City File: Balancing Act

Gentrification is a complex problem lacking knee-jerk solutions.

By Ryan McGreal

Posted May 01, 2018 in Essays (Last Updated None)

Canadian cities experienced urban declines in the 1960s and 1970s as postwar sprawl policies funneled people and money from the centre to the suburbs. Hamilton's decline was steeper than most and its recovery came later, but we are now in the midst of an urban renaissance, driven by remedial municipal policy and our proximity to Toronto. With that, public discourse has turned toward gentrification and its discontents, including rising rents and displacement of lower-income residents.

To address this phenomenon effectively and avoid knee-jerk reactions, we need to understand what is driving it. There are at least three distinct factors underlying our burgeoning housing affordability crisis: gentrification, persistent low interest rates, and wealth inequality.

The first factor is the most visible. Gentrification is the trend in which low-income neighbourhoods become more desirable to middle-class residents seeking an urban lifestyle, with mixed impacts to existing residents. It tends to increase the number and variety of job opportunities, reduce crime (due to more "eyes on the street"), improve access to public services, and improve upward social mobility for children of low-income families.

However, gentrification also drives up housing prices, putting pressure on low-income families to absorb rising housing costs. Some property owners use unsavoury means to evict residents so they can renovate and boost rents.

Studies on whether gentrification leads to displacement are varied and often contradictory. The research suggests that gentrification can actually be a modest stabilizing force, especially if the rate of gentrification is fairly slow. (Displacement pressures increase as the gentrification rate goes up.)

This may seem counterintuitive, but without investment, housing in a non-gentrifying neighbourhood gradually disappears as neglected properties become uninhabitable. Consider 500 MacNab Street North, a public housing high-rise that has 146 units but has been more than half-empty for years due to neglected maintenance.

Gentrification is not the only factor driving Hamilton's housing prices. Since 2008, the industrialized world has been mired in an economic doldrums of low growth and rock-bottom interest rates. When it's cheaper to borrow money, more people can bid on homes, putting upward pressure on house prices. Over time, this can cause a bubble.

Recent modest rate bumps by the Central Bank, coupled with tighter Provincial mortgage rules to ensure borrowers can afford future rate hikes, have taken the edge off our real estate mania. After years of spectacular increases, Hamilton home values flattened last summer and sales have declined modestly.

The third factor driving the affordability crisis is steep and widening inequality between the wealthiest and poorest Canadians over the past 30 years. The top ten percent of Canadians control half of the nation's wealth, while the bottom ten percent has actually seen their income fall.

This is bad for GDP growth. Getting more money into the hands of people with low incomes grows the economy because they are more likely to spend it on goods and services. Without robust consumer spending, even historically low interest rates amount to pushing on a piece of string.

Unfortunately, decades of neoliberal policies have chiseled away at the security of our most vulnerable citizens: wiping out decent jobs, depressing wages and squeezing financial supports - including housing. In Hamilton, researchers Richard Harris, Jim Dunn and Sarah Wakefield documented widening inequality in a 2015 study that sounds the alarm over income polarization since 1970. The stakes are as high as it gets: Hamilton's poorest neighbourhoods have an average life expectancy more than twenty years lower than its wealthiest neighbourhoods.

We need to confront inequality head-on through meaningful fiscal, monetary and social policy changes that ensure a minimum standard of security and dignity for everyone. Canada has never had a proper national housing strategy, but a new plan by the federal government would invest $40 billion over ten years with a focus on moving the most vulnerable Canadians into stable housing. That's a step in the right direction but requires matching funds from provinces.

Ontario has not had a housing strategy since the Mike Harris government eliminated it along with savage cuts to welfare. Harris also downloaded public housing onto municipalities, which don't have the tax base to maintain existing properties - like the dilapidated 500 MacNab North - let alone build new units.

The Province is finally getting back into housing with $178 million over three years and an Inclusionary Zoning policy that requires municipalities to set affordable housing targets in their Official Plans. Cities can now demand up to 5% affordable units in new developments (or 10% near a transit hub), and can barter higher density in exchange for community benefits.

This is another step forward but it's not enough. It doesn't apply to rental buildings, it only applies to developments with 20+ units, and a maximum 5-10% affordable units is too low. It makes the city responsible to cover part of the cost differential for the affordable units.

The Province is also pushing cities to invest in transit and accept higher densities for new developments in order to increase the supply of urban housing while protecting farmland. Gentrification is partly a supply/demand problem: more people want to live in urban neighbourhoods, and we need to increase the supply of urban units to match the demand. Otherwise, lower income residents get priced out.

That means balancing the interests of developers, buyers, and existing residents who may resist changing the neighbourhood character. We might also need a vacant property tax to ensure new housing supply is actually used for housing instead of sitting empty as investment properties.

Ultimately, "gentrifiers" are just people looking for a good place to live. The best way to ensure no one gets left behind is to set aside moralizing and push for effective policies at the federal, provincial and municipal level.

First published in Hamilton Magazine, Spring 2018 issue.