Nuanced. - 278. Tom Davidoff: Canada’s Housing Crisis Explained by a Housing Economist

Episode Date: September 28, 2026

UBC housing economist Thomas Davidoff joins to explain Canada’s housing crisis, zoning, immigration, property taxes, rental supply and the tension between affordability and homeowner wealth with host Aaron Pete.Send us Fan MailSupport the shownuancedmedia.ca

Thomas Davidoff, how did Canada become a country where people with good jobs struggle to afford a home? So the tax system says own real estate don't work for living, and so of course that's a recipe for unaffordability. Would you say that the problem is more government policy or how much goes to the private sector for Blaine? Private sector is going to private sector. I mean, you can't expect, you know, private actors to do anything other than, you know, maximize profit. for firms. How should we help people who still can't afford housing, even if we build substantially more? Do you want to subsidize incomes or do you want to provide new homes for people who qualify based on income? And to most economists, the obvious answer is to subsidize incomes. If you have like a firefighter and their spouse, the teacher, I trust them with the money. You give them money if they

don't have enough money. Can we make housing affordable for younger Canadians while protecting the wealth existing homeowners have built up. Thomas Davidoff, thank you so much for being willing to join us today. Would you mind briefly introducing yourself? Sure. My name's Tom Davidoff. I'm an associate professor here at the Soder School of Business at UBC. My research focus is housing economics, and I also do a little bit of insurance and the aging work earlier in my career.

How did Canada become a country? where people with good jobs struggle to afford a home. Well, generally, as an economist, I tend to look at supply and demand conditions. And certainly where I am here in Vancouver, and to a lesser extent, in Toronto, you've got a real problem, which is hard to build. And yet lots and lots of demand, and until very recently, really rapidly growing demand. So Vancouver, you think about it, it's a beautiful place. And it's beautiful because there's mountains and oceans. You can't build on mountains and oceans very easily.

And so it's hard to add new homes. But there's always a high level of demand. And with rapid immigration, which I want to emphasize off the bat, I'm an immigrant. I'm very pro-immigrant. But there's no question that when you've got more people and you can't add more homes, that's going to push up the price even higher. So you think this is only potentially a supply and demand issue or were there other decisions that contributed to where we are today? Well, prices are always about supply and demand. Now, government, of course, can do lots about supply and demand. One major issue is in terms of supply that certainly exists in Toronto and most of North America is the prevalence of single family zoning.

So you take most of the land in a region and you say no apartments here by government. Fiat, we're going to depress how much can get built. That makes everybody sprawl outwards and it pushes up prices by diminishing supply in the good locations. So that's been important. Another feature of the landscape is our tax code. Until recently, you know, the tax code is sort of an instruction manual for the economy, if you like, certainly in BC, but also greater Toronto said buy real estate, but don't try to work for a living because we've got very high income and sales taxes, but as a fraction of value or even in absolute terms, our property taxes are actually quite modest. They've been growing recently at a rapid rate, but property tax is not,

you know, the big ticket item. You know, if you own a $2 million house, you're paying something like maybe $10,000 in property taxes, I think less. Meanwhile, to buy that, unless you have have mommy and daddy money, you need to make like a half mill a year and you're into the hundreds of thousands of dollars in income tax. So the tax system says own real estate don't work for living. And so, of course, that's a recipe for unaffordability. I want to get into that, but I guess I just want to make sure that I frame the issue as I see it or how I see it framed for you to comment on. I watched the leader of the opposition, Pierre Pahliav, basically make the argument, hey, I was housing

minister, and we didn't really have all these problems back then, because we had more of a balanced supply and demand process. Governments were out of the way, and that's how we resolve some of these issues. And then I watched the liberal government basically make the argument, or the NDP government

provincially go, no, no, no, no, what you had was, yes, people could buy into homes at a more affordable rate than they can today, but you didn't account for all of the people who are only getting $300 a month, and living subsidy, who are living in poverty, and you left all of them behind under your structure. And no matter how much supply and demand you create, the people at the very bottom

