National Housing Strategy: Return of the Federal Government
In our view, a concerted effort is needed to increase housing supply across the spectrum of affordability. And by concerted I mean an effort that involves all levels of government, as well as the private and not-for-profit sectors. An effort that involves a fundamental re-thinking of land use planning, zoning and development, as well as the de-stigmatization of renting. Rent or own, it is still a home.
Our new National Housing Strategy provides a framework for increased collaboration and joint initiatives across the housing system. It is unapologetically a supply-oriented strategy, with the specific targets of removing 530,000 households from housing need, repairing 300,000 existing affordable housing units and investing in the construction of up to 100,000 new homes over the next decade.
In addition to supporting the most vulnerable groups in society – which is our primary objective – this approach will enable increased labour mobility by ensuring a greater supply of housing for low- and middle-income workers so that they can move closer to the jobs they want.
Through the new National Housing Co-investment Fund, for example, CMHC will make as much as $16 billion available over 10 years in loans and contributions to enable other levels of government and the private and not-for-profit sectors to build new affordable housing, preserve the existing affordable housing supply, and develop new housing solutions.
This represents our primary financial contribution to new housing supply. Through this Fund, we expect to create up to 60,000 new units of housing and repair up to 240,000 units of existing affordable and community housing. We are also supporting increased supply through the Rental Construction Financing Initiative, which is providing low-cost loans to municipalities and housing developers during the earliest and riskiest phase of rental property development.
To maximize the impact of the Co-Investment Fund, over the next 10 years the Government of Canada will transfer up to $200 million in federal lands to community and affordable housing providers, to encourage the development of sustainable, accessible, mixed-income and mixed-use communities. It was recently suggested that only cities are offering surplus land; we are doing our part too. Starting later this year, we will also provide funding for renovations, retrofits and environmental remediation to ensure that surplus federal buildings are suitable for use as housing.
Densification and a Focus on Rental Housing
Increasing the supply of affordable rental housing is key to supporting the growth of world-class cities – but it is only part of the answer. We also need to increase the supply of market-oriented housing, for both the rental and ownership markets. Doing so will lead to balanced markets, promote financial stability and support business and economic growth.
As I have already noted, the supply response has been weak in Toronto and Vancouver. While condominiums starts have gone up, starts of single-detached housing have not. And, as is inevitable with limited supply, the price of single-detached housing has continued to rise.
We have to ask ourselves, as a society, if this is somewhat inevitable. If we look to the examples of many other global cities, the answer is yes. Environmental and fiscal pressures, together with other factors such as geographical constraints, are pulling our big cities toward denser living and a lower supply of single-detached housing. We need to manage this transition effectively, to avoid stumbles along the way that could impede economic growth, including the ongoing risk that homebuyers will take on unmanageable levels of debt in their quest of the Canadian dream of owning a single-detached home.
How municipalities and developers go about building our cities is becoming increasingly important. In our view, densification is crucial. On this metric alone, Canadian cities have a long way to go to catch up to other global cities. Metropolitan Vancouver and Toronto average about 486 people per square kilometre. New York City, by comparison, has close to 1,700 people per square kilometre, London has almost 1,800 and Tokyo close to 4,200.14
Most urban Canadians support densification – as long as it is happening in someone else’s neighbourhood, that is. In practice, the concept is fraught with friction and roadblocks. Municipal planners and politicians are often caught between the desire of developers to build “up,” in order to make their projects economically viable, and the determination of local residents to maintain the character of their neighbourhoods and, in their minds, the value of their property. Since building houses is inevitable, we have to choose between building horizontally – urban sprawl – or vertically – densification.
We can understand both sides of the argument – but the current approach puts our economic future at risk and is environmentally regressive. Simply building single-detached housing out beyond the suburbs is no longer feasible. Urban sprawl and the construction of large homes on large lots come at high costs not only for the homebuyer, but for governments, the environment and our society.15
The impact goes beyond just housing. It means more roads and sewers need to be built and maintained, placing a heavy burden on municipal governments and ratepayers. More vehicles spewing greenhouse gases and other pollutants into the air; longer commute times for workers; the loss of productive farmland or encroachment into environmentally sensitive areas; and lost time for leisure, families and social connectivity.
Recognizing the problem, we have to be deliberate in how we address it. More regulations or higher development fees that restrict housing supply in city centres will push homeowners out to the suburbs and increase pollution. As American urban economist Ed Glaeser pointed out, rental properties in the U.S. tend to be located in large, multi-family structures, which in turn tend to be associated with greater density and less pollution.16
Towards a Comprehensive Federal Housing Strategy
All of this calls for a more comprehensive approach to housing development. All levels of government – including the federal government – need to be involved, working together to increase housing supply and create inclusive communities where people want to live and work; where jobs, daycare, schools and medical facilities are nearby. Communities ought to be where people feel a sense of belonging, whether they rent or own. Through our National Housing Strategy, the Government of Canada has bought its ticket to the party.
We also need to involve builders and developers: we have to design our cities to not only be denser but also liveable. As I’ve noted, increased supply of condos in cities like Toronto and Vancouver is desirable, but these are not the only types of homes that are needed. They are perfectly fine for many households, but not for everyone.
In our analysis of the housing market in Vancouver, for instance, we found a sharp jump in price when moving from a two- to a three-bedroom home. Obviously some of this price difference is because three-bedroom homes are usually single-detached houses, but does this have to be the case? Why are we not building more three-bedroom condos or other types of denser housing – duplexes, triplexes and so on – to meet this need? Can we meet the demand for more living space by renovating our housing structures, rather than by expanding our urban boundaries?
