Mark Milke
The recent rise in interest rates has dampened demand for home sales in Canada.
Rate hikes were inevitable given historically low interest rates and have lifted some housing prices. But given that Canadian house prices are still high, the question of what the government can do to reverse its poor previous policies and increase supply permanently is instructive.
Recent price declines in some markets appear to be significant. Overall prices in Greater Toronto have already fallen 13% since March, while prices in Vancouver have fallen 4.5%. But before millennials or anyone else in the market for single-family homes, townhouses, or condos gets too excited about the deal, Metro Vancouver's composite price is still over $1.2 million, while in Toronto he Consider that is over $1.1 million. They are far from bargain prices.
These numbers did not reach such heights overnight. The long-term trend has been towards unaffordable prices for decades. Demographia International calculated the rise in Canadian housing costs going back to the 1980s by dividing the median home price by the median total household income. The resulting numbers are tagged as Affordable (3.0 and below), Moderately Affordable (3.1 to 4.0), Very Affordable (4.1 to 5.0) and Very Affordable (5.1 and above) .
To give you an idea of how expensive Canadian housing has become, in 1987 the national house price-to-income ratio was only 3.0, or affordable. By 2020, the median market score across Canada had doubled to 6.0, making it very unaffordable. Some markets, such as Vancouver and Toronto, are "very affordable" in the double digits when comparing average prices to income.
Canada clearly has a housing affordability problem that will probably last forever, even with slightly higher interest rates. That is, unless the government starts to work on its role in keeping house prices high.
On the demand side, immigration levels also contribute to price increases. However, immigration deserves a full analysis in its own right, given that the "appropriate" level of immigration addresses labor supply needs and other issues.
SecondStreet.org reported that state and local governments and ideological spectrum across the country could act without waiting for action from the federal government, so I focused only on the supply side of the problem. I saw.
Supply constraints are a serious problem. Scotiabank noted last year that Canada needed her 1.8 million homes to reach a balanced market. Now consider how government policies prevent such balance and moderate prices.
On the supply side, the first problem is regulation and bureaucracy, including the speed of housing development approvals. The second factor is rising fees and taxes.
For example, in 2020, the Canadian Association of Home Builders (CHBA) stated that it takes an average of 1.5 to 2 years (sometimes longer) to obtain a development approval in Canada, and an average of 20 to 20 years. I was told it would take more than a month. It takes an average of 12 months for multiple applications and about 12 months for a single application.
As noted by CHBA, the average additional monthly cost for each extra month that a builder waits for approval of a multi-unit building is $351,500 for low-rise projects and $216,300 for high-rise projects. is a dollar.
Beyond industry analysis, his 2021 report on housing for his NDP government in British Columbia, chaired by former party leader Joy McPhail, puts real pressure on regulation and delays. It also points out that there is a problem with The report urged the government to "clarify and speed up the housing planning and construction approval process," noting that "it can take years to bring a new housing project from concept to groundbreaking." He notes that the delay "can be costly." Tens of thousands of dollars for each new unit….”
Another issue that makes home prices higher than they should be is taxes and fees. According to the B.C. Yes.”
The federal government will increase the maximum allowable GST refund for new homes from the current $450,000 to $750,000, allowing the tax to be refunded in full rather than part. This policy change, combined with the "tens of thousands" of dollars that McPhail's report said could be saved through faster approval, will begin to make housing at least slightly more affordable in Canada.
Higher housing There is no perfect silver bullet for price. However, an increase in long-term supply through faster approvals, along with lower taxes and fees, will help ease prices.
Mark Milke, Aristotle Public Policy Foundation is the secretary general of
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