rung of society, the people with the least amount of money, didn't have a way into the market during that period. And I'm just wondering, can you critique that? Can you help me understand? That's how I see it on the news. That's how I see it argued. And I think that there's likely some in between that I'm hoping you can help me understand the roots of the problem in a better way. Well, let me try to respond to what you just asked in the way I want to respond, and then we can maybe go to where you were hoping the answer would be. First of all, it sounds like the parties are talking past each other. Housing was more affordable before 2015 when Trudeau took over. But that was not because it was so easy to build homes throughout Canada. You know, again, the very restrictive zoning still existed. Certainly in greater Vancouver, that's been an issue for a very long time. and we do up zone, you know, in certain transit-rich places, but most of the area was more of the area was single-family. I would also say the liberals have done something very important,

which is to move CMHC's mission from predominantly single-family home insurance to having a huge footprint in lending to multifamily rental buildings. You know, prior to, I don't know, 2018, most rental, most apartment buildings were condos, And a lot have become rental. And a lot of that is because CMHC has pushed towards creating rental housing. You know, what of course the Pahliav misses, and of course it would be in his position natural to miss this issue, is number one, the rapid immigration, which caused an increase in demand. And it's just hard for supply to keep up with such a rate of demand growth. And two, I'd have to look more carefully, but you have to look at the age pyramid.

young people coming of age and starting to form households is a very important form of pressure on a housing system. And the millennials were a big chunk of people coming through the system. You know, the U.S. saw the same thing. Rapid price increases from about 2016 through 2022 or so. And I think a lot of that was the millennials forming households or at least wanting to form households. Okay. So when we talk about the housing crisis, are we talking about a shortage of homes? homes costing too much or people not earning enough to afford them or all of the above. Yeah. So affordability, a problem with affordability is you don't make enough to pay the price. So if you have high prices, that's a problem for affordability. You mentioned people at the lower

end of the income distribution. And, you know, you can have much lower prices. But some people, you know, if you're making 15 bucks an hour, 30K a year, it is really challenging to afford anything the market's going to produce without a significant subsidy to your income. And then you get into a choice. Do you want to subsidize incomes or do you want to provide new homes for people who qualify based on income? And to most economists, the obvious answer is to subsidize incomes. You know, new housing is a luxury and you'll never be able to build enough new homes for all the people who can't afford market rate homes. So it's kind of crazy to to try and provide the luxury product because you wind up having a sort of lottery for who gets lucky enough to get the units.

And sometimes it's a private developer determining which low-income household they want to let into their building. And then you get into racial preferences. You get to developers picking the least needy people possible because they want somebody who's going to be able to cover the rent. Sorry, could you elaborate a little bit more when you say subsidized housing? Sure. So let me take a step back. Some economists say Christmas is the biggest deadweight loss day of the year, right? Your aunt kindly gives you the reindeer sweater, which cost her 150 bucks, and you never want to wear.

So, you know, maybe it's worth 25 bucks to you. The price was 150. If she had written you a check for $100, she would have saved 50 bucks and you're $75 better off because he had $100 in cash instead of something you value at $25. Okay, so, right? So then it comes to what do you do about people who can't afford market rate homes? You could write people checks, or you could hold a lottery and say people who are, you know, first on the waiting list somehow get a brand new apartment. And maybe that apartment's worth a million bucks and, you know, they can only afford a $300,000 place. right? So you need a $700,000 subsidy. But if you gave that household $700,000 in cash, instead of buying down that unit to the tune of $700,000, they probably wouldn't spend the $700,000 all on a brand new apartment. They'd probably rent or buy a much older place in a worse location, but they'd improve their transportation situation. Maybe they'd invest in their children's education, better clothes, better food, all that stuff. So it's a mismatch. between the gift you give people through redistribution when you do in-kind transfers as opposed to cash transfers.

