Ontario Construction News staff writer
Canada’s housing affordability crisis largely is caused by bureaucratic bottlenecks and restrictive land use policies in the country’s largest cities, coupled with the recent surge in immigration, says Ian Lee, an associate professor at Carleton University’s Sprott School of Business.
In a presentation to a special general meeting of the Greater Ottawa Home Builders’ Association last Thursday (Oct. 10), Lee said practical solutions to the crisis include speeding up development approvals, forgoing the “densification” mantra, controlling immigration, and relaxing zoning rules, especially to legalize basement apartments.
The association called the meeting to amend its operating bylaws to conform with new requirements of the Ontario-Not-For-Profit Corporations Act, 2010. GOHBA board president Pat Daniels from Glenview Homes, says the changes won’t affect the association’s operations, but he will soon become the association’s board chair, rather than its president.
After the brief formal meeting at Stephenson’s Rental Services in Carp to ratify the relevant bylaw changes, Lee laid out his concerns about how many of Canada’s political leaders and bureaucrats – especially at the municipal level – are advocating policies based on ideology rather than pragmatic data.
Lee said he worked in the banking/mortgage industry before becoming an academic, and he observed how, even in the most challenging economic environments, Canadians rarely default on their mortgage loans.
“We’ve never had a mortgage crisis in Canada,” he said. The national mortgage delinquency rate has never, ever exceeded 1 per cent even when rates reached 20%.” Recent delinquency rates are less than .20%, he said.
Lee described speaking with a client when he worked in the industry at the height of the early early 1980s interest rate spike. The person had lost his job but was still making his payments. Lee said the homeowner explained his ability to make the payments: support from his parents. The “bank of Mom and Dad” continues in 2024 to be a key way younger people can afford and finance their housing, despite skyrocketing financial stress.
The market is dynamic – individuals adapt to avoid mortgage default; perhaps by finding tenants or, if all else fails, selling the house before they lose it to the bank.
However, Lee said there is a very real “ownership crisis.”
“Let’s be concrete. Let’s be empirical. This is the crisis,” he said. In 2002, the ownership cost of an average home was about 35% of income. By 2023 nationally, the ownership costs of an average home as a percentage of the median household income had reached more than 60%.
The rental market story isn’t much better. Average rents have increased by close to $100 per month in recent years, compared to increases in the $25 range until about 2016. Meanwhile, Lee showed a chart “Vacancy Rate OK until 2016 – then collapsed” showing the vacancy rate declining from 3% or more to about 1.5%
Overall, Lee says Canadians have solid net worth and, even in the current environment, a surprising percentage of younger people – despite the affordability crisis – can still purchase homes, largely because of family support from parents with significant net worth.
However, home ownership is starting to decline and the problem won’t be solved unless policies change, he said.
One issue is that elderly home owners are staying put. “Older people, their propensity to sell, has been declining very dramatically from 1991 today,” he said.
“I argue that it’s not the elders being greedy or the seniors being greedy. It’s the shortage of housing options for them to go into.”
Lee also made clear that the housing crisis is largely restricted to the nation’s largest cities, especially Toronto and Vancouver. Housing affordability is much greater outside the top 10 cities.
“We don’t have a national housing crisis,” he said. “We have a big city housing crisis.
“And guess where the worst municipal administrations are? . . . “Now it’s the biggest cities, the GTA and Vancouver, where they are the most hostile to real estate developers, and they’re the most hostile to building new suburbs.”
While housing prices have been relatively stable, the overall cost of home ownership is greatly exceeding the overall inflation rate, especially in the bigger cities, he said.
The problem isn’t foreign ownership – less than 5 per cent of the housing in Canada is owned by non-Canadians, so that couldn’t be driving the market. Nor is it investor-owned housing – because investors need to rent their houses to make a profit, and that should restrain rental prices, at least if it was a significant factor.
Immigration is another story, however. “The federal government has done massive damage to our country on immigration” especially by allowing a flood of lower-skilled people and students exploited by community and private colleges.
“The government just sent immigration through the roof, and to unsustainable levels.” Lee said. “In every province the immigration rate grew double the OECD Organization for Economic Co-operation and Development) average. (The OECD represents the world’s 37 high income countries including the US, Canada, South Korea, Japan and European countries.)
Construction and business productivity in Canada are lagging the rest of the world, and there are continuing challenges with the ageing of the construction labour force. Lee says part of the solution is to go back to the basics and encourage higher “targeted” immigration from people with trades skills.
“We went from . . . a bi-partisan agreement for 57 years of bringing highly skilled immigrants, and what they’ve done in the last five years, they flipped the mix. So we’re bringing lots and lots of low skilled, low education immigrants, as opposed to highly skilled immigrants.
“It was just madness, because the productivity of a low-skilled person, whether they’re immigrant or not, is lower.”
But the biggest problems, says Lee, are restrictive municipal policies and new development delays.
Lee said the primary reason houses are unaffordable in Canada’s larger cities can’t be traced to materials or construction costs – because these are largely defined by world commodity markets.
Still housing affordability is declining in the nation’s biggest cities. Why?
“I think the municipal approval process, the delays, are causing the prices to increase. Delay anything – it’s going to become more expensive.”
Coupled with delays, Lee says municipal polices forcing intensification (Lee uses the word ‘denisfication’) are aggravating the problem.
He says 80 per cent of Canada’s 32-million adult population live in the suburbs.
“So where are the biggest cities trying to make us all live in the downtown or the urban core. And they want us to do densification because they claim it’s going to solve the problem.”
Lee said he believes these policies are based in “ideology, not empirical data.”
These politicians and planners argue that “we just cannot afford to build new suburbs,” Lee said. “And I’ve said my answer is, ‘but we’ve been doing it for 2,000 years.’”
As for “urban sprawl” causing global warming, Lee pointed out that the people living in the dense urban core have higher net worth, and generally consume and spew more carbon emissions than the people living in the suburbs.
“Polling data show that most people don’t want to live in the downtown. They want to live in the suburbs, except for some double retirees and some young people.”
Lee said urban growth is really not having a significant impact on Canada’s agricultural production or markets, or interfering in food supply.
“We need over three million houses, and we’re not even close to that,” Lee said. “So we’re going to have to do some pretty radical changes, I believe, such as open(ing) up the rural edges of the cities.
“We’ve got to build a lot more suburbs. There’s no question about that. The idea that we’re going to build three million homes in five cities in the urban core of Toronto, Ottawa Vancouver, is just nonsense. It’s pure ideology to believe that.”
“Do you really believe you can put three-quarters of a million houses a year in Ottawa’s urban core?” he asked. “Can you put three-quarters of a million people in (Ottawa’s core urban communities) Alta Vista, Sandy Hill, Rockliffe and the Glebe? And if you say ‘yes’, then you show me where.”
Coupled with relaxed rules allowing for unrestricted basement apartment rentals and controls on immigration, changes to municipal policies and rules would largely address the affordability crisis, Lee asserted.