making sure that everyone has a real and fair chance at success. And given Canada’s strong population growth, that means solving the housing crisis.”

– Prime Minister Justin Trudeau, November 1, 2023 speech to the Ontario Economic Summit 

Canada’s housing affordability crisis has risen from a young-person issue mostly concentrated in a small number of major cities to what federal Finance Minister Chrystia Freeland has recently called the “central challenge” facing the country. The prime minister is right to say that it strikes at the heart of the “promise of Canada.” 

The magnitude of the crisis is now well-established: 

  • Over the past twenty years, Canadian home prices are up by more than 140 percent on a real basis. The average home price nationally increased by nearly 50 percent since the COVID-19 pandemic alone. 
  • Major cities such as Toronto and Vancouver are now among the least affordable in the world. Canada, as a whole, is home to the highest housing price-to-income ratio in the G-7 and the second highest in the OECD. 
  • National Bank estimates that the qualifying income required to buy a typical home in the Greater Toronto Area is roughly $225,000—which means that a family must be in the top ten percent of income earners to qualify for a typical mortgage in the GTA.
  • RBC Economics similarly estimates that the share of income needed to cover the ownership costs in Vancouver is now 102.6 percent. The national average is more than 60 percent.  
  • Average rental prices in Canada have also seen a significant increase in recent years. The average one-bedroom apartment in Toronto and Vancouver is $2,800 and $2,590 respectively and for two-bedroom units, it is $3,370 in Toronto and $3,920 in Vancouver. To put that in perspective: the median after-tax income in Canada is about just under $69,000, so rent in these cities would represent between 55 and 70 percent of the median family’s or individual’s after-tax income. 

The source of the crisis is rather straightforward: there’s a large gap between supply and demand that’s driven up prices and kept them elevated even as interest rates have gone up. The Canada Housing and Mortgage Corporation estimates that we need to add nearly 6 million new homes by 2030 to restore a semblance of affordability. 

Yet if the source of the problem is clear, its underlying causes are far more complicated. It’s a multi-causal crisis with a number of contributing factors, including (in no particular order): 

  • An unprecedented low-interest rate environment for more than a decade that has put upward pressure on housing demand. 
  • Large-scale population growth driven by immigration—including permanent residences and non-permanent residences (such as students and temporary foreign workers)—that boosted the country’s population by 1.25 million in 2023 alone. 
  • Federal and provincial policies (such as subsidized mortgage insurance and various tax incentives) that have artificially increased housing demand. 
  • Local land use and zoning policies, as well as development fees, that have driven up the cost of housing construction and limited the growth of housing supply such that Canada is now home to the fewest homes per capita among G-7 countries.
  • Provincial and local rent controls which are shown to constrain the supply of new units and similarly drive up prices. 

This inexhaustive list of causes and effects is mostly limited to the market-based share of the housing market. Some might choose to interpret the housing crisis through the lens of inadequate social or First Nations housing or the so-called “financialization” of the residential housing sector. 

The key point here is that while different people will undoubtedly understand the housing crisis and its causes in different terms, the fundamental problem is still the same: the Canadian housing market is marked by too much demand and too little supply. 

In that sense, many of the differing interpretations about the causes of this inherent supply-demand gap may in fact be correct at the same time. It’s doubtless true that a combination of low interest rates, high population growth, and anti-development policies have contributed to the supply-demand gap at the heart of Canada’s housing affordability crisis. 

The question before policymakers is: how best to address these interconnected issues and in turn bring supply and demand back into something approximating equilibrium in order to restore affordability? We’ll come back to that in a minute. 

