Three evidence-based suggestions to make a real difference in affordability.
If politicians in British Columbia and elsewhere wish to make life more affordable for average Canadians, here are three suggestions.
First, get your own budgets under control. Second, stop making land and housing more expensive to develop; and third, stop enacting policies that drive supply down while ever-more people populate our fine country.
That triple combination of lousy government policy is a recipe for an ever-more costly life for all.
On the first, provincial and municipal governments have a bad habit of offering and paying government employees salaries and benefits higher than the private sector. That drives up costs. For example, the Fraser Institute found that government employee enjoy a 7.5 per cent wage premium in British Columbia, a 9.6 per cent wage advantage in Alberta, and a 10.6 per cent wage premium in Ontario.
In all three provinces, government and other public sector employees are also far more likely to have a costly guaranteed defined benefits plan which does not adjust for market realities or longer lives lived.
Meanwhile, the Canadian Federation of Independent Business (in their own analysis) found that once benefits are taken into account, the private sector-government sector gap grows: 21.2 per cent at the provincial level and 22.3 at the municipal level, on average, across Canada. The CFIB found that the private sector-government sector compensation and benefits gap was even more pronounced at the federal level, with a 33.3 per cent advantage to the public sector once wages and benefits were factored in.
The CFIB estimated that government employees/private sector employees’ gap was worth $20 billion annually in extra government spending across Canada. That was a 2015 estimate – it’s possible that overcharged taxpayers pay more now.
To put that $20 billion in context, in 2015, taxes on property to local governments across Canada brought in $65.7 billion (and $71.7 billion in 2018). The $20-billion overcharge to taxpayers for government compensation and benefits was thus akin to just under one-third of what local governments brought from property taxes in the year the CFIB released their study on government compensation.
Higher costs drive pressure for new and higher taxes. That pressure is also why municipal and provincial governments across Canada have a nasty habit of making property more expensive through ever-more charges, taxes, and fees. Politicians apply such increased cost to both consumers and developers. When they do the latter, they often portray it as friendly to residential taxpayers.
Higher costs drive pressure for new and higher taxes.
But developers, as with any business, will pass government-imposed costs on to consumers and/or offer less value for the money or an inferior product. The Fraser Institute, again, found that in Metro Vancouver, development fees constituted 6.7 per cent of local revenues in 2007 and 14.8 per cent in 2016. There’s no free lunch: When cities impose ever-higher development fees, the end buyer pays. This is also something the NDP government has exacerbated with new and higher taxes on home ownership in much of British Columbia (i.e., the speculation tax).
To be sure, Metro Vancouver is a somewhat unique case. As with Manhattan, there are natural boundaries. Those put upward pressure on home prices and rents. But supply matters, too.
On the latter, the other major government policy that has been a mistake over the decades is rent control. Unless the NDP government and city governments care to call for an end to immigration from inside and outside Canada—not a position I endorse—people who want to live in beautiful British Columbia must live somewhere. That “somewhere” requires new houses, townhomes, and condominiums. Given the stratospheric cost of housing in greater Vancouver among other areas, much new supply is needed.
The problem with rent control is that is sends this message to investor and even prospective one-off condominium owners: Don’t invest here, because your returns will be limited by government decree.
This is not an ideological argument but an empirical reality. Rent control lessens supply and leads to a degradation of the existing the rental stock. The profit incentive to build new rentals is discouraged; the incentive to fix up existing rentals is non-existent, because recouping such reinvestment is unlikely.
This reality is why Gunnar Myrdal, a Nobel Prize winner active and instrumental in left-wing political parties in Sweden in the 20th century, pointed out that rent control was counter-productive policy. He argued that “Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
The profit incentive to build new rentals is discouraged.
Another left-wing Swedish economist, Assar Lindbeck made the same point but more bluntly: “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing it.”
Supporters of rent control often argue that developers may only build apartments that higher-income folk can afford, and don’t aim for the lower end of the housing market. That argument falls flat; what matters is increased supply. If some renter who now pays $1,500 for a basement suite decides she will pay $2,500 for a new, modern apartment, her move opens up the $1,500 unit. What’s needed is new supply. It doesn’t matter where it starts.
As with elsewhere in Canada, governments in British Columbia are committing a troika of mistakes: They are not controlling their own budgets including on compensation costs; that has led to pressure on the tax-higher/tax-more side; and they are enacting policies that kill off a greater supply of housing just as migration levels into British Columbia are soaring.
Want to make British Columbia more affordable? Control your budgets and end policies that squeeze the supply of housing.