Canada's housing crisis

And the stupidity of the political left's clumsy attempts to deal with it

I listened to a 2020 episode of The Agenda with Steve Paikin and one of the experts on the panel discussing the housing crisis was Martine August, an academic from University of Waterloo. Her solution to the shortage of affordable housing was more government intervention to stop what she described as “gouging” and an increase in “social housing” which I understood to mean homes paid for by government and rented to lower income Canadians at rents well below market rates.

Ms. August typifies the left wing approach to market problems. At one point I heard her say “the government has lots of money” in support of having the government pay for residential construction in her concept of “social housing”. In fact, the government has no money, not even enough to pay its bills so it keeps borrowing more and more every year to fund “programs” which is a euphemism for government “handouts” to lesser advantaged Canadians including seniors like me. Ms. August defines herself as interested in “social justice” according to her Twitter profile. She is an assistant professor in the University of Waterloo School of Planning.

If I heard Ms. August correctly, her diagnosis of the housing affordabilty problems in Ontario is rooted in “greed” by landlords and property investors, and not in the failure of government policies to ensure an adequate supply of serviced or serviceable land to facilitate housing prices that reflect the actual costs of construction plus a reasonable profit. For interest, Altus Group publishes an annual review of the costs of construction for most Canadian jurisdictions and it is hard to find any area where building costs for residences exceeds $300 a square foot.

Source: Altus Group

Taking the GTA for example, costs of single family residences range from $150 to $300 per square foot except for custom homes. A 2,000 square foot three bedroom home would cost from $300,000 to $600,000 to build. Yet in the Toronto area, you can’t find a new 2,000 square foot home anywhere for less than $1.3 million. The difference is not just profit, it is land cost and development charges, with most developers earning about 10% of selling prices as profit margin. Development charges of $50,000 for each home are common. But realtor.ca lists zero vacant lots for sale anywhere in the GTA. Zero. Development land anywhere in Ontario is scarce and developers are paying premium prices for any land where they believe they can build homes that will sell for $1,000 a square foot or more according to CBRE. Citizens have been willing to pay $1,000 a square foot owing to the low interest rate policies of the Trudeau government which increased the price buyers could pay for a home by lowering mortgage payments.

Rent controls and social housing won’t alter the costs of development lands. But why is there such a shortage of land? Ontario government data show that 77% of the land mass of the Province is Crown lands, although most of that is in Northern Ontario. Ontario municipalities typically husband serviced land and use their power to issue or withhold building permits to compel developers to pay for services such as water and sewer and provide parks and green spaces. From time to time, some Toronto municipal council members have been found to be corrupt (Bellamy Report) and I have little doubt that corruption extended to planning departments who control permitting.

The solution to the housing crisis is supply. A major reset is needed, and it will be a painful one. First, governments have to abandon the “low interest rate” policies and profligate spending using borrowed monies which have created the housing price boom and in parallel contributed to runaway inflation. Quite high interest rates are needed to tackle the inflation issue and those higher rates will squash the housing market, with many people who have overpaid for homes suffering significant losses. Second, Ontario municipalities need to expand the availability of serviced or serviceable lands and stop imposing needless restrictive conditions on development including foolish “heritage” policies. Finally, the Province has to accept the reality that the GTA is not the center of the universe and encourage development outside of the GTA in areas like North Bay, Sudbury, Timmins, Peterborough, Lindsay, and Cornwall as examples.

My family is from Moose Creek, Ontario - a short half-hour drive from Ottawa. You can still buy a very nice home in Moose Creek for less than $500,000.

My son owns 37 acres of land a few miles from Moose Creek that could be host to over 100 new homes. But current zoning doesn’t permit development and the property is not serviced.

The housing crisis is a failure of government policy at all levels, not the result of landlord or developer “greed” or “gouging”. In Toronto, a two-bedroom condominium that costs at least $800,000 (if you can find one) rents for less than $3,000 a month, an annual return of less than 5% before the cost of realty taxes or maintenance and is barely a break-even investment once those costs are considered. With respect to Ms. August, that is a far cry from “gouging”.