This article written by Baron Alloway originally appeared on Storeys.
Enroll in any Economics 101 class and the first lesson you will learn is the Law of Supply and Demand. This common sense axiom drives virtually every aspect of our society today.
If you’re not familiar with the idea, here’s a 10 second crash course: Supply and demand are inversely related to one another. As supply decreases, demand increases. Similarly, when demand decreases, supply tends to begin to increase.
The “Housing Crisis”, as it has been dubbed, is, at its core, a supply and demand issue.
In May, Scotiabank released a research report with staggering statistics, showing that Canadian home completions relative to population growth hit their lowest level since 1996.
The report went on to reveal more scathing findings. For instance, that Canada lags every other G7 nation in housing supply, with only 424 units per 1000 residents. As a function of perspective, Canada would have to supply 1.8 million housing units just to make it to the G7’s average of 471.
So, with supply at its lowest levels in history, and the laws of economics still in full force (and effect), it’s no surprise that demand in the housing market is causing a frenzy fiercer than the one seen on toilet paper shelves in March 2020.
To be fair, it’s believed that demand is being stimulated by far more than a lack of supply. Ultra-low interest rates and restrictions on travel have been consistent demand-inducing forces since the start of the pandemic. The spotlight of public focus has turned to home ownership more now than ever before.
Understanding the problem as it is, it’s no surprise that housing has become a hot-button topic in this federal election. After all, history shows that candidates circling current affairs to garner votes is nothing new in politics.
However, to fix the problem, we need to stop calling the housing crisis a federal issue.
Controversial? Maybe. But the logic behind this idea might just make sense if we look at it in a different light. If housing is indeed a simple issue of supply and demand, and the federal government cannot control the supply or the demand, then housing is not a federal issue.
Let me explain…
The Federal Government Cannot Control Demand
This idea should be self-explanatory. Demand is driven by consumer interest, not by government direction. I can concede to arguments that the federal government does have an indirect control over housing demand by altering things such as immigration policy and interest rates. However, these policy changes have far broader implications than just housing and should be ruled out.
The federal government has no direct control over consumer demand for housing product. Consider this: if the government tomorrow made it illegal for people to buy a home, would that change the amount of people needing a place to sleep by the evening?
Didn’t think so.
With this logic, the ideas of some parties to control demand starts to seem shaky. The Liberals’ plan to change the blind-bidding system would do little more than frustrate cash-sensitive buyers more so than they already are. Similarly, foreign-buyer taxes and vacant home taxes proposed by multiple parties, without a proper evidence-based approach to their application, would only continue to exacerbate an already exhausted buyer market.
The Federal Government Should Not Try to Control Supply
This one is a little more complex than the prior. Provincial Governments are the actual authorities on land use across Canada. In Ontario, the Planning Act controls the use of land. Similar legislation exists across most provinces. This act primarily grants authority to the local municipalities to control use within their jurisdiction.
Through the use of an “official plan”, cities and townships parcel off areas for development and redevelopment. Planners have the heavy responsibility of reviewing development proposals in areas and making determinations. Changes to the official plan or zoning by-laws require public meetings and consultation, as well as approval from City authorities. In times of dispute, a provincially regulated appeal tribunal is formed for purposes of resolution. These committees, however, are by-in-large formed by residents and representatives of the municipality.
It doesn’t take long to realize that the federal Government has no direct control over housing supply in the country. A media that blames the federal government for the situation in which we find ourselves is doing a disservice to the public. Similarly, parties that attack other parties for their lack of control over something they have no direct authority over is a bit like blaming the mayor of a town for bad weather…
This logic could be expanded a step further to argue that federal governments have no business pledging affordable housing units to its citizens. If the municipality is in charge of housing its residents, why does the burden of unit creation seem to fall on the shoulders of the highest power in the land?
What Federal Governments CAN Do
There are really only two things a federal government can do with respect to housing supply and demand. All viable federal housing plans and proposed policies boil down to these two actions:
- The federal government can print money
- The federal government can loan money
Despite not having direct control, these two tactics, when used effectively, can have a massive impact on the housing crisis at hand.
The Federal Government Can Print Money
Arguably, the concept that a federal government could just print more money was largely overlooked until the time of the COVID-19 pandemic. Stimulus, wage subsidy, and rent assistance were all ways the government employed its all-powerful printer to weather the waves of uncertainty over the past two years.
Making funds available to government-backed organizations (or tendered contracts to private developers) is one practical way to solve a housing issue. (Of course, inflation can be a dangerous game.)
The Federal Government Can Loan Money
The Canada Mortgage and Housing Corporation (CMHC) is a crown corporation (read: government-controlled) that exists with the mission of providing homes to all residents of Canada.
Among its tasks of governance, advocacy, underwriting, and oversight, the CMHC is actually one of the most powerful banks many Canadians have never heard of. Historically, the CMHC has been used to lend money to administrations and organizations that seek to provide affordable housing across the nation.
How to Effectively Increase Supply (Or, the Biggest Issue We Face)
The responsibility and mandate of affordable housing should rest on those that directly control supply: municipalities. Through printing and loaning money, the federal government should give cities and towns the mandate of continued unit creation within their jurisdiction. And, to their credit, most governments typically do have an affordable housing incentive in place.
However, to truly and effectively solve the housing issue of supply and demand, we need to continue to provide supply. And lots of it.
This is the root of the housing crisis. How can you continue to require supply without making it easy to provide?
To Toronto’s credit, this has started to take shape. Many Zoning By-Laws or Official Plan Amendments require developers to make affordable housing units or face hefty fines (which have recently been increased). In addition, developers must contribute green space and help fund city-run programs like Toronto’s Bikeshare.
The federal government, while not having direct control over housing supply, does have a significant role to play in solving the crisis.
Placing punitive measures on developers doesn’t work. Increasing taxes for federally run projects doesn’t work.
Supporting and incentivizing planners and municipalities to create shared affordable spaces for all walks of life? That is what works. Hopefully we continue to see more of it moving forward.