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Hunter Prize: Echoes of abundance—The forgotten formula to solve Canada’s housing crisis

Commentary

Downtown Calgary and the Bow River are seen from the air, May 31, 2023. Jeff McIntosh/The Canadian Press.

The Hub’s second annual Hunter Prize for Public Policy, generously supported by the Hunter Family Foundation, focused on solving Canada’s housing affordability crisis. A diverse group of ten finalists have been chosen from nearly 300 entries, with the finalists and winners chosen by an esteemed panel of judges, including Amanda Lang, Ben Rabidoux, and Mike Moffatt. The Hub is pleased to run essays from each finalist this week that lay out their plans to help solve this persistent policy problem.

Housing in any given ward, city, or region is seen by many as a zero-sum game, where the most popular solution is to send construction elsewhere. Many communities have endeavoured to lower tax burdens for incumbent residents through tax shifts onto future residents. Some landlords have reaped financial rewards from the policies that home-owning voters have sewn, policies that have enabled their units to appreciate in price far faster than CPI inflation.

It’s time to turn the page on these misguided ideas that have driven up our cost of living. The clearest path forward is to implement the forgotten housing solutions proven to us a century ago. Shifting census metropolitan areas and census agglomerations to a provincially determined demand-based zoning framework that rejects the bureaucratic premise of centrally planned maximum allocations of units and floor area while instituting a replacement tax regime for municipal finance that lowers the cost of new construction are two of the most crucial pieces of a solved housing puzzle.

The current housing supply paradigm can be described as three significant periods of frontier, or living space, expansion. The first was the wave of great westward colonialism, marked by decentralized pioneer settlement, displacement of Indigenous populations, and the populating of vast low-density areas. Initially, towns and cities could expand without any constraints on land usage. This was the era before zoning laws; townsites were simply laid out with lots sold to new owners to build to their own satisfaction.

However, as the population of cities increased, residents were confined to areas within practical commuting distance from their workplaces, leading to the overcrowding of individual housing units and a shortage of living space per capita. These commutes, prior to public transit, were short.

This shortage of living space was partially alleviated in the 19th century when developers introduced steel-frame buildings and safety elevators, creating a second vertical frontier within urban hubs. Suddenly, accommodating a growing population became more feasible, turning abundant housing from a practical impossibility into an engineering challenge. Further urban extension through so-called streetcar suburbs expanded the supply of residential land, promoting further affordability as families traded location for living space.

Despite these technical innovations, housing remained unaffordable for many residents. In 1910, Vancouver became the first major Canadian city to cease collecting property taxes on building improvements, instead relying solely on land value taxation (LVT). This shift led to a surge in construction activity, supported by a lenient development control regime. This increased supply of housing caused a substantial decline in rents. By 1914, two-thirds of cities in British Columbia and a majority in Alberta adopted similar policies.

Faced with growing free-market competition and falling rent revenues, many landlords took to regulation and politics as a way to improve their profits. Notably, the environmentalist principles of the 1970s, championed by figures like Paul Ehrlich, empowered the growing home-owning voter block with a moral case for blocking new housing. This ideology fueled the adoption of increasingly strict downzonings aimed at safeguarding property values and preserving the physical status quo of communities.

Further new measures, such as Development Cost Charges, Community Amenity Contributions, Inclusionary Zoning, and a shift back to traditional property taxes, transferred tax burdens onto future residents while reducing the financial incentives to build housing.

Nevertheless, people needed homes. Massive investments in roads and highways opened up a third frontier of car-accessible commuting that vastly increased the amount of quasi-urban residential land. As suburban areas expanded, their proximity to cities became crowded out by increased travel times. In totality, these policy changes created the modern housing crisis.

The path ahead is straightforward, yet politically challenging. The first step is for a willing provincial government to reform the arbitrary density-maximum zoning codes that dictate development within its major population centres and replace them with a demand-based framework. Zoning would be retained, but not to limit the amount of housing created with metrics like height, floor area ratios, minimum lot sizes, or unit counts. This would prioritize land usage based on community needs, allowing for a granular mix of residential and commercial on a market-driven lot level as opposed to a centrally planned and arbitrarily capped resource. This would create a naturally occurring density gradient around areas with greater economic productivity. Regulatory efficiency gains would be realized by having a common code used across jurisdictions. Lot coverage regulations would be retained to balance land utilization with the preservation of essential elements contributing to quality of life, such as tree canopy, ground impermeability, and outdoor recreation space.

Regulatory reform alone is unlikely to solve our housing crisis. In greater Vancouver, many housing forms are simply unprofitable to build. Large tax bills are assessed when someone chooses to build a new home, through upfront development charges. Landowners can also expect permanently increased property taxes from the additional improvements built on the lot. Instead, taxation should be based on land usage, not use, at the minimum rate required to fund the functions of municipal government.

This would be a system where private land consumption, whose value is determined by both the location and size of the parcel, determines the tax burden. Funding the necessary and essential roles of municipalities with no disincentives to productivity would create the most efficient and affordable housing market for the community at large.

Many jurisdictions including New Zealand, Austin, and Minneapolis have demonstrated the supply and rent-reduction benefits of housing abundance through zoning reform. Past experiences in British Columbia and Pennsylvania demonstrate the benefits of LVT. Pittsburgh’s adoption of a modest LVT millage split in the late 1970s revitalized the city’s struggling economy, declining population, and blighted neighbourhoods. By shifting the tax burden, they encouraged the productive use of urban land by making it more costly to leave it vacant.

As a result, Pittsburgh experienced a resurgence of development, particularly in its downtown core and surrounding neighbourhoods. Abandoned industrial sites were repurposed for commercial and residential use, land banks and parking lots were transformed into affordable mixed-use developments, and historic buildings were rehabilitated for new purposes. This was accomplished as a revenue-neutral tax shift which protected city services and residents from harmful cuts.

While these reforms alone cannot solve the housing crisis for all people, the effects would be transformative. Abandoning the rationing and bureaucratic undersupply of new housing means reembracing the promise of abundance and affordability. The future of Canadian productivity, prosperity, and economic growth lies in a Canada where housing is a consumption good, not a speculative investment. Where land is put to its best market use, not left fallow for the sake of rentier wealth. Let us choose to innovate by looking back, to build a better future where every Canadian has an affordable place to call home.

Read the policy paper:

Davis Kyle

Davis Kyle, is a procurement and contract specialist with a proposal to reform zoning regulations at the provincial level

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