Taxing homeowners to curb demand will not restore order to Canada's housing prices
A government-appointed expert panel in B.C. released a report earlier this month imploring all orders of government to collaborate and remove regulatory impediments that have kept housing construction at levels much lower than needed to house the growing population.
The six-member expert panel, jointly commissioned by the Federal and B.C. governments, went beyond the oft-cited demand-curbing recommendations of higher transfer taxes and penalties. Instead, the panel focused on the lack of housing supply in B.C., and the lucklustre efforts to address it.
In Metro Vancouver, known for steep housing price escalation, housing construction has remained between 10,000 to 25,000 units per year over the past three decades, even when the region’s population has continued to increase.Then, there is the mismatch between what is being built and what is needed. The bulk of recent construction comprises condominiums, which does not address the shortage of low-rise (e.g., detached, semi-detached) housing. The result is a sustained and fast escalation of low-rise housing prices in the Vancouver area.
“Simply put, British Columbia needs to build the many additional homes required to adequately house a growing population and economy,” the panel recommended.The panel consolidated 23 recommendations under five calls to action. The first set of recommendations focused on improving planning frameworks to better estimate how much more housing is needed to accommodate a growing population. Furthermore, the panel asked to speed up the approval processes for new housing developments.
The B.C. panel’s recommendation for faster and transparent planning approval processes is in line with research findings from Canada and elsewhere that identified more rapid acceleration of housing prices in jurisdictions known for the slow pace of planning approvals.
The expedited planning process does not mean that one compromises on planning standards. Instead, the goal should be to have transparency in planning processes along with guaranteed maximum approval times. Without clarity on approval timelines, builders and developers would spend months and years pursuing rezoning applications while the scarcity of new housing continues contributing to faster price appreciation.
The second call to action is to reform the processes for development-related charges. Municipal governments levy such charges to finance the development of local infrastructure needed to support the planned development. Hence, such levies are necessary. The panel recommends transparency and consistency in devising such charges so that it is not left to case-by-case negotiations between developers and planning authorities trying to iron out the magnitude of levies. The panel singled out community amenity contributions in B.C. that lacked “transparency and predictability,” resulting in development delays and increasing costs of new developments.
The panel notes that improving housing affordability cannot be achieved just by market-based solutions. Hence, the third call to action asks provincial and federal governments to increase community and affordable housing construction. The panel noted that before the 1990s, the federal government invested in constructing community housing at levels much higher than observed recently. Furthermore, the panel highlights the need for tax incentives to support those developing social housing.
The fourth call to action calls for better coordination between the three orders of government. Increasing the supply of housing requires greater integration between municipal governments, which regulate land use, and the higher tiers of government that can provide incentives and means to fund the construction of affordable (social) housing. Even keeping the existing portfolio of social housing, often maintained by local governments, in a state of good repair requires superior integration between all orders of governments.
The fifth call to action asks for removing preferential tax treatment for homeowners. The panel noted that for decades government policies had been targeted at encouraging homeownership. However, such approaches have treated renters less favourably. The panel recommends a more equitable treatment of renters and owners in the tax system and recommends eliminating B.C.’s Homeowner Grant.
Many housing advocates argue that Canada has sufficient housing or that Canadians might even be over housed. Hence, they argue, increasing supply may not address housing affordability. Such reasoning conflicts with the reality that among the G7 countries, Canada has the fewest dwellings per 1,000 population, as noted by a recent report by the Bank of Nova Scotia. The Bank estimated that between 2016 and 2020, 100,000 additional units would have had to have been built to keep the dwelling-to-population ratio at 2016 levels.
However, the undersupply has been an issue building for decades. To reach the G7 average of 471 dwellings per 1,000 residents, Canada would need an additional 1.8 million dwellings, the Bank estimated.
The B.C. panel report is addressed to Canada’s finance minister, Chrystia Freeland. However, it will be prudent for all orders of governments across Canada to review the report and realize that unless the supply constraints are addressed, taxing homeowners to curb housing demand will not be sufficient to restore order in housing prices in Canada.
Murtaza Haider is a professor of Real Estate Management at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.