Introduction

Lack of housing in Metro Vancouver makes us all poorer.

Prices reflect scarcity. When we don't have enough housing, rents are high.

First-time homebuyers struggle to save a down payment and then pay the mortgage.

Even if you're a long-time homeowner, you don't benefit from the inflated price of your home unless you sell, and then where are you supposed to live?

We have a mismatch between jobs and housing. People move where the jobs are. We're adding new jobs much faster than we're building new housing.

It's like musical chairs. Low vacancies drive up rents, pushing lower-income renters out of the city, or worse, into poverty and homelessness.

To fix this, we need to build more housing, and we need to build it faster.

If local governments can't figure out how to approve housing faster, the provincial government will need to step in.

For a more authoritative discussion, see the MacPhail Report on housing supply and affordability in BC.

The GTA and southern Ontario are facing similar problems. Mike Moffatt explains how a chronic shortage has been aggravated by the pandemic.

Yes, No, and Maybe votes on housing

Municipal politics doesn't get a lot of news coverage, and municipal political parties don't have strong brands, so it's not easy to keep track of who to vote for.

For Vancouver city council, here's a summary of who consistently votes Yes on housing, who consistently votes No, and who's a Maybe.

Yes votes:

  • Kennedy Stewart (party TBD)
  • Christine Boyle (OneCity)
  • Lisa Dominato (former NPA)
  • Melissa De Genova (NPA)

No votes:

  • Colleen Hardwick (TEAM)
  • Adriane Carr (Green)
  • Jean Swanson (COPE)

Maybe votes:

  • Sarah Kirby-Yung (former NPA)
  • Michael Wiebe (Green)
  • Rebecca Bligh (former NPA)
  • Pete Fry (Green)

I'd really like to see at least two more solid Yes votes on housing.

Some past decisions:

Mandate letter for Ahmed Hussen

The Trudeau government publishes the mandate letters that it provides to each cabinet minister. Here's the mandate related to housing for Ahmed Hussen, the federal minister responsible for housing.

Full letter. Mandate letters for all cabinet ministers.

It's a long list. To try to group and prioritize it:

(1) Making it easier for first-time homebuyers to compete. The Fairness in Real Estate Action Plan, at the top, is basically a number of measures aimed at restricting speculation and investment. The rent-to-own program also falls in this category.

(2) Measures aimed at increasing supply, focused more on rental housing. The Housing Accelerator Fund, conversion of unused office space to residential, review of the Rental Construction Financing Initiative (low-cost loans for rental projects), review of the Federal Lands Initiative, more funding for the National Housing Co-Investment Fund (to build more below-market housing).

(3) Funding for Indigenous housing (presumably Indigenous Services would be taking the lead).

(4) Funding for homeless veterans, working with the Minister of Veterans Affairs.

I should point out that although the federal government gets most of the media coverage and attention, it's really local governments that decide what gets built. There's typically a zoning code that limits what can be built where, and then some kind of discretionary process to override the zoning code for individual projects.

Because homeowners are much more likely to vote (and to pressure elected officials) than renters, local governments typically reflect the interests of homeowners. The main countervailing power pushing for more housing is developers (the "growth machine"), but since the 1970s, homeowners have been in the ascendant, and so local governments have tended to limit the amount of housing that can be built. For an explanation, see William Fischel, The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day (2016).

Local governments are creations of the provincial government, so the provinces (Ontario and BC) have the power to override local opposition to new housing. So far they've been reluctant to do so, but the flood of pandemic savings into the real estate market (driving up prices and locking first-time homebuyers out of the market) may force their hand.

The federal government doesn't have the direct levers that the provinces do, but they can use their funding power to provide carrots and sticks.


From the letter:

Work with provinces, territories, municipalities and the Deputy Prime Minister and Minister of Finance to develop a Fairness in Real Estate Action Plan that includes:

  • Amendments to the Income Tax Act to require landlords to disclose in their tax filings the rent they receive pre- and post-renovation and to pay a proportional surtax if the increase in rent is excessive;
  • An anti-flipping tax on residential properties, requiring properties to be held for at least 12 months;
  • A temporary ban on foreign buyers of non-recreational residential property in the Canadian housing market so that housing does not sit vacant and unavailable to  Canadians;
  • Supporting the review of, and possible reforms to, the tax treatment of Real Estate Investment Trusts;
  • Developing policies to curb excessive profits in investment properties while protecting small independent landlords;
  • Reviewing the down payment requirements for investment properties;
  • Increased consumer protection and transparency in real estate transactions, including a ban on blind bidding;
  • Identifying how federal regulators can be better positioned to respond to housing price fluctuations and to help ensure a more stable Canadian housing market; and
  • Preventing “renovictions”.

Invest in a new Housing Accelerator Fund to support municipalities in increasing the housing supply in Canada’s largest cities through measures such as inclusionary zoning, increased densification, reductions in construction approval timelines and the rapid development of vacant or underused lands.

