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Steve Lafleur: A reason to be optimistic on housing — no, really. I'm serious.
We might just be able to avoid screwing over an entire generation after all
By: Steve Lafleur
Don’t look now – we’re going to solve the housing crisis (eventually)
The last few weeks of Canadian politics have been … eventful. Alberta threatening to pilfer the Canada Pension Plan, Manitoba PCs deciding their ace in the hole is bragging about not spending money searching for the bodies of dead Indigenous women; the prime minister accusing the Indian government of conducting an assassination on Canadian soil, and, to top it all off, the Speaker of the House of Commons inviting a literal Nazi into Parliament, ruining Ukrainian President Vlodoymyr Zelenskyy’s triumphant visit and handing the Russian propaganda machine a gigantic victory. It’s been a bit of a rough patch, to put it mildly.
Being the resident optimist (by comparison), I would be remiss if I didn’t point out that while we were all focused on the political garbage fire(s), we got some meaningful progress on housing policy.
Now, I recognize that “sure, Parliament gave a literal Nazi a standing ovation but at least we got some policy reforms” might not sound like an optimistic statement. But, hear me out: I think we solved the housing crisis while no one was looking. It’ll take time — probably more than a decade — but we’ve finally got most of the conditions in place to build our way out of this mess.
Before I get into recent developments, I should explain why up until about three weeks ago I didn’t think we’d ever restore housing affordability in Canada — at very least, not in southern Ontario.
The basic problem is that population growth has increased since the 1970s while housing starts have decreased. Here’s the data from a recent paper I wrote with my colleague Josef Filipowicz for the Macdonald-Laurier Institute. It’s not pretty.
The blue line gets plenty of attention in political discussions. Everyone knows that the population is increasing (we just hit 40 million), and that immigration is a big part of it. The orange line is the shocker. Housing construction hasn’t just failed to keep up with the population. We’ve gone in the opposite direction!
But why? Why are we building less than we did in the 1970s? Is it because the government got out of the social housing business? Is it because developers are insufficiently greedy? Is it because the kids nowadays are all staring at spreadsheets instead of building stuff? There’s a simpler answer: we don’t allow most types of housing construction in most places.
There are two ways to accommodate a growing population: we can build outwards, or upwards. We either need to build housing in more places, or more housing in existing communities. In Ontario and B.C., we’ve chosen neither. We have both aggressive anti-sprawl policies and anti-density policies. Developers have to fit more and more units on a diminishing number of parcels within largely built-up cities. Sure, red tape, taxes, labour shortages, and so forth make housing more expensive. But what makes it really expensive is prohibiting more density in most urban areas.
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The problem, at heart, is political incentives. Local governments privilege existing residents, who vote, over future and prospective residents. Someone living in their parents’ basement in Markham isn’t voting in Toronto. When push comes to shove, local politicians often take the side of the home owner worried that a building will cast shade on their garden over the people who would live in the offending building. So it becomes someone else’s problem.
That someone else is the provincial government. They do, after all, represent the entire province. Housing has become such a crisis that provincial governments can no longer cross their arms and blame municipalities. So provinces have stepped in and made some changes, such as Ontario’s Bill 23. Trouble is, they haven’t gone far enough.
Now it’s become someone else’s problem: the federal government. While they don’t have as much direct control over housing policy as the provinces, they do have some levers to pull. They do, after all, send money to municipalities for infrastructure. Former Conservative leader Erin O’Toole realized this. He proposed withholding funding from municipalities that don’t allow enough housing construction. Frankly, even if we weren’t in a housing crisis the approach makes sense. After all, public-transit-project funding is typically justified in part by densification. No one in their right mind would cut a cheque for a subway station surrounded by detached houses. Why shouldn’t the feds require municipalities to make sure that doesn’t happen?
Of course, it’s not the Conservatives’ problem. At least not yet. It’s Justin Trudeau’s problem. In response to the worsening housing crisis, the Liberal government introduced the Housing Accelerator Fund. The HAF is a grant program that is meant to incentivize municipalities to build more housing. Liberals wanted to take a more cooperative approach than the Conservatives. They decided to go with carrots, rather than sticks. It looked like this was going to be a nice little grant program that would reward municipal governments for doing the bare minimum. Sean Fraser was having none of it.
