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Local Government Reform - the Affordability Crisis and its broader social implications - the need for action

Simply put, local government is putting the nation at risk.

The affordability crisis in Canada's largest cities must be solved or we threaten our economic livelihoods, our social fabric and our political stability.

The crisis emerges from four forces:

  • Automation which is steadily eating away globally at rural employment and strengthening the global forces of economic agglomeration in cities (the economic advantage of networking & skill diversity).

  • An aging population (the boom / bust demographic problem) that necessitates immigration at levels necessary to support the boomers health care costs which also means that immigrants must be skilled and wealthy immigrants. (Many are millionaires)

  • Antiquated rezoning attitudes and processes which cause monumental supply and demand imbalances that drive prices beyond the reach of young Canadians entering the market, middle class renters and the socially dependent

  • Global investors looking for guaranteed no-brainer property investments based on analysis of politically created shortage of housing supply.

The results are fourfold:

  • Soaring housing costs are leading to widening inequality and growing poverty as individuals/households choose roofs over food (foodbank demand soaring) and school supplies (governments having to pitch in)

  • Problem Export: The "cashing out" of the properted in key large urban centers is causing housing costs to soar in secondary cities and small communities - squeezing the middle class, the poor and small business.

  • Housing costs in the sunrise areas of our economy are choked off by the challenge of attract the young and the talented to key urban centres where housing is vastly overpriced.

  • The risk of a housing bubble is acting as a restraint on monetary policy which restricts full capacity utilization (economic growth & job creation) in slower growth economic regions - rural areas and threatens the financial stability of the country.

The Solution:

  • Price stablity is a public good long regulated by monetary authorities in the interest of the public and in the interest of political stability. (Part of the peace, order & good government package)

  • Local governments in Canada's largest cities will have to rezone faster, more broadly, at higher levels - to densify (build up) on transport corridors - to achieve price stability ....or be faced with regulation to achieve such price stability targets.
  • Rezoning should be regulated (just as the money supply is) by senior governments to ensure inflation targets are met. Prices would be regulated by the supply of rezoned land. If housing prices start to go up greater than two percent a year or down by two percent then the stock of rezoned land should be either increased or decreased.
  • Failure of local governments to rezone adequately would result in an independent authority designating areas for rezoning - just as we reallocate electoral seats and take local school boards to task for failing to manage costs.
  • Local government should be provided incentives to meet defined housing supply targets

The social and political costs of inaction are as follow:

  • The problems of real estate booms and busts will not be solved until "central banks" oversee targets for this central aspect of the economy. Housing booms and busts represent a threat to global financial stability and social stability as the Great Recession of 2008 demonstrated.
  • If people don't feel the benefits of growth (immigration/internal migration), they'll (reasonably) withdraw support for the policies that create it.

  • They will seek "populist" solutions on the "far left or far right" that will not be solutions but will aggravate the social and economic stresses by supply & demand imbalances or ignoring longer term economic consequences of short term palliatives.

  • The result will be a society which is increasingly unequal, turbulent, wasteful of social capital and marked by economic stagnation (secular stagnation)

Postcript 1 "Insanity: doing the same thing over and over again and expecting different results." Local governments have run out of time on the need for reform.

Postcript 2 "It is better to put fires out early." Federal and provincial cooperation is needed to resolve the crisis in Canada's major urban centers - a carrot and stick approach is needed that recognizes the challenge of local governance but which will result in housing price stability.