With the support of the Deputy Prime Minister and Minister of Finance, make critical investments and priority policy decisions to expand Canada’s housing supply, and continue to advance our investments in affordable housing and extend the model of co-operative housing to new communities.

To help make it easier for renters to get on the path to home ownership, create a fund to test, develop and scale up rent-to-own projects across the country.

Support the conversion of empty office and retail space in the federal portfolio and in commercial buildings into market-based housing; work with municipalities to support a fast-track permitting system for conversions; and undertake reforms to the Rental Construction Financing Initiative to ensure the program is maximizing affordability, energy efficiency and accessibility outcomes, while processing applications in a more timely and transparent manner.

Introduce enhancements to the Federal Lands Initiative to ensure the federal government is more effectively deploying its inventory of lands to advance the objectives of the National Housing Strategy.

Increase funding to the National Housing Co-Investment Fund to help affordable housing providers acquire land and buildings to build and preserve more units, extend the model of co-operative housing to new communities, accelerate critical repairs and develop projects for vulnerable groups including women, youth and people with disabilities.

Proceed with the appointment of a new Federal Housing Advocate to monitor progress in meeting the goals of the National Housing Strategy, including ending chronic homelessness, and move forward with our plan to invest in Reaching Home: Canada’s Homelessness Strategy, to support communities across the country.

Accelerate our Government’s commitment to end chronic homelessness among Veterans through the Rapid Housing Initiative, a new rent supplement program, wrap around supports and a dedicated stream of funding for Veterans within the National Housing Co-Investment Fund. You will be supported in this work by the Minister of Veterans Affairs.

With the Minister of Crown-Indigenous Relations, Minister of Northern Affairs, Minister of Indigenous Services and Minister of Intergovernmental Affairs, Infrastructure and Communities, and in partnership with First Nations, Inuit and Métis communities, continue to make immediate and long-term investments to support ongoing work to close the infrastructure gap by 2030, with a particular focus on expediting investments in Indigenous housing, with over half of the funding available by the upcoming summer construction period.

With Indigenous partners, co-develop an Urban, Rural and Northern Indigenous Housing Strategy, a stand-alone companion to the National Housing Strategy, supported by dedicated investments, and create Canada’s first-ever National Indigenous Housing Centre. You will be supported in this work by the Minister of Northern Affairs.

Expand the eligibility requirements of the deep home retrofit loan program to include more climate resilience measures, while also ensuring the program remains accessible to both individual homeowners and multi-unit residential buildings.

Pandemic savings

Why did Canadian home prices go up during the pandemic, especially when immigration basically went to zero? (Canada only met our target of 400,000 immigrants for 2021 by counting people who were already here.)

When Covid hit, spending on gas, shopping, restaurants, and travel plunged, and household savings went way up. A lot of people who could work from home and still had their jobs suddenly had a lot more money to invest, and some of that money went into real estate.

Visualization, based on Statistics Canada data, is by Philip Smith.

Mike Moffatt:

I would say the roughly top 30 per cent of the population, income-wise, did well financially during the pandemic. Think of all the things that you couldn’t spend money on. You can’t go on vacation, you’re not commuting to work, so that’s $60 to $80 a week that’s not going into the gas tank. That starts to add up. Savings rates shot up.

Because of this, we saw that 30 per cent of the population put their money in all kinds of things. So real estate was a big one, but Bitcoin went up. All these “meme stocks” from GameStop to AMC went up. Old hockey cards absolutely escalated in value. Because you have all these people with essentially too much money and too much free time on their hands, and they’re kind of bored, they need to park that money somewhere. And a whole bunch of them decided, “Hey, you know what, I’m gonna buy a place in cottage country” or “I’m gonna buy this second house; I’m gonna get into the real-estate market.” So that drove a lot of this — there were more people buying and selling. And they could make much bigger offers because of savings rates and low interest rates.

Of course a lot of people did lose their jobs, which is why CERB and other income-support programs were so important - like a super-sized version of EI. Having household income drop to match the plunge in spending would have been disastrous. But now that there's been this giant surge in savings, pushing up real estate prices, what do we need to do to make home ownership more affordable?

On the supply side, what we want is something more like Atlanta, where demand for housing leads to a lot more construction and flat prices, rather than San Francisco, where demand for housing results in high prices while construction stays flat. See the graph from Glaeser and Gyourko 2018. People move where the jobs are, and Covid has untethered a lot of jobs from expensive cities like Toronto and Vancouver, so it makes sense to build more housing where people have moved, for example by allowing more "missing-middle" housing. This won't necessarily be easy: municipal governments are wary of adding more housing (because of opposition from local homeowners concerned about anything that could affect their most valuable asset), and provincial governments have the power to override them but are reluctant to do so.