And I think that's a big source of waste in the way we try to help people in need. Interesting. I do want to get to that, but I do want to just make sure we understand some of the roots of the problem first. Would you say that the problem is more government policy or how much goes to the private sector for Blaine? Well, the private sector is going to private sector. I mean, you can't expect, you know, private actors to do anything other than, you know, maximize profit for firms, get the best place they can for the price for private households. So I don't know if you want to call that blame, but that's what's going to happen. Nobody, you know, mostly private sector actors are going to charge whatever the market will bear. They'll try to rent up an apartment at a rent where, you know, it won't take too long to lease up, but they get as much. as they can subject to that constraint. And, you know, that's sort of how we do things in this economy is we let the private sector go. The problem with the private sector then is a couple of things. Number one, there's people who can't afford market rents and fall between the cracks and wind up living in inadequate conditions. That's not great. And then number two, there may be

externalities. So I tend to speak ill of single family zoning, but, you know, if you If somebody builds a giant apartment building next to my home, it's going to make me sad because instead of trees and light and grass and empty space, I see a bunch of people peering into my living room. So, of course, I'm not going to like that. And maybe it's an appropriate role of government to limit how much density I have to live near. That's a tough one. But it's certainly something government has done very actively. Just on a personal level, I guess I'd be interested in your thoughts on the path forward. I feel like the NDP government right now, provincially, is definitely pushing this idea of apartments, townhouses, and more condensed building.

And it almost seems like we just gave up hope that people could own their own home and have single families owning and that we could solve that with those parameters. And I just look at the sociological effects of living in an apartment. I lived in one most of my life. This is the first two years I've ever not lived in an apartment building. and I just found that it impacted who I was as a person living in an apartment. You have to be mindful of your strata. If you track dirt in, there's kind of eyes on you at all times. And it shaped how I thought about myself and the constraints I lived within.

And then I see it kind of going outward and how people are able to behave in the constraints of a strata or some of these systems changes, I think, behavior at a really fundamental level. And I'd just be interested, is there a path to resolve this where people can. still potentially own a single family home and we don't have to go down the path of everybody living in smaller and smaller apartments. Well, let me say a few things. First of all, I'm sensitive to what you said. It's not like I totally disagree. You know, Camukna Sartra said, Van Fersele-Zotra, hell is other people, right?

And someone else said good fences make good neighbors. So, you know, it's nice not to have to deal with other people. There's no doubt. I like my neighbor. I live in a half duplex. I like the guy on the other side. There's a lot I like about them, but, you know, making common decisions and negotiating over noise or whatever else, it's no fun. You know, people do not, you know, a home is a very private thing.

You know, it's an instinct. Hey, I want to protect my turf. And it can make good people do bad things, real estate, for sure. That having been said, I do want to push back a little. You know, I'm from Brooklyn, New York. And certainly in Brooklyn and absolutely in New York City, I think there's been a lot of very impressive people who, come out of that environment, and most of them lived in apartment buildings. You know, Mel Brooks, the great comedian, grew up poor in Brighton Beach or something like that in an apartment or Coney Island.

And, you know, the list goes on and on. And so I think you can do very well in life having grown up in an apartment. Jay-Z, you know, grew up in the projects. Biggie Smalls. The list goes on and I'm about Barbara Streisand was probably an apartment. Maybe it was a house. I don't know. You know, a lot of people grow up in multifamily and do just fine. A density of people around you require social skills and, you know, being adept with words and negotiating stuff. So I'm not sure if single family, you know, is necessarily better for human outcomes. I think most people would rather live in a single family detached home, certainly when they have a family. But it's just not possible.

