New report highlights housing affordability challenges across Canada

From the Frontier Centre for Public Policy

The year 2022 marked a concerning increase in “severely unaffordable” housing markets, extending beyond the scope of the six major markets.

The Frontier Centre for Public Policy’s Demographia Housing Affordability in Canada report, released today, cast a spotlight on the pressing issue of housing affordability in Canada. This comprehensive report offers a detailed analysis of middle-income housing affordability during the third quarter of 2022, focusing on 46 housing markets referred to as census metropolitan areas.

The report goes beyond the conventional analysis of property prices, delving into the intricate interplay between house prices and income. Price-to-income ratios, a crucial metric for assessing housing affordability, have gained global recognition. Esteemed institutions, including the World Bank, United Nations, OECD, and IMF, have endorsed this measurement. The Frontier Centre for Public Policy’s housing affordability index adopts a similar approach, utilizing the “median multiple” calculation. This calculation involves dividing the median house price by pre-tax median household income.

The report sheds light on the historical context of housing affordability within Canada’s six major markets – Vancouver, Calgary, Edmonton, Toronto, Montreal, and Ottawa – each with populations surpassing one million. The period from 1970 to the mid-2000s witnessed relative stability in the housing affordability landscape. However, by 2005, Vancouver’s market initiated a significant shift towards unaffordability, a trend that has only intensified since the mid-2000s.

The year 2022 marked a concerning increase in “severely unaffordable” housing markets, extending beyond the scope of the six major markets. The number of severely unaffordable markets surged from 18 in 2019 to 24 among the surveyed 46 markets. In contrast, the count of “affordable” markets dwindled from eight in 2019 to a mere three.

The advent of remote work, or “telecommuting” during the pandemic led to a surge in households seeking more spacious living spaces. This surge in demand outpaced supply, resulting in a “demand shock” that further exacerbated the challenges of housing affordability.

The epicentre of unaffordable housing primarily lies in British Columbia and Ontario. Notably, Vancouver and Toronto emerged as the most severely unaffordable major markets, ranking third and 10th least affordable among 94 markets in Demographia’s International Housing Affordability Report 2022. This phenomenon extended beyond Vancouver, impacting other markets in British Columbia. Similarly, the trend reached markets beyond Toronto, prompting a net interprovincial migration as households pursued more affordable housing options.

Amidst these challenges, four markets – Moose Jaw (SK), Fort McMurray (AB), Saguenay (QC), and Fredericton (NB) – have managed to uphold their affordability. The Canadian housing market faces intensified scrutiny, with analyses highlighting the formidable task of addressing the nation’s housing crisis. This includes restoring affordability and enabling home ownership amidst obstacles such as the scale of the issue and the capacity of the home-building sector.

At the heart of the crisis lies urban containment regulation, which has driven land prices to unsustainable levels, constraining housing supply for middle income households. This scenario arises from the deliberate intent of urban containment policies to inflate land prices. Disparities in land costs across markets play a pivotal role in housing affordability disparities. Government policies, like urban containment, unintentionally contribute to government-induced inequality by inflating land prices. Practical alternatives exist to revitalize housing affordability.

Migration to more affordable housing markets has become a priority for many, as evidenced by an unprecedented population shift away from major metropolitan areas towards regions with more affordable housing options. Ensuring affordability remains in these markets is pivotal. Neglecting this could lead to replicating the ongoing affordability crisis in regions that are currently more affordable, which could limit opportunities for future generations and impact Canada’s attractiveness as an international migration destination.

About the Frontier Centre for Public Policy The Frontier Centre for Public Policy is an independent, non-partisan think tank that conducts research and analysis on a wide range of public policy issues. Committed to promoting economic freedom, individual liberty, and responsible governance, the Centre aims to contribute to informed public debates and shape effective policies that benefit Canadians.

Wendell Cox is a Senior Fellow at the Frontier Centre for Public Policy. He is principal of Demographia.com, author of Demographia World Urban Areas and an author of Demographia International Housing Affordability (19 annual editions) and Demographia World Urban Areas. He earned a BA in Government from California State University, Los Angeles and an MBA from Pepperdine University. He served as a visiting professor at the Conservatoire des Arts et Metiers in Paris, a national university.