First, however, it’s worth returning to the prime minister’s recognition that we find ourselves in a “housing crisis.” He’s right of course. Canada’s housing affordability challenges have reached the level of national crisis for several reasons, including (in no particular order): 

  • Housing costs have become a huge financial burden for individual households, including contributing to unprecedented levels of household debt.   
  • There’s strong reason to believe, based on U.S. research, that high housing prices are distorting labour mobility (particularly to the country’s most productive cities) and, in turn, significantly reducing overall economic output. 
  • Evidence tells us that high housing prices are a key factor in delayed family formation and, in turn, a contributing factor to Canada’s declining fertility rates. 
  • Rising housing prices have distorted consumer spending and private investment away from more productive places and parts of the economy. 
  • Public optimism about the future for individuals and the country as a whole has fallen based in part on declining expectations about homeownership and the harsh realities of the affordability crisis. 
  • There’s a risk of growing intergenerational tensions and the possible erosion of social cohesion and political stability if we become trapped in a zero-sum conflict over housing. 

These economic, social, and political costs of the housing affordability crisis are significant. They risk distorting Canada’s economy, its demography, and ultimately politics itself. The housing crisis is a “wicked problem” rooted in the supply-demand gap that now requires of our policymakers a proportionate policy response. 

The focus and nature of such a policy response will necessarily differ based on the underlying cause that it’s aiming to address. Some may pursue land-use reforms in order to expedite and increase housing construction. Others may reform or eliminate housing subsidies in order to curb policy-induced housing demand. And there may be those who enact immigration reforms in order to bring population growth in line with housing supply. The list invariably goes on. 

A person walks by a row of houses in Toronto, Tues. July 12, 2022. Cole Burston/The Canadian Press.

The key point is that we require serious policy action to address the multi-faceted causes behind Canada’s housing crisis. We must begin to close the gap between supply and demand. This starts with ideas. 

That’s why we are pleased to launch year two of The Hunter Prize for Public Policy. The prize, generously supported by the Hunter Family Foundation, aims to shake up Canadian policymaking by marshalling fresh ideas, energy, and voices to take on a clearly-defined “wicked problem.”

Wicked problems, by the way, are policy issues or challenges that are difficult to solve for three reasons: (1) they involve interconnected economic, cultural, and social factors; (2) they tend to be long-term in nature; and (3) their possible solutions can be contentious due to entrenched thinking and interests.

Up to $50,000 in total prizes will be awarded each year to Canadians aged 40 and under for their innovative and practical policy ideas in response to a specific problem. The winning idea will ultimately be determined by an esteemed panel of judges. You can learn more about the prize here.

For this year’s prize, participants are tasked with the problem of addressing Canada’s housing affordability crisis. It’s indeed a “central challenge” facing the country that requires new voices and new ideas that transcend ideology, partisanship, and conventional wisdom. We couldn’t think of a better topic for this year’s Hunter Prize for Public Policy.

We end therefore where we started with the prime minister’s warning about the housing crisis and the threat it poses to the “promise of Canada.” As significant as the short-term economic costs of housing unaffordability are, it’s these long-term costs to our common aspirations and collective optimism that may ultimately be the most damaging. 

It’s good therefore that our politicians are acknowledging the problem. But it’s not enough. We need practical ideas to solve it. The Hunter Prize for Public Policy intends to be part of the solution.

The Weekly Wrap: It’s time for conservatives to give up on Doug Ford

Commentary

In The Weekly Wrap Sean Speer, our editor at large, analyses exclusively for Hub subscribers the big stories shaping politics, policy, and the economy in the week that was.

Ontario’s 2024 budget is a turning point for conservatives and Doug Ford

Conservatives have given the Ford government the benefit of the doubt since it was first elected in 2018. They were prepared early in its first term to overlook reversals on key policies like de-regulation or social assistance reform. They voted for its re-election even though its COVID policies were some of the most draconian and unsensible in the Western world. They accepted that the small-ball populism was the transaction cost of a populist premier. They stayed quiet in the face of the petty corruption evident in the Greenbelt scandal. They’ve even tolerated the sustained lack of progress on the province’s poor public finances on the grounds that the pandemic had disrupted the government’s fiscal efforts. 

