Index highlights role urban containment plays in Canada’s housing affordability crunch

OUR VIEW: The Frontier Centre for Public Policy (FCPP) today released its Demographia Housing Affordability in Canada index, shining a glaring spotlight on the escalating problem of housing affordability in the country.

This report, penned by FCPP Senior Fellow Wendell Cox, hones in on the affordability of housing for middle-income households during the third quarter of 2022, with a keen focus on 46 housing markets spread across Canada.

Wendell Cox

Wendell Cox

housing canada
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What sets this report apart is its approach. Instead of merely fixating on property prices, it takes a deep dive into the intricate connection between house prices and income. It employs the globally respected price-to-income ratio, a metric that’s earned nods of approval from heavyweight organizations like the World Bank, United Nations, OECD, and IMF. Cox breaks it down for us, explaining that FCPP’s housing affordability index follows a similar path, using the “median multiple” calculation. This nifty calculation involves dividing the median house price by the pre-tax median household income, giving us a more nuanced look at what affordability really means.

The report doesn’t stop there. It also serves up some historical context by tracing the evolution of housing affordability in Canada’s six major markets: Vancouver, Calgary, Edmonton, Toronto, Montreal, and Ottawa. These cities, each with populations topping a million, enjoyed a good run of relative housing affordability from 1970 to the mid-2000s. But then, around 2005, Vancouver decided to flip the script and head down the unaffordable route, a trend that’s only picked up speed over the years.

Fast forward to 2022, and the report raises a red flag. It points out that there’s been a substantial surge in “severely unaffordable” housing markets, not just limited to the big six. Cox calls attention to this by saying, “The number of severely unaffordable markets increased from 18 in 2019 to a whopping 24 out of the 46 markets surveyed, while on the flip side, the number of ‘affordable’ markets went from eight in 2019 to a measly three.”

The COVID-19 pandemic added a fresh twist to the tale. With the rise of remote work, also known as “telecommuting,” came a surge in demand for more spacious digs. This increased demand raced ahead of housing supply, leading to a “demand shock” that made the existing affordability challenges even more pronounced.

The epicentre of this unaffordability saga? According to Cox, it’s firmly planted in British Columbia and Ontario. Notably, Vancouver and Toronto have taken the lead as the most severely unaffordable major markets, ranking third and 10th, respectively, among the 94 markets featured in Demographia’s International Housing Affordability Report for 2022. This unaffordable wave didn’t stop at city limits; it spilled over into various other markets in British Columbia and Ontario, prompting households to pack their bags and seek more affordable housing options in different provinces.

But even amidst these hurdles, Cox points out that four markets – Moose Jaw (SK), Fort McMurray (AB), Saguenay (QC), and Fredericton (NB) – have managed to maintain their housing affordability.

At the crux of this housing crisis, Cox argues, is the impact of urban containment regulations. These regulations have pushed land prices to unsustainable heights and, in the process, have restricted housing availability for middle-income families. Cox drives this point home, stating, “This situation is the result of deliberate policies aimed at inflating land prices through urban containment measures.”

Disparities in land costs across different markets play a pivotal role in perpetuating the disparities in housing affordability. Consequently, government policies, including urban containment, unintentionally contribute to government-induced inequality by inflating land prices.

Fortunately, practical alternatives exist to breathe life back into housing affordability, and it’s high time we gave them a serious look.

To interview Wendell Cox, click here.

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