KEN BOESSENKOOL AND MIKE MOFFATT
SPECIAL TO THE GLOBE AND MAIL
PUBLISHED DECEMBER 10, 2021
UPDATED DECEMBER 11, 2021

Ken Boessenkool has worked on past provincial and federal Conservative platforms, teaches at the Max Bell School of Public Policy at McGill, and is a research fellow at the Smart Prosperity Institute.
Mike Moffatt is a former economic adviser to Liberal Leader Justin Trudeau, an assistant professor at Western University’s Ivey Business School, and a senior director at the Smart Prosperity Institute.

Politicians from across the spectrum – from federal Conservative Party Leader Erin O’Toole to Ontario NDP Leader Andrea Horwath – have characterized Canada’s current housing market as being in “crisis.” There is a consensus across parties and levels of government that something must be done, particularly around the “hot money” flying around in the market, from investors looking to make a big return.

And indeed, home prices have skyrocketed in select regions of Canada, pricing young first-time buyers out of the market and causing concerns about a possible housing crash. There should be no doubt that the collapse of global interest rates, increased savings rates of white-collar professionals and speculative activity are fuelling these massive price increases. Policy makers do need to consider ways to reduce the amount of speculative excess.

But there is a real risk that governments may do more harm than good if they fail to define the problem that they are trying to fix, misunderstand the root causes of that problem, and simply apply the same old “let’s introduce a tax credit” solutions.

More and cheaper and speculative money is an important part of the story, but it is not the whole story; it may not even be the most important story. Hot-money explanations alone cannot explain why the price of a single-detached home is up more than 60 per cent over the past two years in Ontario cities from Barrie to London, but has increased by only 20 per cent in Winnipeg, for instance. In Calgary, Edmonton, Regina and Saskatoon, those prices are up a modest 10 per cent.

Canada’s housing market issues predate the pandemic, and are regional in character, rather than national. Simply put, many regions of Canada, particularly southern Ontario and the lower mainland in B.C., are not building enough family-sized homes to keep up with population growth.

For example, owing to increases in immigration targets and an influx of international students who often stay in Canada after graduation, Ontario’s population grew by almost 950,000 people in the past five years – that’s 330,000 more than in the previous five-year span. Despite that rapid population growth, however, the number of housing unit completions was up only 40,000 between the two five-year periods, and the vast majority of that growth was in one and two-bedroom condos. Toronto, which is a prime destination for international talent, saw almost no change to the number of units completed.

The lack of available and attainable new housing in Ontario cities is causing a generation of younger people to be locked out of home ownership. In 2001, between 13 per cent and 15 per cent of all 25- to 34-year-olds living in Guelph, Kitchener-Waterloo, London, Barrie, Ottawa, Edmonton, and Calgary lived with a parent. By 2016 (the latest year for which we have data), the proportion in Edmonton and Calgary stayed virtually unchanged, at 15.4 per cent and 15.9 per cent respectively. However, in London and Ottawa, the proportion rose to 19 per cent. Guelph hit 20 per cent, and Kitchener-Waterloo rose to 21 per cent. In Barrie, the figure hit 24 per cent. There are a variety of reasons that an adult older than 30 may live with a parent beyond housing shortages, but they do not explain why the proportions of adults doing so in midsized Ontario cities are higher than in Calgary, Edmonton or Montreal.

And when they finally do move out of the house and have kids, they tend to be fleeing the Greater Toronto Area. In the year between July, 2013, and July, 2014, just over 30,000 people, on net, moved out of the city of Toronto and Peel Region and into other parts of Ontario. By 2018-19, that figure had exceeded 55,000. And the most common age to leave those communities is zero – that is, babies under 12 months old. Even before the start of the pandemic, Ontario was experiencing a substantial increase in the number of young families who had to “drive until they qualified” – that is, move farther and farther away from the Greater Toronto Area to find a home suitable for a family.

It is this combination of hot money and supply shortages that is causing rapid price escalations in some Canadian markets and not others. But governments have by and large simply focused on the demand side of the ledger – with tax-free RRSP withdrawals, or first-time homebuyer tax credits, or a First Home Savings Account. That will not fix the core housing issues in southern Ontario that were apparent before the pandemic.

Any serious housing policy plan must have at least two prongs. The first is “build, baby, build.” In Canadian regions with runaway home prices, all three levels of government need to clear away the barriers, and if necessary put in place incentives, to build more family-friendly and climate-friendly homes. This is, of course, easier said than done. And it will take a concerted effort by the whole of government. But without that effort, the problem will only get worse.

The second prong is something we’ll call “move, young person, move.” The pandemic has taught us many interesting lessons. A key one is how white-collar Canadians have been able to loosen the connection between where we live and where we work. Moving costs may be tax-deductible, but there is so much more we can do to make the very high, one-time, sunk costs of moving from unaffordable regions to more affordable regions more, er, affordable. Maybe instead of allowing withdrawals from RRSPs, or creating tax-free savings vehicles for home purchases, governments should create mechanisms to offset moving costs to areas of the country not experiencing housing shortages.

Good policy needs to address root causes; anything else is just window-dressing. Our housing crisis is not a national problem that will be solved by making it easier for young people (or anyone else) to buy homes. It is a regional problem that can only be solved by building more homes in places where they are in short supply, and by helping people get to where they are not.