The past week, however, feels like a turning point for the relationship between conservatives and the Ford government. Eventually one needs to come to terms with the realization that nothing different or better is coming. Conservatives have understandably reached that point.

The first sign was the housing file, where the Ford government has talked the talk but consistently failed to walk the walk. That housing starts in the province are not only far from the government’s ambitious targets but have actually fallen year-over-year can only be interpreted as evidence that the government isn’t serious about addressing housing affordability. The premier’s recent opposition to fourplexes, which ought to be low-hanging fruit in a new YIMBY politics, has reinforced this point. The Hub recently published Progressive Conservative supporter Matt Spoke on the government’s disappointing housing record. As he rightly put it: “[the premier has] ultimately refused to go beyond words.” 

This week’s budget is the same story. That the provincial deficit is moving in the wrong direction effectively amounts to the Ford government conceding any semblance of fiscal reform. The argument that the real problem is too few revenues fails to reckon with the fact that Ford’s government is spending more than the previous Wynne government. It’s no longer the case that the former’s fiscal record is no better than the latter’s. It’s now clearly worse. Ford’s fiscal legacy will be to have overseen a further deterioration of the province’s public finances. 

For me, however, the Ford government’s biggest failing isn’t what it has done. It’s what it hasn’t done. This is a government defined by opportunity costs. It was elected in 2018 with high public awareness of the economic and fiscal challenges facing the province and considerable support for ambitious reform. Its political opposition was in disarray. Its subsequent re-election only strengthened the conditions for policy ambition. Yet nearly six years into its time in office, nothing has changed.

The province’s education system is shot through with left-wing identity politics and still producing mediocre results. Its health-care system is collapsing under the pathologies of the single-payer model. Social assistance continues to trap people in joblessness and state dependency. Its regulatory system still stands in the way of investment and much-needed projects. Its public debt is among the highest sub-sovereign debt loads in the world. Its persistently high tax rates are deterring entrepreneurship, investment, and job creation. Crime is on the rise in its major cities. None of these challenges have improved and many have worsened during Ford’s time in office. 

The notion of conservatives continuing to support the government in the hope that it will somehow find a sense of purpose and execute a policy agenda that matches these challenges is a fool’s errand. This is who the Ford government is. Conservatives should give up hoping for something different. 

Senior Deputy Governor of the Bank of Canada Carolyn Rogers participates in a news conference, Wednesday, April 13, 2022 in Ottawa. Adrian Wyld/The Canadian Press.
The Bank of Canada has the right message—but its the wrong messenger

I’m saying it’s an emergencyit’s time to break glass.” 

On Tuesday, Carolyn Rogers, the senior deputy governor of the Bank of Canada, delivered a rather extraordinary speech in Halifax in which she set her sights on Canada’s poor productivity record. Building off on a lot of The Hub’s regular commentary on the country’s stagnant and even declining GDP per capita (including our deteriorating comparison with the United States), her remarks painted a grim picture that she ultimately concluded represents a national emergency.  

Rogers’s speech is a must-read for anyone interested in the secular stagnation that has beset the Canadian economy. It’s a clear-eyed and straightforward diagnosis of the problem and its underlying causes—namely, a lack of business investment in machinery, equipment, and intellectual property.

We cannot help but read it as a huge validation of the analysis and arguments that Trevor Tombe and others have documented at The Hub over the past several months. It’s a promising sign that after nearly a decade, the centre of gravity of economic policy thinking is shifting from a hyper-focus on distributional questions to renewed attention to economic growth and wealth creation. 

Yet one cannot help but feel a bit uneasy about a central banker weighing into broader macroeconomic issues and using such politicized language. The prime minister and minister of finance would, in my view, have a good reason to be irritated about the speech—and not merely because it is critical of the government’s economic record. 

We’ve spent the better part of the past two years insisting that politicians need to stick to their knitting when it comes to monetary policy even though in hindsight it’s clear that the Bank of Canada and other central banks around the world were too slow to recognize rising inflation in early 2022. It only seems fair therefore that central bankers ought to limit their own commentary about broader economic and fiscal policy. 

