Ottawa can, and should, play an integral role in providing housing, he writes Jan Underwood Habitat for Humanity, while Benjamin Dachis and Jeremy Kronick of the CD Howe Institute argue that “the balance of power belongs to the cities and provinces.”
Habitat for Humanity GTA CEO
Beginning in the 1930s and escalating into the war, Ottawa made a concerted effort through the National Housing Act to ensure that Canadians could afford their own homes. For those privileged enough to benefit from the law, tens of thousands of affordable housing were made available.
In the process, generations of Canadians were empowered to build a strong foundation, wealth, and financial stability.
Just as houses need repair and investment, housing affordability desperately needs the attention of all levels of government. It used to be that you could work hard, buy a home, and get ahead in life.
Now an increasing number of younger and more racialized Canadians have been left behind and owned fewer homes, creating a widening wealth gap between them and those who entered the housing market before the mid-1990s. 1990s and continue to benefit from unprecedented increases in home values.
Clearly, Canada’s housing formula is in need of repair. Ottawa has demonstrated its ability to lead a housing revolution in the past; It’s time to put that capability into overdrive to address the housing challenges facing this country today.
But make no mistake, it will take courage and collaboration.
This begins by setting the tone and framework for housing in this country. The liberal federal government released a National Housing Strategy in 2018, providing the first national housing framework in more than two decades. Despite many merits, there is broad consensus that the pace and scale of the impact of this strategy must increase substantially.
The housing supply is an important factor in the general formula. We’ve all gotten used to seeing cranes dot the skylines of our cities as new condos are built, but the truth is that Canada has the lowest per capita housing supply of all the G8 countries.
While provinces and municipalities approve of how and where new communities are built, Ottawa can and should play an integral role in providing housing. The federal government is a significant landowner and is well positioned to reserve surplus land strictly for affordable housing development. You can structure these agreements with land leases or other mechanisms that keep housing in these properties affordable over the long term.
Additionally, Ottawa can link funds to provinces and municipalities to ensure surplus land is available for housing, to modernize zoning to create more density, and to remove barriers that interfere with timely approvals.
With the highest purchasing power of any level of government, Ottawa has significant financial leverage on the housing market. In its current form, investors have seized the opportunity for individual families to build stability and wealth through home ownership as a vehicle for generating profits.
While blanket policies such as homebuyer incentives worked in the past, our current realities call for a bold, innovative and surgical policy response that targets those who need it most.
The federal government has several levers and mechanisms at its disposal, including monetary policy, regulation, and supervision of the mortgage sector. It can close loopholes and create tax penalties that discourage investors who only see a home as a means to build wealth, rather than a place to live.
Finally, Ottawa must increase the efficiency and impact of the financing it provides for affordable housing. There are lessons to be learned from past investments in social housing, namely the arbitrary 25-year maturity dates for associated operating agreements.
Similarly, there are lessons to be learned from the implementation of grants and loans included in the current National Housing Strategy. Ottawa must once again wrestle with the age-old dilemma of balancing multiple political priorities plus the need for bureaucratic checks and balances against the need for convenience and construction.
If we truly aspire to repair our housing crisis, we must be united in the belief that this is one of the greatest challenges facing this country, and it is one that may solve, together.
The leaders who will soon take office on Parliament Hill have the political tools to work with other levels of government to make this happen. We can build a bright future in which all Canadians have a fair and equal opportunity to buy a home and get ahead in life, once again.
Don’t want to miss next Saturday Debate? Register here and we will notify you when it is online.
Benjamin Dachis and Jeremy Kronick
CD Howe Institute
All major political parties have presented their plans to deal with the housing market crisis in Canadian cities. The focus is on affordability. In other words, how to make home ownership easier for Canadians who are currently out of the housing market. But is there much the federal government can do? Unfortunately, the answer is no, with most levers, especially those that will encourage more supply, at the lower levels of government.
First, let’s understand the affordability constraint. The amount Canadians pay for their mortgages out of their disposable income is roughly same as 30 years ago. However, with house prices skyrocketing, driven by low interest rates, the constraint on home ownership is getting the necessary down payment.
What measures does Ottawa have control over? Will they even work?
One idea that is often touted is a capital gains tax on the sale of primary residences, the theory being that this will slow down demand for houses and condos. While demand could fall, so will supply hitting the market. Why? Knowing that a sale will result in a huge tax bill, people will keep their homes longer. Many older people looking to downsize will stay in their homes, leaving out young families. Therefore, the impact of federal tax changes on affordability is unclear.
Along the way of the campaign, we have heard different proposals to make financial regulations more flexible.
One idea is to lower your mortgage insurance premiums from the Canadian Housing and Mortgage Corporation (CMHC). These premiums cover the risk assumed by taxpayers.
Another idea of the campaign is to loosen the stress test conducted by the Office of the Superintendent of Financial Regulations (OSFI). The stress test ensures that borrowers can pay off their mortgages if interest rates rise.
Yes, these measures could help some to overcome the affordability threshold. However, they set a bad precedent for governments to interfere with Crown corporations and regulatory authorities that are supposed to operate at arm’s length. The unelected officials of these organizations have established insurance premiums and stress tests to ensure the stability of our financial system, that is their mandate. So, in the name of better affordability, any easing will increase the risk of the taxpayer or the financial system. It is not a good compensation.
Lastly, low interest rates drive up home prices. There is no way around that. And the federal government has no control over interest rates. That’s the job of the Bank of Canada, which responds to market forces, outside of government control, to keep inflation low.
What all this means is that the federal levers primarily increase demand and, fundamentally, prices. They will be ineffective, they will go against the basic principles of Crown corporations and regulatory authorities operating at arm’s length, or they will be a product of the economic environment in which we live.
So what can be done? And is there a role for the federal government?
At the heart of the affordability debate has been lack of supply. But local politics still works against real measures to increase supply and has created constraints on development that add enormously at the cost of housing. The members of the local council depend on local votes. And local voters generally oppose the new construction. This is a fundamental problem.
Ottawa may require an expedited approval process for areas that benefit from federal infrastructure grants. Toronto, for example, is very behind the rest the world in permit delays. Local governments must change their practices to accelerate development, and this goes beyond what goes beyond new transit funded in part by the federal government.
For example, Ontario has a ready to use tool to accelerate development. You need to make the final decision on whether to use it. The federal government can only pressure them to do so. The province also needs to enforce its own policies that cities approve enough housing to accommodate growth.
Cities also charge large development fees up front. The result is higher house prices. Cities should not make home buyers pay upfront for infrastructure, such as water, and instead pay costs as they use it. Cities should also move away from development approvals on paper and towards electronic permission. At best, the federal government can help fund some of this. But, again, it is the cities that must take the step.
Toronto’s provincial and land transfer tax cuts will help affordability. These taxes are like capital gains taxes, which keep people from sell and reduce supply.
Our federal parties are right to want to improve affordability. But, the reality is that the balance of power belongs to the cities and provinces. It is time for you to step up.