I’ll admit: I had no particular reason to think the recent cabinet shuffle would change anything on the housing file. I couldn’t have picked Sean Fraser out of a lineup. I had no idea what he’d do with the file. Would he just run around the country doing nice little photo ops? That was my assumption. I couldn’t have been more wrong.
I’ve had a nagging thought ever since the Housing Accelerator Fund was introduced. Sure, the HAF is a carrot. But there’s no reason why it can’t be used as a stick. We tend to draw clear lines between rewards and punishments — carrots and sticks. In practice, they’re often very similar. In fact, you can use a carrot like a stick. Withholding funding from a new grant program isn’t that much different than denying existing funding. It’s the same basic concept. That is exactly what Sean Fraser is doing.
Minister Fraser could simply have sifted through HAF applications, rewarding half measures and maybe making examples of a few egregiously bad municipalities. Instead, over the past few weeks, he’s been using the bully pulpit to badger municipal governments into re-writing their zoning codes. He’s decided to wield the Housing Accelerator Fund carrot like a stick. By God, he’s discovered the Carrot Stick! And he’s not afraid to use it.
First, there was London. Four units as-of-right on any lot in the city. That seemed to come out of nowhere. Then the Mayor of Calgary tweeted a letter from the Minister, which pointed out they’d be denied HAF funds if they didn’t introduce proposed land-use reforms that stalled at council. Wouldn’t you know it: NIMBYs on council backed down! Next was Halifax, which has gone less far than hoped, but made significant progress. Will it be enough to appease Minister Fraser? I guess we’ll find out! The Minster also cancelled a funding announcement in Metro Vancouver over proposed development charge increases that could be a barrier to new housing. So, clearly, he’s not messing around.
Of course, these are all long-term fixes. If the minister spends the next two years effectively ending single-family zoning in Canada and eliminating roadblocks to more density, the conditions will be in place to end the housing crisis within my lifetime. That’s a big deal!
There’s also the short-term problem: financing.
Canada, like every developed country in the world, has seen rising interest rates aimed at reducing inflation. So far we’ve managed to bring inflation down meaningfully without creating a nasty recession. It’s starting to look like we may get that soft landing we all hoped for. But housing could be collateral damage. After all, tightening financial conditions make it harder to make the math work for new developments. If it doesn’t pencil, it won’t get built — at least not yet. My fear was that we’d lose a construction season.
While there are no silver bullets, there’s one thing that kept coming up in conversations I’ve had lately with industry people and experts: the GST. Removing GST on rental buildings may seem like a blunt instrument. Some would argue that we shouldn’t “subsidize” “luxury” apartments. One Sean Fraser mused about this less than a month ago. In fact, a colleague and I submitted a pretty scathing column to this very outlet on the topic which we retracted before publication when we heard about London. Maybe we should give the guy a shot? As it happens, they went ahead and removed GST from purpose-built rental buildings, and the government of Ontario followed suit. Crisis averted (I think).
Now, this all may sound small ball. In fact, I’d argue we still have to go further, at least in Canada’s largest cities. We don’t just need four units as-of-right in Toronto or Vancouver. We need more apartments in existing residential neighbourhoods.
What’s really encouraging is how quickly the political consensus has changed. Eighteen months ago the idea of provincial governments intervening in local land-use policy was far from consensus, let alone the federal government. Now there’s a race to the top.
Pierre Poilievre was eating Justin Trudeau’s lunch on housing policy. Now Sean Fraser is coming for it. Doug Ford crushed his opponents in the last Ontario election, arguably by posturing as the guy in favour of building stuff. Now every single Ontario Liberal leadership candidate is pledging to go further than him on housing policy (by adopting all of his own Housing Affordability Task Force’s recommendations). Had you told me a year ago that Bonnie Crombie and Doug Ford would be duelling over who can get more housing built, I wouldn’t have believed it. But, well, that looks like how things are shaping up. Who will be left to speak for the NIMBYs? No one! That’s why I’m so optimistic.
Yes, it’s true. Our international reputation is in the gutter. We look like a bunch of clowns running through a minefield. The last few weeks have been very bad for Canada’s standing in the world. But, by God, we might just avoid pricing a generation out of the housing market. That’s a really good, and frankly unexpected, development. Sometimes the clowns in Ottawa get things right!
Steve Lafleur is a public-policy analyst and columnist based in Toronto
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