Related Topics:#FrontierCentreForPublicPolicy #HousingAffordabilityInCanada #WendellCox

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Economic progress stalling for Canada and other G7 countries

Published on May 10, 2024

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From the Fraser Institute

By Jake Fuss

For decades, Canada and other countries in the G7 have been known as the economic powerhouses of the world. They generally have had the biggest economies and the most prosperous countries. But in recent years, poor government policy across the G7 has contributed to slowing economic growth and near-stagnant living standards.

Simply put, the Group of Seven countries—Canada, France, Germany, Italy, Japan, the United Kingdom and the United States—have become complacent. Rather than build off past economic success by employing small governments that are limited and efficient, these countries have largely pursued policies that increase or maintain high taxes on families and businesses, increase regulation and grow government spending.

Canada is a prime example. As multiple levels of government have turned on the spending taps to expand programs or implement new ones, the size of total government has surged ever higher. Unsurprisingly, Canada’s general government spending as a share of GDP has risen from 39.3 per cent in 2007 to 42.2 per cent in 2022.

At the same time, federal and provincial governments have increased taxes on professionals, businessowners and entrepreneurs to the point where the country’s top combined marginal tax rate is now the fifth-highest among OECD countries. New regulations such as Bill C-69, which instituted a complex and burdensome assessment process for major infrastructure projects and Bill C-48, which prohibits producers from shipping oil or natural gas from British Columbia’s northern coast, have also made it difficult to conduct business.

The results of poor government policy in Canada and other G7 countries have not been pretty.

Productivity, which is typically defined as economic output per hour of work, is a crucial determinant of overall economic growth and living standards in a country. Over the most recent 10-year period of available data (2013 to 2022), productivity growth has been meagre at best. Annual productivity growth equaled 0.9 per cent for the G7 on average over this period, which means the average rate of growth during the two previous decades (1.6 per cent) has essentially been chopped in half. For some countries such as Canada, productivity has grown even slower than the paltry G7 average.

Since productivity has grown at a snail’s pace, citizens are now experiencing stalled improvement in living standards. Gross domestic product (GDP) per person, a common indicator of living standards, grew annually (inflation-adjusted) by an anemic 0.7 per cent in Canada from 2013 to 2022 and only slightly better across the G7 at 1.3 per cent. This should raise alarm bells for policymakers.

A skeptic might suggest this is merely a global phenomenon. But other countries have fared much better. Two European countries, Ireland and Estonia, have seen a far more significant improvement than G7 countries in both productivity and per-person GDP.

From 2013 to 2022, Estonia’s annual productivity has grown more than twice as fast (1.9 per cent) as the G7 countries (0.9 per cent). Productivity in Ireland has grown at a rapid annual pace of 5.9 per cent, more than six times faster than the G7.

A similar story occurs when examining improvements in living standards. Estonians enjoyed average per-person GDP growth of 2.8 per cent from 2013 to 2022—more than double the G7. Meanwhile, Ireland’s per-person GDP has surged by 7.9 per cent annually over the 10-year period. To put this in perspective, living standards for the Irish grew 10 times faster than for Canadians.

But this should come as no surprise. Governments in Ireland and Estonia are smaller than the G7 average and impose lower taxes on individuals and businesses. In 2019, general government spending as a percentage of GDP averaged 44.0 per cent for G7 countries. Spending for governments in both Estonia and Ireland were well below this benchmark.

Moreover, the business tax rate averaged 27.2 per cent for G7 countries in 2023 compared to lower rates in Ireland (12.5 per cent) and Estonia (20.0 per cent). For personal income taxes, Estonia’s top marginal tax rate (20.0 per cent) is significantly below the G7 average of 49.7 per cent. Ireland’s top marginal tax rate is below the G7 average as well.

Economic progress has largely stalled for Canada and other G7 countries. The status quo of government policy is simply untenable.