Attack on demand
Governments are gutting Canada’s housing market by stifling demand and stalling supply
By Dermot Mack
Build, baby, build: Pro-supply advocate Sonya Trauss: “The people who live near a proposed new development are the last people who should be asked if they want higher density. You are guaranteed to get a ‘no.’”
The residential industry is one of Canada’s biggest, a multibillion-dollar behemoth that is worth more, in straight dollar value and jobs, than most of the resource industry. In British Columbia for example, home building contributes $23 billion annually to the provincial GDP, almost twice that of the forest industry.
Double those numbers for Ontario and include all provinces and a picture emerges of a powerhouse industry that reaches into every corner of the country.
Residential construction contributed seven per cent of Canada’s GDP in 2016, according to BMO economist Robert Kavcic.
Kavcic said the real estate industry as a whole contributed roughly 12 per cent of GDP that year.
But home building groups and the Urban Development Institute, say senior governments have introduced punitive measures to stifle housing demand while municipal governments have stalled supply.
Despite the fact that residential mortgage defaults are nearly invisible, at about 0.3 per cent, the federal government has placed onerous and increasing restrictions on mortgage lending.
In the past year, this has included:
Two rounds of mortgage “stress tests” that have cut the buying power of a borrower by 17 per cent and shut nearly a fifth of first-time buyers out of the market entirely.
Three rounds of interest rate hikes that have helped to boost mortgage rates across the board.
Previous measures have doubled the minimum downpayment to 10 per cent on insured mortgages of more than $500,000 and included a series of increases in mortgage insurance rates through Canada Mortgage and Housing Corp. (CMHC).
Provincially, Ontario and B.C. governments have introduced foreign buyer taxes; Ontario released a housing plan aimed at slowing demand; and the government in B.C. recently boosted the foreign buyer tax to 20 per cent, and even extended the tax to areas of the province that have few foreign home buyers.
At the same time, municipalities have slowed the delivery of new homes.
“It now takes seven to eight years for a multi-family project to be built in Vancouver,” said Anne McMullin, president and CEO of the Urban Development Institute, Pacific Region.
“While pointing the finger at foreign buyers gains public support, the biggest obstacles are still municipal permitting delay bottlenecks, which can take years, and restrictive, single-family zoning, on about 85 per cent of residential land across Metro,” McMullin said.
CMHC recently identified the “weak” supply response in both Metro Vancouver and the Greater Toronto Area (GTA) as a critical driver of housing affordability in both regions.
BILD GTA recently noted that “ the ongoing decline in new housing inventory is a direct reflection of how difficult it is for the industry to bring product to market.” The organization pointed to out-of-date zoning bylaws as well as other complexities and delays in permit approvals “that have increased dramatically in recent years.”
In a recent study of B.C.’s Lower Mainland, the Fraser Institute noted that municipal compliance costs and fees add up to a low of $4,300 per home built in Pitt Meadows and a high of almost $78,000 per home in the City of Vancouver.
The public may be catching on that it is not big, bad developers but delays and the piling on of regulations and fees by municipal governments that are the true barrier to housing affordability.
This was seen in a Vancouver conference, where supply proponents called for an end to public hearings as a step in getting more homes started.
Speaker Sonya Trauss said it doesn’t matter what kind of housing is built as long as there is more of it, and soon.
Truass, who founded the 500-member San Francisco Bay Area Renters Federation two years ago, said that, like in her high-priced city, Vancouver’s mandatory public hearing process “is broken.”
“The people who live near a proposed new development are the last people who should be asked if they want higher density.” Trauss told the Vancouver meeting, “You are guaranteed to get a ‘no.’”
Trauss said more supply is the answer for Vancouver, whether it is luxury homes, high-rise rentals or low-income housing.
“You have to support building, even when it’s a type of building you hate,” she said. “You really need everything right now.”
Increasing the inventory, which should start by reducing the regulatory costs of building new homes, would be a simple fix for housing problems in Vancouver and Toronto, others suggested.
Paul Kershaw, a University of British Columbia professor and founder of Generation Squeeze, a lobby group for millennials seeking affordable housing, said Vancouver’s proposal to allow older houses to be converted to multi-unit rentals is a small step in the right direction.
Kershaw urged young people to “create a critical mass to provide political cover” for those advocating for higher-density residential development.
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