Canada Also Has An Affordable Housing Crisis

Regulations in Toronto and Vancouver drive much of the same price inflation as in U.S. cities.
By Scott Beyer | Oct 27, 2018 |
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By Scott Beyer | Oct 27, 2018 |
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Downtown Vancouver / Wikimedia

When it comes to housing, the reports now emerging from Canada ought to sound familiar. Our northern neighbor has several cities that have jumped full throttle into the globalization race, growing and modernizing quickly. But amid this growth, they have resisted adding the necessary new housing, and are thus suffering from shortages, rising homelessness, gentrification and price inflation.

The United States, of course, has this same problem, with about a dozen cities that have mixed rapid population growth with minimal housing growth. If both countries’ situations are parallel, it’s because they’ve long had similar ways of providing and regulating housing.

But before digging into this, here is another way that Canada’s housing situation mirrors the U.S.’—it has a very spiky market. High home prices, rather than an ingrained aspect of Canadian life, are a feature of specific metros. According to data from The Canadian Real Estate Association, average home prices in Canada are $416,000 (all prices are adjusted to reflect costs in U.S. dollars). Although this is more expensive than the U.S., prices are relatively modest across the Canadian heartland. For example, prices in the Saskatchewan and Manitoba provinces, with their resource-dependent economies, average around $230,000.

Meanwhile, average home prices are highest in Greater Vancouver ($926,000) and in Greater Toronto ($596,000). No other major metro—including Calgary, Montreal, Winnipeg, even the capital Ottawa—has prices above the national average.

Vancouver and Toronto’s prices have risen with their economies. In 2016, both metros led Canada with four percent GDP growth, thanks to robust performances in finance, insurance, real estate and other sectors. Toronto was listed by one index as North America’s second most promising economy, behind New York City. Both Canadian metros have become poster children of the modern neoliberal order—dense, diverse, multilingual and highly-educated. U.S. residents—who have witnessed this model in their own country, via New York, San Francisco and elsewhere would hardly be surprised, then, that their home prices are rising.

The U.S. and Canada thus have similar, multi-polar qualities to their housing markets—proving cheap in some areas and expensive in a few others. And this makes sense, because both countries have similar housing approaches, says Todd Litman, an urban affairs analyst based in Victoria, BC.

One shared quality is their housing policy history. Just like in the U.S., the Canadian government got involved in the market before World War II, and expanded its role in following decades. There were various government programs over that period that provided subsidies to finance, build or maintain housing projects. In the 1970s, Canada redirected these subsidies into “social housing,” or nonprofits and other “third party” institutions, outside of the public or private sector, that managed affordable housing. This model was later adopted in the U.S. through LIHTCs, even while waning in Canada. That said, 95 percent of Canadian households live in private-market housing, and the homeownership rate is about 68 percent—thus mirroring the U.S.

Another shared quality is the consumer demand in both countries. A vast majority of Canada’s housing was built after World War II, and a majority of it is detached single-family. This sprawl is still the preferred choice for families, although this is changing, said Litman. The growth of Toronto and Vancouver these last two decades suggest a return to the center, as has happened in the U.S., where large population shares locate within major metros.

And a third shared quality between the U.S. and Canada —which makes the previous two factors problematic—is land-use regulation. For all the horror stories about how government actions drive up U.S. home prices, it actually seems worse in Canada.

“By tradition, we have more zoning and more government involvement,” said Litman.

Regulations have become especially counterproductive in those fast-growing central areas, he said, where lots that could yield high-rises instead remain zoned for single family. Canada’s housing trade industry has also been critical of the greenbelts that surround certain metros and stop development. These problems are particularly pronounced in Vancouver: the metro is geographically constrained anyway, by water, mountains, and the U.S.-Canada border, yet has been unwilling to grow vertically, with only three buildings above 500’. In 2016, Vancouver’s housing starts were 28,000—well below some U.S. metros—while in Toronto, they were a more respectable 53,000. This may explain why prices remain lower in the latter.

The confluence of these three factors explain Canada’s affordability problems. Thanks to a relatively strong economy, there is demand for living there, namely within the major metros. And yet the existing paradigm prevents this demand from being met. Building more public or “social” housing has never been a major strategy, became even less of one recently, and would cost taxpayers a lot to revive. Meanwhile, efforts to meet the demand through the private sector languishes under a stifling regulatory climate. The net result, like in the U.S., is housing shortages.

Another shared characteristic between the U.S. and Canada? Blaming the problem on just about anything besides said housing shortages. For example, many Vancouver residents, said Litman, “want to blame foreigners, and they want to blame speculators, and they want to blame greedy developers, and they want to blame Airbnb.” This explains why, in 2016, British Columbia passed a 15 percent tax on foreign home buyers, although those represented only five percent of Vancouver-area sales. The move was seen then as a way to keep out Chinese speculators, and has since been loosened, as local companies have had difficulty attracting immigrant workers. Yet it has inspired calls for a similar tax in Seattle and San Francisco.

And this gets to the heart of the real U.S-Canada commonality, at least when it comes to the affordable housing crisis. The citizens in each have not yet realized that old zoning laws are outdated for modern global cities, and that the answer is to loosen them and allow more housing. It turns out the consequences of denying this are the same there as they are here.

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