Average House Price Per Bedroom, City of Vancouver, 2016, All Dwelling Types
Bar graph showing the average price per bedroom (for all dwelling types) in the City of Vancouver in 2016.
It’s not all on builders and developers – although developer land banking, pre- and post-rezoning, is supply regressive too. As governments, we need to find more efficient ways to rezone and redevelop under-utilized properties, and fashion simpler, more flexible approval processes. And yes, we need to reconsider rent-control policies, development charges, property tax regimes, rezoning and user-pay principles. We need to stop these easy games of blaming each other and passing the buck.
Short of blaming, we also need to face facts and work together to solve problems. In her book Perverse Cities: Hidden Subsidies, Wonky Policy, and Urban Sprawl, urban planner Pamela Blais argues that the combination of fees and charges levied by governments subsidizes sprawl.17 We took a look at the numbers with the help of consultants. While we had to make a number of assumptions to develop a view of this, our scenarios suggest that, in the GTA, higher-density developments face higher non-federal charges than low-density development. This is effectively a tax on density. And along with industrial lands crowding out residential development, rezoning fees that are linked to land price gains just increase the cost of housing. In Greater Vancouver, redevelopments of property face higher non-federal fees than new development.
Montréal, on the other hand, has far lower development costs and fees than Vancouver and Toronto. It also takes less time to approve projects in Montréal,18 and the city is moving to redevelop its old industrial lands towards housing. From an affordability point of view, Montréal has taken a particularly sensitive approach.
Summary of Government Charges, by Greater Metropolitan Area
Summary of Government Charges, by Greater Metropolitan Area
||New Development Scenario
|Average charges per unit
||Dollars per unit
|Average charges per square foot
||Dollars per square foot
|Average charges as per cent of sales price
Interestingly, the rental market in Montréal is far more robust than in the other two cities. The stock of privately owned rental apartments in Montréal is proportionately much larger than in Toronto and more than three times higher than in Vancouver.19
Housing Starts, Shares by Intended Market (%)
Three charts showing the percentage of housing starts by intended market (condo, purpose-built rental and other) in Toronto, Montréal and Vancouver.
Share of Apartment Units that are Rental (%)
A bar graph showing the per cent share of apartment units that are rental in Montréal, Edmonton, Toronto, Calgary, Vancouver and in Canada as a whole.
We also have to be careful with policies in the rental sector that could adversely affect supply. Clearly, we need to protect renters from being exploited, but how we do that matters. Again turning to that mecca of innovation, San Francisco, new research from Stanford University found that rent controls, while protecting current inhabitants, actually lowered the supply of rental properties and would discourage future inhabitants from moving there.20 Any economist will tell you that rent controls are politically expedient but poor housing policy, only disincentivizing maintenance and new supply.
And we also know that we are replacing homes at too slow a rate in Toronto and Vancouver. In Montréal, around 30 houses are built for every one that is demolished. In Toronto, we build only 20, and Vancouver’s replacement ratio is less than 10 to one.
Annual Completions-to-Demolitions Ratio
Line graph showing the annual completions-to-demolitions ratios for houses in Vancouver, Montréal and Toronto CMAs.
CMHC: National Housing Convenor
My point is simply this: it’s time to take a close and careful look at how we encourage — or indeed discourage — the development of our cities, global and otherwise. We need to start a dialogue on these issues, and it’s urgent.
How do we as governments work with each other – and also with developers and other stakeholders – to address barriers that could stifle the growth or our cities and economy? In urban areas like Vancouver that encompass several municipalities, how can we improve planning at a regional level on issues like infrastructure, housing and transit?
CMHC certainly does not have all the answers, and we recognize that the problems don’t lie with any one level of government. It’s not just about municipal fees and regulations nor provincial rent controls; we at the federal level need to look at our own policies and practices as well. We know, for example, that better data and analysis are needed to support policy development and decision making. This is something CMHC will be aggressively pursuing under the National Housing Strategy, along with a review of our own policies and practices that have starved supply.
I’m confident that the launch of the Strategy – and the national leadership role the Government of Canada is taking on housing – will open doors for dialogue and collaboration on many issues. In Toronto, Vancouver, Montréal and other cities across the country, we need to transform housing planning and development processes to make them quicker and more efficient, more innovative and more inclusive. This can only be achieved by working together, within and across governments, between developers and community associations, and in collaboration with developers and service providers.
CMHC will be taking a leadership role to make this happen. We will convene an annual National Housing Conference before year end, with housing supply and affordability being a key recurring theme. Because ultimately, while the goals of various players may differ, their achievement depends on ensuring that Canadians have a roof over their head and the chance to succeed, so that our communities can continue to prosper and grow, contributing to a strong economy and a quality of life that has deservedly made us the envy of the world.
CMHC will do its part. We will be working more closely than ever with our partners in the provinces and territories and with municipalities, housing providers and other stakeholders to ensure that the ambitious goals of the National Housing Strategy are met.
Harvard University recently posed the question, “Who is responsible for the future of cities?”21 I’d say it’s a trick question: we all are. And we owe it to our country to work more closely together.
As always, I am indebted to many colleagues for their contributions to these remarks. In addition to John Bissonnette, my co-author, I am particularly grateful to Aled ab Iorwerth for his excellent work on our house price study (see endnote 13), the foundation on which my comments rest.