What’s the solution? Curb the use of urban containment policies and make more land available for housing
The latest Demographia report on housing affordability in Canada, which I produce for the Frontier Centre for Public Policy, reveals that over half of the 46 Canadian housing markets we assess are severely unaffordable. Vancouver and Toronto, in particular, stand out for their high housing costs, ranking as the third and 10th least affordable among the 94 major global markets included in our latest international housing affordability study.
To evaluate housing costs, we utilize the “median multiple,” which divides the median house price within a given market (census metropolitan area) by its median household income. A multiple equal to or less than 3.0 is categorized as “affordable,” while anything exceeding 5.0 is labelled “severely unaffordable.”
Among the major Canadian housing markets, Vancouver (with a median multiple of 12), Toronto (9.5), Montreal (5.4), and Ottawa-Gatineau (5.2) fall into the severely unaffordable category. Vancouver has maintained a high median multiple for several decades, while Toronto has been in this range for approximately two decades. The increased prevalence of telecommuting has recently contributed to Montreal and Ottawa-Gatineau’s affordability challenges, leading to a surge in demand for larger homes and properties in more distant suburbs. In contrast, housing in Edmonton (4.0) and Calgary (4.3) remains comparatively more affordable.
In Toronto and Vancouver, the implementation of international urban planning principles, particularly those promoting anti-sprawl measures like greenbelts and agricultural preserves, has led to unprecedented price hikes. This “urban containment” approach has consistently driven up land values in markets so regulated. The primary issue affecting affordability lies in the substantial disparity between severely unaffordable and more budget-friendly markets, primarily stemming from elevated land values rather than increased construction costs.
Land restriction creates what amounts to land cartels. The now smaller number of landowners gain windfall profits, which, of course, encourages speculation. Maintaining or restoring affordability requires eliminating windfall profits by ensuring a competitive market for land on the periphery of markets.
Another issue arises from the preference of urban planners for higher-density housing, such as high-rise condominiums. While some households may opt for high-rise living, families with children typically seek housing with more land, whether detached or semi-detached. When these families are priced out of the housing market, it diminishes their quality of life and may even push some into poverty.
The troubling paradox is that unaffordable housing is far more common in markets like Vancouver and Toronto, which have embraced the planning orthodoxy – which is supposed to produce affordable housing. The same applies to international markets like Sydney, Auckland, London and San Francisco, where urban containment and unaffordable housing have gone hand in hand.
What’s the solution? Give up on urban containment and make more land available for housing. But wouldn’t that threaten the natural environment, as critics of Ontario’s recent attempt to allow development of a sliver of its greenbelt evidently believed?
Not at all. It’s true that land under cultivation in Canada has been declining steadily over the years. But the culprit is improved agricultural productivity, not urban expansion. According to Statistics Canada, between 2001 and 2021, agricultural land shrank 53,000 square kilometres. That’s about equal to the land area of Nova Scotia. And it’s about triple the extent of all the urbanization that has occurred since European settlement began. So despite what activists may claim, even in Ontario and B.C., where most of the severely unaffordable markets are concentrated, urban expansion from 2016 to 2021 was less than one-quarter of the agricultural loss. Urban expansion is not squeezing out agricultural land.
Given all this, what should we do about affordability? In my view, three things:
First, it’s essential to acknowledge that Canadians are proactively addressing the issue by relocating from pricier regions to more affordable ones within the country. Housing affordability is noticeably better in the Atlantic and Prairie provinces and areas in Quebec east of Montreal. Consequently, it’s not surprising that there is now a net influx of people migrating interprovincially to smaller, typically more affordable, locations. In the past five years, markets with populations exceeding 100,000 have collectively witnessed over 250,000 people moving to smaller markets.
Second, make more land available for development in increasingly unaffordable markets like B.C., southern Ontario, and the Montreal-Ottawa corridor. One way is with “housing opportunity enclaves” (HOEs), in which traditional, i.e., not high-density, housing regulations would apply, but with essential environmental and safety regulations. The aim would be to provide middle-income housing at the price-to-income ratios that were typical before urban containment came along and housing across the country was largely affordable.
Market-driven development would be ensured by relying on the private sector to provide housing, land, and infrastructure, a model that has been successful in Colorado and Texas. Current residents would maintain their property rights but could sell to private parties and First Nations for development.
HOEs would be situated far enough outside major centres to take advantage of low-priced land, prioritizing areas with the largest recent agricultural land reductions. Communities likely would resemble Waverly West in Winnipeg or The Woodlands in Houston, with ample housing space and yards for families with children.
These new communities would attract people working at least partly from home. Jobs would naturally follow, creating self-contained communities where most physical commutes occurred within the HOE. To ensure a competitive market and prevent land cost escalation, HOEs must have ample land available.
Third, public authorities should allocate an ample amount of suburban land to safeguard reasonable land values in the Prairie and Atlantic provinces, as well as in Quebec regions situated east of Montreal. This would allow currently more affordable markets such as Quebec City, Calgary, Edmonton, Winnipeg, Moncton, and Halifax to effectively accommodate interprovincial migrants without jeopardizing their affordability.
Provincial and local governments would need to monitor housing affordability multiples on at least a five-year cycle, and legislatures, land use authorities and city councils would have to allow enough low-cost land development to maintain price-to-income stability.
It’s not enough just to provide enough building lots to meet projected demand. The goal should be to enable builders to provide housing at prices middle-income households can afford.
The key to that is affordable land.
Wendell Cox is a senior fellow at the Frontier Centre for Public Policy and author of the 2023 Edition of Demographia Housing Affordability in Canada.
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