Foreigners aren’t to blame for the housing shortage • Troy Media

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Land use regulations and strict zoning rules are further driving up house prices

It’s always easier to blame someone else than to own up to your own mistakes.

In an attempt to stem the rapid rise in house prices, the federal government banned foreign investors from buying homes in Canada. In the case of permanent residents who already live here, they will after all have to stay for at least two years before becoming owners.

According to Federal Housing Minister Ahmed Hussen, banning foreigners from buying property here will help all residents of this country to have an affordable home that meets their needs.

What the minister is trying to do is tackle demand to reduce the pressure on the market. However, the measure could be counterproductive.

In British Columbia, for example, long a poster child for the housing shortage, homes owned exclusively by foreign owners account for only 3% of the housing stock (4.1% in Metro Vancouver), or 53 000 addresses. That may seem like a lot, but it’s not a lot compared to the 570,000 homes missing across the province, according to federal government estimates.

Instead of blaming foreign buyers for unaffordable housing, we should talk about the source of the problem: the many obstacles put in place by the provinces, and especially the cities, which impede the increase in the supply of housing.

It’s no secret that our cities are particularly attractive. The Montreal metropolitan area, for example, has 715,500 more Quebecers than 20 years ago, due as much to births as to immigration and a general trend towards urbanization. The same trend can be observed in Quebec, Toronto, Vancouver and in the other large cities of the country.

To the extent that growth in supply can keep up with demand, population growth should not cause affordability issues. Alberta, for example, saw its population grow by almost 50% over the same period, but its cities managed to keep their housing market within CMHC’s affordability range.

Unfortunately, supply has not kept up with demand in many other Canadian cities, including major cities in Quebec, due to the difficulty of building new housing in many places.

This is exactly what economists observe when they look at the question of house prices. Cities that facilitate the construction of new housing to meet demand are those where price increases are the most modest when expressed as a percentage of the average income of citizens.

We need to look at institutional barriers, those famous stumbling blocks that governments more or less intentionally throw in the way of developers. Just think of provincial land use regulations, strict municipal zoning rules or the panoply of bureaucratic requirements that must be met before the first sod can be moved.

Each settlement comes with a cost, either in the form of a tax or in the form of time and associated consultant fees, which complicates the construction process and reduces the supply of new housing.

This statistical relationship is well documented. The higher the regulatory index, the higher the price will be and the faster it will climb.

This regulatory cost is not negligible either. A study by CD Howe showed that in 2016, the excessive level of regulation in Ontario had the effect of increasing the average price of houses by more than $100,000. It was six years ago. Prices and regulations have had more time to develop since then.

Blaming foreigners will not solve the housing shortage. Our governments must recognize that they are contributing to the current situation and see what they can do to improve things. In short, they must stop looking for scapegoats and remove the obstacles they have put in place to prevent those who could solve the problem from doing so.

Vincent Geloso is a senior economist at the Montreal Economic Institute.

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Deregulation, Housing

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