Federal housing policy has two critical issues to tackle: addressing high housing costs facing middle-income Canadians and ensuring adequate housing for lower-income individuals and families. These are two distinct problems that require different solutions, as lower-income and middle class Canadians face different affordability hurdles.
The shortage of housing for lower-income households is often addressed through mandates to build affordable units in new developments. However, a more effective solution would be direct income transfers, rather than attempting to reshape the housing market. This issue is best addressed through housing vouchers, which provide targeted financial support.
The US section 8 housing voucher program provides a useful model. It helps very low-income families, the elderly, and the disabled afford private market housing by covering a portion of the rent. Participants can find their own housing, including single-family homes, townhouses, and apartments, which is not limited to subsidized housing projects. The landlord must agree to participate in the program. The subsidy is paid directly to the landlord, and the family pays the difference. Under certain circumstances, families can use their vouchers toward purchasing a home. Eligibility is determined locally, based on total annual gross income and family size.
This summer, the US Department of Housing and Urban Development (HUD) issued a formal request for more research on the impact of paying renters directly. A primary goal is getting people housed faster, but a significant challenge lies in carrying out inspections without slowing down the leasing process. Another concern is whether tenants might use their monthly cash assistance on non-rent expenses. Observing the US approach closely could provide valuable insights into structuring an effective housing voucher system in Canada.
The problem for middle-income Canadians is easing the high cost of housing. That requires reducing barriers to building to encourage more supply. In markets where prices are much higher than construction costs, housing will remain unaffordable until there is a broader supply of all housing types, not just low-income units. The number of units delivered through federal programs is too small to meaningfully impact affordability in high-cost areas like Toronto or Vancouver. While we would expect high prices to spur more development, restrictive land-use regulations make building difficult and costly. This is a politically induced market failure.
We’ve taken a cookie-cutter approach to our housing problems, rather than focusing on areas where the housing market is truly broken. The federal government needs to push back against the local tendency to restrict new construction by incentivizing communities to embrace development. Harvard economist Edward Glaeser’s solution for removing this “zoning straightjacket” is to withhold infrastructure funding from states that “fail to make verifiable progress enabling housing construction in their high-wage, high-opportunity areas.”
Economists Chang-Tai Heish and Enrico Moretti have measured the broader economic impact of restrictive housing policies. They estimate that stringent housing supply restrictions reduced aggregate US growth by 36 per cent from 1964 to 2009. With fewer restrictions, the US economy would have grown 3.7 per cent faster, and the average American worker would have earned an additional $3,685 annually.
Similarly, in Canada, local land use controls have come to shape our entire economy. We have a paradoxical situation in the way we manage cities: The people responsible for modifying market outcomes (planners) often lack a deep understanding about markets, while the experts who do understand markets (urban economists) are seldom involved in designing regulations. This disconnect has led to lower productivity in cities and a decline in the quality of life for urban residents.
In a recent op-ed, Glaeser highlights that while zoning is hyperlocal, the limits on local governments are set by state (provincial) governments. Rather than targeting municipalities, Glaeser suggests the federal government target state governments, leveraging access to transportation or infrastructure funding to enforce change: “The goal should be to nudge [provincial] legislatures to reduce the ability of communities to zone out change.”
Federal housing policy should ensure lower-income individuals and families have access to adequate housing, while also addressing the high costs many middle-income individuals and families face. These are two distinct problems that require two different solutions. It’s time for federal policymakers to recognize this and respond accordingly.
Independent Opinion
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