Canada’s Housing Affordability Crisis Looks Familiar: As in Washington, Restrictive Land Use Policies are a Factor

Canada faces a major housing affordability problem, with many elements common to what we see in Washington. Wendell Cox at New Geography writes,

The Canadian Mortgage and Housing Corporation (CMHC) has issued a “red warning” for the entire housing market in Canada.” According to CMHC the red warnings are due to “strong evidence of problematic conditions for Canada overall. Home prices have risen ahead of economic fundamentals such as personal disposable income and population growth. This has resulted in overvaluation in many Canadian housing markets.”

This pattern has been present  in Canada for at least a decade.

Cox points to research that he did along with a Ph.D. candidate at McGill.

This was the subject of a policy report authored by Ailin He, a PhD candidate in economics at McGill University (Montréal) and me (Canada’s Middle-Income Housing Affordability Crisis), which was published by the Frontier Centre for Public Policy in Winnipeg. The report covered all census 33 metropolitan areas and two smaller census agglomerations.

The Executive Summary (adapted) and selected charts from Canada’s Middle-Income Housing Affordability Crisis are reproduced below.

Here are a few key takeaways:

There was serious deterioration in middle-income housing between 2000 and 2015. This analysis shows that house prices rose faster than income in each of the 35 markets. The largest losses in housing affordability occurred in the six markets with a population of more than one million (Calgary, Edmonton, Montréal, Ottawa-Gatineau, Toronto and Vancouver), where house prices rose on average 3.3 times that of household income. More alarmingly, house prices rose more than four times household income in Vancouver and Toronto…

Higher house prices have made it more difficult for middle-income households to afford the housing that Canadians have preferred for decades. …

And,

Restrictive land-use policy is associated with housing affordability losses. International economic literature associates more-restrictive land-use regulation with diminished housing affordability. The largest housing affordability losses have occurred in metropolitan areas (markets) that have adopted urban containment land-use strategies, which severely limit the land that can be used for building houses on and beyond the urban fringe. Consistent with basic economics, this reduction of land supply is associated with rising land prices, which lead to higher house prices. Without the substantial reform of restrictive land-use policies, housing affordability is likely to continue deteriorating…

Research in our state has also implicated land use policies in housing affordability problems. We wrote earlier of a report by the Washington Research Council, which found

Today, more than 60 percent of a growing state populace still choose to live in detached, single-family housing, depleting current land inventories. In urban counties, Buildable Lands reports created to track and ensure adequate land for a mix of housing types are not uniformly distinguishing between single- and multi-family structures. Consumer choice will be limited by plans that may have projected enough units, but not enough land for the percentages of housing types that consumers prefer. GMA’s rigid UGA boundaries are heading for a collision with other policy goals that are rising in priority, including housing affordability, economic disparities, and the need for new schools. 

The WRC report concluded,

If we continue on the current path, the ability to purchase a single-family detached home may be greatly reduced for all but the wealthy. Additionally, the market evolution into a more beneficial pattern of agriculture may be thwarted. Enhancing the GMA will require protecting growth boundaries from continual assault while increasing their flexi- bility and utility for all of our citizens, particularly those hardest hit by rising prices.

Cox has also studied housing affordability and land use policies in California.

The key issue is the cost of residential land under the house. Average residential land values are at least 75 percent of the house and land value in San Jose and San Francisco , 70 percent in Los Angeles and 65 percent in San Diego. Our analysis of Lincoln Institute of Land Policy data indicates that the average house structure in the four California metropolitan areas had an average value is only 25 percent higher than that of the other major metropolitan areas. By contrast, the land value was more than 650 percent higher. It would be too expensive for middle income households to buy vacant residential lots, even if they intended living in tents.

The Wall Street Journal today reported on the flow of tech jobs from Silicon Valley to more affordable communities

Tech jobs are multiplying across America, attracting executives and entrepreneurs drawn to lower living costs and a slower pace of life. Places like Eugene, Ore., Manchester, N.H., and Huntsville, Ala., may have around 200,000 residents each, but they also have fledgling startup scenes, regional offices of large tech firms and major universities or research centers.

And all of them have home prices that are a fraction of those in Silicon Valley

In its 25th year, the Grow Management Act is ripe for review. Legislators have held hearings. At The Lens Matt Rosenberg reports that, well, the legislative product remains in doubt.

A Washington State House panel is now considering proposed reforms to the controversial, 25-year-old Growth Management Act (GMA). It may either be aiming to punt by recommending further study, or could be smartly preparing for meaningful reforms long complicated by entrenched and widely disparate stakeholder views. It all depends who you ask.

The House Local Government Committee has held two GMA-focused work sessions this fall, resulting in hours of detailed testimony, nearly all of it recommending major changes to the law.

He notes that interest in reform has been steadily mounting.

A new drumbeat for changes to GMA has been been building since early this year, in the legislature, at housing and construction industry forums, and hearings. Among key concerns have been easing restrictions on land supply to make housing more affordable, developing better and more timely population growth projections, making it easier for school districts to build new facilities, and streamlining the process of challenging city and county comprehensive plans under GMA.

Now, another priority is reversing the effects of a recent Washington State Supreme Court ruling tied to GMA and environmental advocates, which critics – and several county governments – say effectively bars residential development in areas where well water is required.

Yet lawmakers remain divided.

However, the underlying GMA vision of concentrated urban region growth is something the House majority takes very seriously, said [House Local Government Committee chair Sherry] Appleton. “My caucus feels that sprawl is not what we want,” and GMA has helped hold it in check, she added.

These are tough issues, nearly as tough as finding an affordable home in metro areas that have restrictive land use policies.