Postscript 3 Because the housing supply shortage has built up over many years correcting the situation will take years even if policy changes were made tomorrow. The construction industry is at or close to capacity.
  Ontario to announce sweeping housing changes allowing up to three units on many residential lots (October 25, 2022)
   B.C. NDP leadership race: Eby's housing policy includes flipping tax, legalized secondary suites and increased density (September 28, 2022)
   Vaughn Palmer: More housing taxes won't help anyone, says Eby:Opinion: As soon as the Oct. 15 municipal election is over, expect the housing minister to bring in laws to expedite housing development(January 13, 2022)
   Estimating the Structural Housing Shortage in Canada: Are We 100 Thousand or Nearly 2 Million Units Short? (May 12, 2021)
  Van Sun: Dan Fumano: Simplifying Vancouver’s building process doesn’t have to be complicated (May 11, 2020)
  Land wealth is a massive source of inequality in BC (September 4, 2018)
  Canadian Rental Housing Index
  The Double Whammy: Housing and Income Inequality (August 1, 2019)
  Supply: The Missing Piece (March 20, 2018)
  CMHC: New CMHC study sheds light on rising house prices (February 7, 2018)
  Harvard Business School: Who is Responsible for the Future of Cities? When government just gets in the way (November 2017)
  Paper: The Economic Implications of Housing Supply (2018)
  Berkeley mayor on Wiener-Skinner housing bill: A declaration of war against our neighborhoods (NIMBY vs YIMBY (January 22, 2018)
  City Lab: The Urban Housing Crunch Costs the U.S. Economy About $1.6 Trillion a Year (May 18, 2015)
  Boston Globe: Go on, California blow up your lousy zoning laws (The whole country benefits) (January 14, 2018)
  National Bank Economic Report: Is Canada s household leverage too high or on the low side?
  Canadian CPI Basket of Goods and Services 1986 - 2015 (before things really got out of hand)
  Commercial Real Estate: As vacancy rates continue to plunge, rental costs skyrocket (January 17, 2018)
  World Bank: Transforming the Urban Space Through Transit-Oriented Development: The 3V Approach
  The city of Seattle is getting more apartments this decade than in the prior 50 years combined. Seattle-area rents drop significantly for first time this decade (January 12, 2018)
  Why Is 'Affordable' Housing is, well,...unaffordable (October 19, 2018)
  Medium:California Needs a Housing-First Agenda: My 2018 Housing Package (January 4, 2018)
  G&M: How boomers and their progressive policies squeezed millennials out of the housing market (December 19, 2017)
  G&M: Foreign ownership below 5 per cent in Toronto, Vancouver housing markets (December 19, 2017)
  Sam Sullivan on Density (October 26, 2016)
  Housing data shows Burnaby lags when it comes to creating & protecting secured market rentals (September 6, 2017)
  Macleans: The lesson, one year into Vancouver s foreign buyers tax, is that real-estate supply may actually be the city s biggest problem (August 17, 2017)
  Macleans: 720,000 CDN families would struggle to make their debt payments if interest rates increased a mere one quarter of a percentage point (June 13, 2017)
  Van City: Report: Growing unaffordability hits suburbs hardest (June 6, 2017)
  Vancouver Board of Trade on Human Capital and Housing Affordability (April 2017)
  PWC Australia: A place for everyone Tackling Sydney's housing affordability crisis
  Talk: Professor Christian Hilber | Britain's Housing Crisis: causes and cures (March 30, 2017)
  Who will step up to fix British Columbia s housing crisis? (April 30 , 2017)
  B.C. election Q&A | How the platforms stack up on housing affordability (April 25 , 2017)
  Ontario slaps 15% tax on foreign buyers, expands rent control in 16-point plan to cool housing (April 20 , 2017)
  Bank of Canada - Housing crisis in Vancouver is a supply problem (April 18 , 2017)
  Canada s housing bubble is the economy s biggest risk and its biggest driver. Now governments want to cool it down. (April 18 , 2017)
  Vancouver Board of Trade releases new policy report on housing affordability (April 18 , 2017)
  Early signs that Vancouver housing market correction may be over: Royal LePage (April 18 , 2017)
  Vancouver must speed up housing development process: Greater Vancouver Board of Trade (April 18, 2017)
  Has China's one child policy impacted Canada's real estate market? China's property bubble (April 13, 2017)
  CB: Canada s housing bubble looks a lot like the U.S. around 2007 (April 7, 2017)
  NP: Seven ways to cool Toronto s red-hot housing market without hurting everyone else (April 6, 2017)
  Ottawa seeks high-level meeting to discuss Toronto s soaring house prices (April 6, 2017)
  WSJ:Policy Makers Work to Prevent Housing Bubble in Canada s Biggest Cities (April 6, 2017)
  The Star: Outdated low density bylaws insulate the wealthy, exclude the rest (March 31, 2017)
  Vancouver Sun: Affordability Crisis hits low income earners hardest (March 28, 2017)
  Foreign buyers' interest in Metro Vancouver housing levelling off (March 24, 2017) (We want skilled workers not speculators)
  City of Vancouver Admin Report: Vancouver Housing and Homelessness Strategy Reset Housing Vancouver Emerging Directions (March 8, 2017)
  Vancouver goes on the defensive on the permitting process (March 7, 2017)
  Vancouver looks (talks about) to increase number of townhomes, row houses, duplexes (As supply shrinks in some areas) (March 2, 2017)
  CIGI: Ottawa Ignores Flags on Financial Stability
  City Lab: The Housing Crisis Is a Building Crisis - Construction industry productivity in the U.S. is lower today than it was in 1968
  Global: What the housing market could look like in 2017
  G&M: Wake up, Toronto, to your housing crisis
  Local Municipal and Regional Public Administration Employment Forecast - too darn many
  As Ottawa moves to cool the excesses of the housing market, those who ve benefited from the bubble should hope for the best, but expect the worst (October 12, 2016)
  FI: New Homes and Red Tape in Ontario: Residential Land-Use Regulation in the Greater Golden Horseshoe (October 4, 2016)
  Vancouver Sun: Report: Delays and costs of permits in Greater Vancouver (September 1, 2016)
  MLI: Poor Government Policy, not foreign investors exacerbating Canada's housing pricing crisis (September 2016)
  REAL ESTATE What Makes Housing Too Expensive (April 2016)
  B.C. municipalities should reduce barriers to housing construction, not foreign ownership (July 8, 2016)
  The Economist: Faulty land use throttling London (April 2016)
  Amalgamation research studies
  How growth of cities determines the growth of nations
  OECD: Finland launchs a reform to create more efficient municipalities through voluntary mergers (2014)
  Local Government and social mobility
  Strengthening Fiscal Frameworks and Improving the Spending Mix
  Core Review hinges on political will
  CD Howe Institute: Adaptability, Accountability and Sustainability: Intergovernmental Fiscal Arrangements in Canada (July 2015)
  Innovation: Wherever this McKinsey think piece says business insert local government (July 2015)
  Standard and Poor's US Local Governments School and Special Districts
  Is the BC Government helping out with reform or is it part of the problem?
  An unfortunate pattern of delay - all too common
  Proposed Local Government Act Revision (2015)
  OECD Studies relating to municipal merger