Rising Land Costs, Not Construction, to Blame for Housing Unaffordability
It’s no secret that Canada is facing a housing crisis. The cost of housing has skyrocketed to the point where it’s becoming unaffordable for many people, especially those in the middle class. But what’s causing this crisis? Contrary to popular belief, it’s not just the cost of construction that’s to blame. Our new report, “Demographia Housing Affordability in Canada,” sheds light on the real culprit behind the housing unaffordability: rising land costs.
The Housing Affordability Crisis: A Closer Look
Housing affordability has become a pressing issue in many cities across Canada. The COVID-19 pandemic has only exacerbated this problem, with the surge in telecommuting leading to a demand shock for larger homes and larger yards in distant suburbs. However, there are still some markets where housing remains more affordable, such as Edmonton and Calgary.
The most severely unaffordable markets are primarily located in Ontario and British Columbia. These areas have experienced strong net migration away from cities like Toronto and Vancouver, driving up prices in places like Guelph, London, Brantford, the Fraser Valley, and Nanaimo.
The housing affordability crisis in Vancouver and Toronto has been a long-standing issue. Vancouver has seen house prices rise significantly faster than incomes for decades, while Toronto’s housing costs have skyrocketed within the last two decades. These unprecedented price increases can be attributed, in part, to the adoption of international urban planning strategies, particularly anti-sprawl policies like greenbelts and agricultural preserves.
These urban containment strategies, also known as “urban containment,” have led to a cartelization of the outer suburban land market, driving prices up even further. As a result, a small number of landowners reap windfall profits while housing becomes less affordable for the majority. It’s important to note that the difference in house prices between severely unaffordable and more affordable markets is largely due to higher land costs rather than construction costs.
To address this issue and restore affordability, it is crucial to eliminate these windfall profits and ensure a competitive market. By doing so, we can create a more equitable housing landscape and provide affordable options for all Canadians.The Canadian Housing Affordability Paradox: A Closer Look
In recent years, the issue of housing affordability has become a hot topic in Canada. Many cities, particularly Vancouver and Toronto, have seen a significant increase in housing prices, making it increasingly difficult for families and individuals to find affordable homes. This has led to a troubling paradox: the very cities that have embraced urban planning strategies aimed at creating more sustainable and livable communities are the ones facing the most severe housing affordability challenges.
The Rise of High-Density Housing
One of the factors contributing to the housing affordability crisis is the preference for higher-density housing, such as high-rise condominiums. While this type of housing may be appealing to some households and singles, it is not the preferred choice for families with children. According to a survey, households with children overwhelmingly prefer ground-oriented housing, such as detached or semi-detached houses. Unfortunately, the rising prices of these types of homes are pushing families out of the market, reducing their standard of living, and even pushing some into poverty.
The Impact of Urban Containment Policies
The concentration of unaffordable housing in cities like Vancouver and Toronto is not a coincidence. Similar patterns can be observed in international markets like Sydney, Auckland, London, and San Francisco. In all these cities, severely unaffordable housing has been associated with urban containment policies. These policies aim to limit urban sprawl by restricting development on the outskirts of cities and promoting higher-density housing in central areas. While the intention behind these policies is noble, the unintended consequence is a decrease in housing affordability, particularly for families.
Seeking Refuge in Affordable Markets
As housing prices continue to rise in major cities, many households are seeking refuge in more affordable markets. The Atlantic and Prairie provinces, as well as Quebec, offer better housing affordability compared to Vancouver and Toronto. It is crucial to preserve this affordability in these regions, as they provide a lifeline for those who are priced out of the housing market in larger cities. Some of the most affordable markets in Canada include Moose Jaw, SK; Fort McMurray, AB; Saguenay, QC; Fredericton, NB, and Cape Breton, NS. Additionally, larger areas like Regina, SK; Quebec, QC; Saskatoon, SK; Winnipeg, MB, and St. John’s, NL also offer relatively affordable housing options.
The Canadian Dream in Smaller Communities
While the focus is often on major cities, it is important to recognize that the Canadian dream of homeownership and a high standard of living is still alive and well in smaller communities. These communities offer more affordable housing options, a strong sense of community, and a higher quality of life. As housing affordability continues to be a challenge in larger cities, it may be worth considering these smaller communities as viable alternatives for those seeking a better quality of life.
In conclusion, the housing affordability paradox in Canada is a complex issue with no easy solutions. While urban planning strategies aimed at creating more sustainable and livable communities are important, they should not come at the expense of housing affordability. It is crucial to strike a balance between density and affordability, ensuring that families and individuals have access to affordable housing options. By recognizing the value of smaller communities and preserving affordability in these regions, we can work towards a more inclusive and equitable housing market for all Canadians.
Shift in Interprovincial Migration to Smaller Areas
Recently, there has been an interesting trend in net interprovincial migration in Canada. People are now moving towards areas with smaller populations, which are generally more affordable. Census metropolitan areas with a population of 100,000 or more have experienced a net loss of over 250,000 domestic migrants in the past five years. On the other hand, smaller census agglomerations with a population of 10,000 to 100,000 have gained around 125,000 migrants. Even smaller markets have also seen a gain of approximately 125,000 migrants.
Ensuring Competitive Land Markets
For these emerging magnets of interprovincial migration, it is crucial to maintain competitive land markets. Without proper measures, it won’t be long before housing prices in these areas, such as Regina, Winnipeg, and Moncton, become as unaffordable relative to incomes as they are in Vancouver, Toronto, and nearby markets.
The Severity of the Crisis
According to our report, more than half of the 46 rated housing markets in Canada have severely unaffordable housing. In fact, two of the worst offenders are Vancouver and Toronto, which ranked third and tenth least affordable among the 94 major metropolitan markets worldwide. These cities have seen housing costs soar relative to incomes, making it increasingly difficult for people to find affordable homes.
The Median Multiple
So how do we measure housing affordability? Our report uses a metric called the median multiple, which is calculated by dividing the median house price by the median household income. A median multiple of 3.0 or below is considered “affordable,” while anything above 5.0 is considered ”severely unaffordable.” Unfortunately, Vancouver (median multiple 12.0), Toronto (9.5), Montreal (5.4), and Ottawa-Gatineau (5.2) all fall into the severely unaffordable category.
The Role of Rising Land Costs
One of the key findings of our report is that rising land costs are the primary driver of housing unaffordability. In Vancouver and Toronto, for example, median house prices have more than doubled in the last two decades relative to incomes. This trend is not sustainable and is putting immense pressure on the middle class, eroding their standard of living.
It’s important to note that construction costs alone cannot explain the skyrocketing housing prices. While construction costs have certainly increased over the years, it is the rising land costs that are the main culprit. As land becomes scarcer and more valuable, developers are forced to pay exorbitant prices, which are then passed on to homebuyers.
In Conclusion
The housing crisis in Canada is a complex issue with no easy solutions. However, it is clear that rising land costs are at the heart of the problem. If we want to make housing more affordable for all Canadians, we need to address this issue head-on. By finding ways to lower land costs and increase housing supply, we can create a more sustainable and affordable housing market for future generations.
