Mike Moffatt: Our leaders keep talking about the housing crisis. So why on earth are we building way fewer homes?

These price and rent declines, while painful to some, are necessary and should be welcomed by policymakers, even those who refuse to acknowledge that prices must come down. By our estimates, it would take homes in Oakville and Milton 40 years to become attainable to middle-class families if prices stayed flat (in nominal terms) and incomes rose. We cannot expect 25-year-olds in Gen Z to wait until they are collecting a pension before they buy their first home. The challenge policymakers face is that, unlike the prices and rents for existing homes, which can fall arbitrarily low, new homes have a price floor, as they must, at a minimum, exceed their cost of construction; otherwise, they will not be built. This price floor effect is exactly what is happening in Ontario and British Columbia, as prices have fallen since the early 2022 peaks; however, costs, including taxes, materials, and labour, continue to rise. Some of the costs, such as land, will naturally fall in response to a slowdown in building, but others lack those natural adjustment mechanisms. International markets largely determine the prices of materials and equipment, and are largely unaffected by localized construction declines. Labour costs are largely set through union agreements and lack flexibility, while tax rates are set by governments seeking to maximize revenue and are slow to respond to changing conditions. However, some municipalities in Ontario have begun to lower development charges. The only pathway to having both robust housing starts and improved housing affordability is by reducing the cost of construction, which will require action from all three orders of government. The most immediate and direct way is to cut taxes on new housing construction. A combined federal and provincial modernization of the HST New Housing Rebate would instantly reduce new home prices by over 10 percent in Ontario, while not stimulating the demand for resale homes, as the HST only applies to new housing. Development charges (DC) and related fees in British Columbia and Ontario need to be reduced. Provinces and municipalities must play a leading role, but the federal government can also assist. They can work with the provinces to adopt a direct-to-buyer DC system that reduces interest costs and junk fees by tens of thousands of dollars, and also exempts DCs from the HST and land transfer taxes. Currently, development charges are assessed to developers, who pass them along in the final price, which is subject to additional taxes. It’s one thing to ask new homebuyers to chip in financially to help a city build a new library or park, but requiring them to pay sales taxes on those contributions is deeply unfair. While some of these measures have a fiscal cost, all three orders of government are collectively set to lose over $6 billion in tax revenue from the decline in new home construction in the GTA alone. Even if governments did not care about the decline in housing starts or the loss of 41,000 jobs in the GTA, it is in their interest to address the multi-billion-dollar hole that a housing slowdown in the GTA will cause. Both action and inaction have a fiscal cost.