A tale of two reports [on housing]

NationalPost.com – FPComment – Conference Board report on affordable housing shows what policies don’t work…and then recommends them
Posted: April 13, 2010.   By Peter Norman

Does Canada have a problem with access to affordable housing? Apparently so, judging by the press coverage that accompanied the Conference Board of Canada’s recent report, “Building From the Ground Up: Enhancing Affordable Housing in Canada.” “Some 67% of Metro Vancouver households struggle with the high cost of housing,” The Vancouver Sun reported, in much the same vein as other media outlets.
But the Conference Board report itself — just about everything but the executive summary and the recommendations — tells a different tale.

The Conference Board report confirms that housing is “one of the most highly regulated and taxed goods” in the economy, and draws on research from Canada Mortgage and Housing Corporation (CMHC) showing that “government-imposed charges are a very significant cost component of any new construction project.”

The report well documents and analyzes the roots of the housing affordability problem in Canada. It shows clearly that the private sector does an excellent job of delivering housing to the vast majority of Canadians, but that generally-high shelter construction costs, primarily linked to government policies and taxes, have left some proportion of Canadians in housing need. The analysis and recommendations are pretty clear: What should governments do? “Move away from micromanaging individual projects.” Why? Because existing government approaches to homelessness and affordable housing have been inefficient, ineffective or “stymied by gridlock among the various layers of government.”

While these findings are not surprising — the role of government regulation and taxes in contributing toward affordability challenges and rental housing shortages in Canada is well documented — the fact that they are buried in the report is.

In fact it reads like two different reports. On one hand, there is the analysis and on the other hand there is the summary and recommendations (and almost all the press coverage). The analysis points to the role of onerous government regulation and taxation in creating the problem. The summary and recommendations: more government micromanaging and taxes on housing.

Take, for example, the “tool” of inclusionary zoning. This is a “get something for nothing” idea, imported from the U.S. and currently being promoted by some cities in Canada, where a municipality builds subsidized housing through a special tax on nearby market housing. Thus the subsidy is not shared by the entire community but paid for by a select few. According to the Conference Board, this idea “acts as an internalized tax on development projects” and “the evidence is that these techniques actually add relatively few affordable units.” Given these findings and this evidence, it is surprising to see inclusionary zoning promoted in the executive summary as an “effective model” and supported by a detailed template in the report’s “Moving From Concepts to Action: A Collection of Tools” section.

Take also, for example, density bonusing. This is another get-something-for-nothing idea whereby the municipality “gives” the home builder the ability to build taller or denser than allowed by existing zoning regulations, in exchange for also providing a certain number of subsidized housing units.

Of course, this let’s-make-a-deal scheme leads municipalities purposefully to start with extra low densities in their zoning by-laws in order to create this magic currency — a recipe for bad planning and inequity to existing land owners. And as the Conference Board points out, density bonusing is likely to work “only in situations of high and rising property prices.” Again, despite this lukewarm treatment in the analytical section, governments’ ability to “engineer deals such as higher-density incentives” is heavily promoted in the report’s summary.

In fact, land-use planning that promotes generally higher density development as an environmental objective comes under fire in the report. The Conference Board rightly points out these “land-use policies sometimes create scarcity that drives up housing costs”; and warns that a “main driver” of what they call “unaffordability” is “whether a municipality maintains prescriptive land-use practices” — a term used by the Chicago-based urban think tank Demographia to denote smart growth or other approaches that restrict land supply.

Even the fundamental issue of how widespread core affordability problems are is treated with ambiguity. While the report’s summary states that “there is an appreciable shortage of quality affordable housing” and that “25% of Canadians rely on housing subsidies or experience periods where they spend over 30% of their income on housing,” the analysis is more nuanced. According to the analysis, “overall Canadians have a less than 1 in 10 chance of experiencing affordability challenges for long periods,” and that “the good news is that unaffordability is a short-term phenomenon for many Canadians.”

The report says that “on one level the solutions to unaffordability are simple: raise incomes or reduce shelter costs.” The point about raising incomes is a good one. The Conference Board says that “there is likely to be an ongoing need for some sort of transfer [shelter allowance] to help low-income families deal with affordability challenges.” Research by CMHC and others have long shown the feasibility of addressing income problems through sensibly designed income support programs for those in housing need.

The point about reducing shelter costs is also a good one. We are on the eve of governments in B.C. and Ontario imposing some $1.5-billion a year in new taxes on housing investment — on top of what the Conference Board rightly points out is a heavily taxed sector. Pity addressing these root causes of unaffordability never saw the light of day in the report’s recommendations.

Financial Post
Peter Norman is senior director and general manager of Altus Group Economic Consulting, a firm of urban and real estate economists.

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