The Real Reason Housing is Expensive in Canada

Housing is the most basic job of civilization, but our society is doing a terrible job of housing everyone.

By Ryan McGreal

Posted March 16, 2021 in Blog (Last Updated March 16, 2021)

1	Sprawl is Part of the Problem
2	Vertical Sprawl vs. Missing Middle
3	Neoliberal Policy
4	Predatory Capital

Conservative MP Pierre Poilievre asks why Canadian real estate is so expensive. Naturally, Poilievre's proffered answer is dumb and lazy, but it's still an important question that deserves a thoughtful response.

First of all, people want to live in cities. This is a global phenomenon, not just a Canadian one, it has been going on for the past 10,000 years, and it is not going to end any time soon - pandemic or no pandemic.

For all the right-wing culture war identity politics about small-town values, cities are extraordinary multipliers of creativity, innovation and growth. We are deeply social animals - people are far more productive the more we're around other people.

At the same time that cities multiply human potential, they also drive down the per-capita cost to provide all manner of goods and services, both public and private. In a city, you can get more for less due to the economies of scale and density.

We owe our quality of life to our cities - in fact, cities produce so much wealth that they help subsidize the extraordinary cost of delivering a more urban quality of life to suburban and rural locales. (Not a popular opinion in the suburbs but still a fact.)

So that explains why the demand for urban housing is so persistent, but it falls short of explaining why the cost of urban housing is so high. Here Poilievre sort of makes a point.

1 Sprawl is Part of the Problem ↑

Municipal policies are, in fact, throwing up obstacles to increasing the supply of housing - but the problem is not refusing to approve endless greenfield sprawl development on farmland around the city.

Sprawl is a terrible way to add housing supply. It destroys local farmland, drives up the cost of providing services, increases traffic congestion and squanders the urban economies of proximity, clustering and density.

Sprawl fails to provide a diversity of housing forms, sizes and price points: your choice is limited to houses or townhouses.

And once you buy a house, assuming you can afford it, you need a car for each adult if you want to be able to go anywhere, since the low density means transit is not cost-effective. That house just got a lot more expensive to live in.

The hidden gotcha behind drive-til-you-qualify is the enormous cost of commuting - in dollars, physical/mental health and global climate emergency - that you have to pay once you've signed that mortgage.

Canadian cities add altogether too much sprawl and have done so since the 1940s. If rezoning farms as subdivisions alleviated housing costs, Canadian housing would be cheap and cheerful.

2 Vertical Sprawl vs. Missing Middle ↑

Of course, in the biggest cities - like Toronto and Vancouver - there's also a lot of high-density development going on, and that hasn't alleviated housing prices either. Ironically, those 40-50 storey condo towers suffer some of the same problems as suburban sprawl.

Once you get past a certain height, tall buildings stop being a cost-effective use of space and transition into vertical sprawl: expensive to deliver services to, hard to get in and out of, and socially isolated.

They're an amazing source of profit for property developers, but they don't provide a diversity of housing forms and price points (much like their suburban counterparts). For people who are not in a position to buy, they only provide rental options indirectly through sublets.

Urban planners talk a lot about the "missing middle" - the realm of housing forms, scales and price points in between a suburban house and a tower condo - and it is these housing forms that are most curtailed by our postwar legacy of anti-urban municipal zoning rules.

Missing-middle housing is medium-density, walkable, mixed-use, diverse in its forms and prices, well-served by transit, and provides healthy access to proximity and social interaction with other people. It is human-scale unlike tall towers, and integrated unlike sprawl.

Whenever you think of a really vibrant, fun, inclusive urban community, it is usually in a neighbourhood built before the 1940s, when postwar land-use planning bifurcated into horizontal or vertical sprawl.

We have more or less forgotten how to build missing-middle land use. Developers don't know how to make money from it, banks don't know how to finance it, and cities don't know how to zone for it.

So that's a big part of why housing is so expensive and exclusionary. Instead of building modestly affordable housing, we build expensive condos and McMansions, and then wait 30 years for them to deteriorate into affordability.

3 Neoliberal Policy ↑

But it's by no means the whole story. We can't talk about housing affordability without talking about supply-side economics and neoliberal public policy.

For the past two decades, Canada has been experiencing a truly extraordinary sustained run of historically low interest rates. When interest rates are low, it is cheaper to borrow money, meaning people can afford to borrow more.

That increases demand for the things you buy with borrowed money - like houses. And when demand for a good goes up, the price of that good goes up in response. This is just the economic law of demand in action.

But we have to ask why interest rates have been so low for so long. And the answer is not pretty. Interest rates remain low because economic growth remains sluggish, year after year.

This persistent sluggish growth is the result of year after year of neoliberal fiscal policy: low corporate taxes, light regulations and weak labour protections. When incomes are stagnant, the central bank has to spur demand by cutting interest rates to make borrowing cheaper.

For people who can still afford to borrow, neoliberal fiscal policy means bigger mortgages and more household debt. For people who can't, it means a chronic and steadily worsening shortage in the supply of affordable rental housing.

4 Predatory Capital ↑

And as predatory capital gets more desperate and creative in its search for places to extract money, you end up with monsters like Real Estate Income Trusts (REITs), which are investment funds designed to squeeze more juice out of the rental units that still remain.

So a REIT buys an older rental apartment building, forces out tenants who are paying affordable rents on the pretext of upgrading the building (so-called "renovictions"), slaps on a fresh coat of paint and then doubles the rent.

You don't see Conservatives talking about this predatory financial practice. They'd rather distract you with culture war bullshit.

Note: you also don't see Liberals talking about it. Indeed, the two big parties are united in their firm commitment to fiscal neoliberalism.

Housing is the most basic, most fundamental job of any civilization. We are among the wealthiest civilizations in the history of the world and we are doing an objectively terrible job of housing everyone. That should be one of the biggest stories coming out of the pandemic.