It might be one thing to answer a question from a journalist or a member of parliament. It’s another to deliver a speech entitled “Time to break glass: Fixing Canada’s productivity problem.” (I had the same problem incidentally when former Bank governor Stephen Poloz was critical of the Harper government’s efforts to balance the budget.)

It’s telling that Rogers’ speech came with an accompanying Instagram video. It’s as if the Bank of Canada communications staff has decided that eight annual interest rate announcements aren’t enough for the social media age. Our central bankers apparently need more visibility and their own voices and brands. 

After the past few years, however, most Canadians would likely be prepared to trade off knowing who the senior deputy governor is or what she thinks about productivity or any other number of issues in exchange for stable prices. 

Simply put: one can wholeheartedly agree with Rogers’ message—Canada’s stagnant productivity growth and declining living standards are a national emergency—and still think she’s the wrong messenger. 

Prime Minister Justin Trudeau speaks during a news conference to announce the construction of an electric vehicle battery production plant by Volkswagen Group’s battery company PowerCo SE in St. Thomas, Ontario Friday, April 21, 2023. Tara Walton/The Canadian Press.
Canada’s carbon tax debate is mostly missing the point

Carbon taxes were arguably the week’s main policy issue. It started with an open letter from a group of economists defending the carbon tax and ended with Alberta Premier Danielle Smith’s parliamentary committee appearance strongly opposing it. 

The Hub was fully engaged in the debate. We published a popular article by economist Steven Ambler that was critical of the federal carbon tax. We also released an episode of Hub Dialogues with economist Chris Ragan (who helped draft the open letter) in favour of it. Both are highly informative and worth checking out. 

The open letter’s conceptual defence of carbon taxes is fair enough. It makes a persuasive case that carbon taxes can reduce carbon emissions at a lower cost than other emission abatement policies such as sectoral regulations or corporate subsidies. There’s just one problem: it doesn’t quite work as a defence of the Trudeau government’s actual climate plan. 

As I wrote in last week’s Weekly Wrap, new research by the Canadian Climate Institute estimates that the consumer carbon tax is only responsible for 8 or 9 percent of projected emissions reductions between now and 2030. The vast majority will come from either industrial pricing (which conservative provincial governments and presumably the federal Conservatives support) or the types of regulations and subsidies that carbon taxes are supposed to mostly substitute for.

The key point here is that the intellectual and political debate about carbon taxes seems like an odd combination of performative and detached from reality. We essentially have a political consensus in favour of climate policy agenda in which the consumer carbon tax plays a small or non-existent role in meeting our emissions target. Yet Prime Minister Justin Trudeau and Conservative leader Pierre Poilievre are subject to political incentives that cause them to overstate the differences in their respective climate policies. 

Meanwhile, the academic economists have weighed into the debate in a way that affirms the prime minister’s rhetoric about carbon taxes but neglects his government’s actual policies. It’s hard otherwise to square their support for carbon taxes on efficiency grounds with the Trudeau government’s billions of dollars in centrally planned subsidies for electric vehicle production. 

The letter’s signatories may lament where climate policy is headed but it seems increasingly clear that we’re going to end up with a durable bipartisan consensus around a mix of industrial pricing, regulations, and subsidies. Policy scholars would be prudent to think more about how to design such a regime in the most cost-effective way. Simon Fraser University economist Mark Jaccard has done some solid work along these lines. 

One exception could be Ragan’s comments near the end of our podcast about whether, from a global point of view, Canada’s optimal policy would actually see its emissions rise in 2030 in order to boost its LNG exports and help other countries move off higher-emitting energy sources. It would represent a controversial decision that deviates from the bipartisan assumption that Canada must lower its national emissions. But it strikes me as a far more constructive and worthy debate than the contrived one that’s played out over the week.