The simple laws of supply and demand say that if there’s more supply, prices will fall. Realtors and politicians keep repeating the same mantra - just build more supply and housing prices will fall. That trickle-down effect may work in the long run, but our housing affordability crisis is now.
This housing crisis is different than anything we’ve ever seen before because the scale of investors in the housing market is unprecedented. According to Statistics Canada, an astonishing 49% of all B.C. condos built since 2016 were bought by investors.
No amount of “more supply” alone will satisfy the insatiable demand for housing by investors, nor will “more supply” make housing more affordable. The normal supply and demand equation is being totally skewed by investors who are continuously driving prices higher.
Who are the investors?
With cheap money available over the past decade of low interest rates, the investors are everyone - buying a growth asset or just parking their money in a safe haven. Investors can’t get enough of Vancouver. And why not? Mountains, the ocean, views, beaches, and stable governance. What’s not to love?
Everyone with any money has been investing in housing:
- Private equity funds.
- Residential Equity Investment Trusts (REITs).
- Speculators, flippers, and home hoarders looking for a quick profit.
- Ordinary Mom and Pop investors trying to build a future for their families.
- Foreigners, including satellite owners.
All these investors have commodified Canada’s housing to a degree never before seen here, and everyone is making money from it. All levels of government now count on the associated taxes and fees, and the real estate industry of course loves it.
That’s our housing affordability crisis.
Local home buyers - particularly first-time home buyers and immigrants - can’t compete. When middle-income people earning nearly $100,000 can’t afford to buy a home in Vancouver or Toronto, that’s a societal problem. A great city needs a diversity of families, cultures and creative interests, immigrants, and people in the service industries. A city is not a city if it’s just an enclave for the rich.
Government proposals aimed at increasing supply as the answer to more affordable housing prices don’t recognize the reality that the trickle-down effect alone won’t work in this market. Vancouver’s Broadway Plan, its Vancouver Plan and the BC Builds plan are all based on this false promise.
What can governments do?
Governments have tinkered at the edges for years, hoping, but nothing has changed. In fact, housing affordability has gotten worse. Home prices have recently gone down, but mortgage interest rates went up. The net result is that houses are now even less affordable. David Eby setting targets for more housing supply, won’t magically produce affordable housing, especially in this current housing downturn. No builder will build into a slow market, targets or not.
Bold, “out-of-the-box” government initiatives are required, or nothing will change. Here are some proposals:
1. Initiatives are needed to incentivize the entrepreneurial genius of the private sector, which has the know-how, capability and the drive to build homes on budget and on time. Make it financially worthwhile for a builder to build affordable rental housing through income tax breaks, like the 1970’s MURB program. Most of the older affordable rental stock in Canada that exists today was built in the 1970’s under the MURB program.
2. It all starts with the high price of land. Mandate municipalities to exchange density bonus up-zonings, which are a free financial gift to landowners, for a requirement to build 50% “affordable housing” that employment incomes can afford to buy or rent. Developers can still make a decent profit, but not drug-dealer profits on land, and the community gets affordable housing. It’s a win-win. And it’s financially feasible. Developers who say the math doesn’t work, overpaid for the land expecting a higher density. That’s a developer’s problem, not society’s. Land speculation will be eliminated if the requirement for 50% “affordable” is baked into every up-zoning.
3. Use public land for the public good by having builders build affordable housing on city or provincially owned land, with a zero land cost.
4. Finance non-profits and co-ops to build more affordable housing for communities in need, with government-backed preferred interest rates.
5. City Hall housing approvals processes grind developers down. Speed up, simplify, and fast-track purpose-built rental and affordable housing projects to the front of the line. Waive development charges for all affordable housing projects.
6. Stop the commodification of rental units that are converted to unaffordable housing by protecting existing rentals, through vacancy control. Prohibit rental tenants from subletting their homes for a profit through above-lease rates or short-term Airbnb rentals. Prohibit landlords from increasing rents between tenancies, except for the actual construction costs incurred for renovations. This is opposite to David Eby’s supply-side, trickle-down announcement permitting more rentals in strata buildings, but not more “affordable” rentals.
7. If all else fails, slap a 50% speculation tax on land profits like Ontario Premier Bill Davis did in the 1970’s to stop the speculation in land.
There’s no magic bullet to fix a housing crisis that’s been a decade in the making, but some of these proposals might start to make a difference.
Arny Wise is a Vancouver urban planner and former developer.
