Canada's Middle-Income Housing Affordability Crisis

05/12/2015 03:49 pm ET | Updated May 10, 2016

Canada faces a housing affordability crisis. In a number of cities, housing has become so expensive that many middle income households can no longer afford to buy a house. This is not good for people, households or the nation as a whole.

Short of rule of law and preservation of order there may be no more important domestic policy priority than improving the standard of living and reducing poverty. Both of these require higher discretionary incomes– the amount of money households have remaining after paying taxes and for necessities. Discretionary incomes define the very standard of living and poverty.

Housing is important. It is the largest expenditure item of household budgets. For most of the time since World War II, housing has been affordable across most of Canada. Indeed, in most major markets, house prices tended to be approximately three times household incomes as late as 2000. For the most part, house prices rose no faster percentagewise than incomes.

But things have deteriorated substantially in some places.

In Toronto, housing prices have doubled relative to incomes since 2000. In Calgary, new detached housing prices have risen nearly three times household incomes --- this is a stunning figure since the energy boom has driven incomes up so strongly in Calgary. Prices have also risen strongly relative to incomes in Montréal, Halifax, Saskatoon and Regina.

Vancouver has had intractable an housing affordability crisis for decades. Yet it has only gotten worse in recent years. In the 11 years I have co-authored the Demographia International Housing Affordability Survey. house prices have doubled, and are now 10.6 times incomes. Vancouver is the trails only Hong Kong in its costs of housing relative to incomes in the nine nations we survey.

These price increases have not just fallen out of the air, nor are they the result of normal supply and demand. Government policy is at the heart of the problem.

Provincial, regional and local authorities have implemented far stronger housing and land use regulations that have generally outlawed building on greenfield land by imposing urban growth boundaries or other regulatory constraints. They have also implemented excessively expensive fees and levies. Not surprisingly, this has led to higher prices. These regulations go by a number of names, such as "smart growth" or "urban containment."

Proponents have used a variety of reasons to justify these policies. Agricultural preservation is a favorite. Yet cities are no threat to agriculture. All of their area --- developed over 400 years --- is less than the land retired from agricultural use in just the past decade. Meanwhile, agricultural production has increased more than 150 percent since 1961.

The house price increases should not have been a surprise. From London to Liverpool, Sydney to Perth Auckland and San Francisco, wherever draconian restrictions have been applied to housing, prices have exploded relative to incomes. After the first quarter century of similar regulation in England, legendary urbanologist and urban planner Sir Peter Hall characterized urban containment policy as opposed to the ideal of a property owning democracy. That was forty years ago. More recently, Paul Cheshire of the London School of Economics concluded that urban containment is irreconcilable with housing affordability.

Regrettably, proponents of urban containment have continued to deny the connection with diminished housing affordability, even as housing prices double or triple relative to incomes. Worse, other cities are lining up to mimic the policies that placed home ownership out of reach for some many households in Vancouver, Toronto and Calgary.

Things are likely to get worse, unless there is reform. The principles are simple. People are more important than planning. Improving the standard of living and reducing poverty is more important than urban design or urban form. It is time to put people first.

Adapted from a presentation to a Frontier Centre for Public Policy event in Calgary.