On the demand side, the risk is that you get a "natural Ponzi scheme" (Robert Shiller), like in the pre-2008 housing crash in the US, where an initial rise in house prices leads to more and more people piling into the market and driving prices up further. In normal times, the price-to-rent ratio should be stable. The higher it goes, the more unsustainable prices become. To counteract this, you probably want to tighten credit, for example by requiring higher down payments (a lower loan-to-value ratio) for investment properties.

Video: “Single-family houses are just what people want”

A video by @OhTheUrbanity on a common defense of single-family zoning: "Single-family houses are just what people want."

It's true that people want space, but they also want a reasonable location and cost, and there's a tradeoff between those three things.

What’s next?

One of the reasons I started morehousing.ca was that Vancouver's decision on the Streamlining Rental Plan was a window of opportunity to get more rental housing built in the city of Vancouver, and it wasn't a foregone conclusion. The last time the plan came to council, in July 2020, it was postponed by a 6-5 vote.

Now that the Streamlining Rental Plan has been approved (10-1), what's next? In the city of Vancouver:

  • Vancouver Plan - rapid transit corridors, local shopping areas, low-density areas
  • Senakw
  • Broadway Plan
  • False Creek South
  • Jericho Lands

The next municipal election is coming up in October 2022. I'd like to see Kennedy Stewart re-elected, along with a solid majority of pro-housing councilors. I may end up running for council myself.

At the provincial level, will the minister responsible for housing (David Eby) override local governments to get more housing built, as has happened in West Coast states (California, Oregon, Washington state), New Zealand, and Japan? Similarly, in Ontario, the Doug Ford government appears to be pushing local governments to build more housing.

At the federal level, there's a new Housing Accelerator Fund. How will it be used? Will federal funding for housing be made conditional on pre-zoning at the local level?

Ever since the 2008 housing price crash in the US and elsewhere, it's seemed like Canada has been overdue for something similar. According to the Economist, Canadian home prices are about 80% overvalued compared to rents. What's likely to happen to home prices?

I'd expect increased scrutiny, taxation, and restrictions on foreign investment in real estate (since foreign investors can't vote). Will Ontario set up something similar to BC's Land Ownership Transparency Registry? When will the temporary federal ban on foreign investment in real estate be implemented?

On the credit side, will the mortgage stress test be tightened? Once we're past Covid and the Bank of Canada starts raising interest rates, what'll happen to home prices?

Video: Streamlining Rental Plan approved by council!

This is it: time for council to vote on the Streamlining Rental Plan.

Live stream via YouTube.

Part two, after a dinner break.

Closing comments:

Council has approved the Streamlining Rental Plan!

This decision took quite a while (with public hearings on November 2, 4, and 9), but this seems like exactly the kind of high-level policy decision that city council should be considering, rather than approving rental projects one by one.

Council's long-term goal is to approve 20,000 purpose-built rental homes over 10 years. The projection from city staff is that this one decision should result in 4,000 more rental homes over 10 years. That's about the same as the big Senakw project with its 59-storey towers (providing 6000 homes with 70% rental, i.e. 4,200 rental homes). And because they'll be spread across the city instead of downtown, their rents should be lower than for new rentals downtown. VanDashboard.

Dan Fumano in the Vancouver Sun:

Globe and Mail editorial: Canada needs a lot more rental housing. Vancouver is leading the way – very slowly.

 

Q&A on the Streamlining Rental Plan

A 12-page memo from staff to council, responding to emailed questions from council on the Streamlining Rental Plan. The memo notes that council approved the policy in principle in 2019, directing staff to prepare the implementation plan. This is what's coming up for approval.

The vote is scheduled to take place tomorrow, December 14.

 

Video: supply skepticism

A short video by @OhTheUrbanity on supply skepticism, with references to research. Why is housing in Vancouver (and Toronto) so expensive? Short answer: because it's hard to build more housing.

High home prices drive new construction, not vice versa

Where home prices are high, people want to build more, and you get more new construction. Where home prices are low, you get less new construction. There's a lot more new construction in Vancouver than in Saskatoon. 

In Vancouver, quite a few people think it's the other way around, that new construction causes high prices.

A recent exchange on Reddit:

Lazy-Contribution-50: My thesis is that rezoning in Vancouver in this way will drive prices of housing up and not down. Feel free to disagree, but given how things have gone here the past decade I don’t think that’s an unreasonable assumption.

russilwvong: Sorry, you've got cause and effect 100% backwards. There's so much rezoning and new construction in Vancouver because prices are high, not the other way around.

Lazy-Contribution-50: So why haven’t prices dropped? Every new build condo building sells their units for more and more each time.

russilwvong: Home prices reflect rents (basically the value of the future stream of rents you can either collect or not have to pay), plus there's speculation on top of that.

Rents are high because vacancy rates in Vancouver are low, despite the current pace of new construction.

Vacancy rates are low because there's a mismatch between jobs and housing: we're adding jobs faster than we're adding housing.