I mean, there's no way you can fit all the people who want to live in Greater Vancouver in single detached houses. That's just mathematically impossible, right? It's less than 50% now, I suspect, and, you know, it's already a pretty congested place. If you want to expand and add people, it's got to be multifamily. And then you get to commuting, you know, it's not so nice to, you know, bump into your neighbor or wait for the elevator because your neighbor has a baby, and then you get resentful about the baby or whatever terrible social outcomes there are from apartments. But at the same time, you know, sprawly stuff where it's hard to have downtowns that are walkable because everybody's so spruly. bred apart so you wind up driving, that's terrible. You know, the guy in front of you's making a left turn and he's ruining your day. I think that creates a lot of anti-social behavior, right? To think about talk radio,

certainly in the U.S., but I suspect Canada, I don't really know, tends to be right wing. Why? You know, nobody wants to be like, oh, let's help people and be kind to those who are struggling when you're sitting in traffic and the guy in front of you're a jerk. You want to hear everybody else is an idiot and it's your country and those immigrants should go to hell or whatever, you know. So I'm going on at length a little bit, but I don't think there's anything wrong with multifamily housing. Can we make housing affordable for younger Canadians while protecting the wealth existing homeowners have built up? Well, that's a challenge, right? Now, there are rents and prices. So prices are affected by the level and potential growth of rents. and they're also affected by interest rates. So probably there's some clever answer in if we think Canada is a dynamic place with good growth prospects.

And if we avoid deficits and inflation too much, so interest rates stay low, then you can have high ratios of rent to price, of price to rent, rather. So if price is high when rents aren't too bad because people think rents are going to grow over time, because the economy is so. dynamic. You know, that is one path. But generally, I think there is a trade-off. And we're seeing it now. Reducing immigration has had a giant effect on rents and also on prices. And so prices and rents are lower, which is not great for people who just bought a house recently or, you know, have been hoping to retire on their giant home equity. But it is making life easier for people who are trying to rent or buy a place today who don't already own. For many baby boomers, their home has become their retirement plan.

How much does that dependence on rising property values make the housing crisis harder to solve? I think it does. You know, the U.S. is worse than Canada for nimbism. You know, don't build dense housing near my home because of tax reasons, right? In both Canada and the U.S., you want to protect your home's value, and that means you want to keep your neighborhood, you know, high amenity. In the U.S., it's worse because public schools are financed from local property taxes. So small, densely built homes have a lot of kids per dollar of value, which makes the neighbors really dislike it.

You know, so, yeah, no, I mean, I think generally speaking, there is that tradeoff you mentioned between boomers, you know, retirement wealth and future affordability. It's also a little bit unfortunate. You know, I think it's been an unhealthy thing. thing. You know, when I walked around Kitts Beach five years ago, all you'd hear people talk about is I'm thinking of buying a condo. My friend bought a condo. She's renting,

you know, I want to buy. I'm thinking of updating. You know, when I got out of undergrad in 93, all anybody wanted to talk about I was investing in tech. And I think this desire to invest in housing, which isn't super productive, doesn't juice wages, has been

pretty unhealthy for Canada. Your father, Paul Davidoff, worked to give poor and working class families a stronger voice in urban planet. How did that shape your interest in housing? Well, yeah, no, I mean, why did I go into housing and urban planning? And thanks for that bit of homework, both my parents were urban planners, and they had a lot of influence on me. Unfortunately, my father died when I was 13, but through direct chats with him at an early age and through, you know, hearing about his life's work, you know, that, that,

that's influenced me a lot. And what they did later, you know, one thing my parents got involved with, my father was an expert witness in the Mount Laurel case where an affluent New Jersey suburb told some African-American women, no, we're not going to let you try to find an apartment here. And they sued and said, we're being denied the opportunity to live in the community. We want to make home by restrictive zoning. So, you know, using zoning to keep out multifamily in the U.S., where race and ethnicity are so tied in with income, has both, you know, income distribution effects, which aren't nice. But more importantly, can be hard to distinguish snob zoning from bigotry. And, you know, certainly in my family, you know, there is no greater sin than bigotry. And so it's something that I feel intellectual.

but I think more importantly, just at an emotional level, it's really bad to say, hey, I want to keep my neighborhood for people like me and not for people like you. Has your research led you to different conclusions on how to help those families? You know, I think when I get involved with policy stuff, usually it's not deep research. It's Econ 101 where you can be helpful. So, for example, I mentioned this issue of in-kind where I think a lot of money is, is not doing as much good for the intended beneficiaries as it could be because of in-kind transfers. Now, some people have done some very good research on that in recent years, but you don't have to have really done much research to know that. You know that. You know, you took a couple of econ classes. You know it. But a lot of politicians haven't taken econ classes. I spoke to one politician who said, hey, how do we build multiplex housing and make sure that at least one of the units is affordable? I said, don't.

if you're going to ask something from the developer, get cash, and you can help people living on the street or living in their cars, you know, have enough to eat and get a place to live. And I expected to hear, no, no, no, no, no, no, I want in-kind only. I don't want cash. And this policy says, oh, my God, wow, I could get money and then we could do whatever we wanted with it. And so, you know, that level of insight can be helpful. Something else I worked on is property taxes, you know, and now that is a bit of research. So when I got out of PhD, I worked with a college. I worked with a college. colleague Saku Aura, thinking about optimal taxation, you know, property taxes are a strange thing. You've probably heard of Henry George in the idea that you should tax land value only. And that's true with efficiency, right? Land, you know, you generally want to tax things that won't run away from a tax. And land, you know, downtown Vancouver land or Kitsilano land or North Vancouver land.

It's not going anywhere. It's still going to be great even if you tax it a lot. It is just fall in price, which hurts the owner and has no adverse effect on the buyer. Now, that's sad for the people who own property, but it doesn't really hurt the economy. It's a very efficient way to raise revenue. Usually when you raise revenue, you take money from people and you screw up the economy. And so, look, we're not going to move into land value taxation for whatever reason, but there's approximations of it. And, you know, when you have an area like Vancouver where it's so hard to add supply,

especially the suburbs, like the British properties, when it's super hard to add supply, a tax is particularly efficient in a place like Dallas, Texas, or Winnipeg where it's easy to build. A lot of the property taxes a tax on the structure instead of the land. So Vancouver should have not just in dollars, but in percentage rates, some of the highest property taxes in the world, and instead we have super low taxes. So we talked about taxes. earlier, that research insight is where that comes from. I guess my concern with that and what I think listeners will be concerned about is our government does not have a spending problem. They're spending plenty of money.

They're running record deficits. The government does not need more money from people in order to solve these problems. To me, it's like a policy rooted problem because we've tried throwing money at the problem multiple times. And I just don't feel like we've gotten there. What do you say to that? You know, I don't know where the waste is in government. I don't spend a lot of time auditing the provincial budget. As I mentioned, I think in-kind transfers are an inefficient use of money, and I'm sure there's stuff government spends on that's wasteful. That having been said, we underfund a lot of stuff here.

Our schools are pretty mediocre, in my opinion. You know, both of my sons have either too much or not enough going on in the classroom that they needed, you know, different. types of instruction. And I know a lot of people in that boat. And if you have a kid with learning challenges, what the government's going to tell you is drop dead. You know, that's your problem. You can go pay 50K a year at a private school. And so, and if you have a kid who's precocious intellectually, they're getting a so-so education. And the teachers, you know, some of the teachers are great, I think. You know, I'm not anti-teacher at all, but maybe we need more teachers. I don't know what we need, but I think we could have better schools. Maybe

smaller classrooms would do the trick. What else? We've got people on the street. I mean, that takes an unbelievable amount of money to help. If you have somebody who's, you know, got a drug problem, especially fentanyl, as I understand it, it's hundreds of thousands of dollars to try and treat them. They come out. They don't have a home. They're out on the street and they get caught up in drugs again. And they're already brain damaged. So they're probably not going to be able to work. So, you know, there's so much that would benefit from more spending. Could we really? allocate some of the existing spending, I'm sure. But by the way, when I say raise property taxes, that doesn't mean raise revenue. What if the city of Vancouver had zero sales tax and a low-income tax, right? That would make it more attractive as a headquarters city. So you could hold revenue constant, not spend more money if you don't want to spend more money, and just raise revenue in a more economically efficient way, right? Cutting income and sales taxes could have a lot of value. And Canada needs to be a tax competitive place,

given that the country we send 63% of our exports to is asking us to no longer send them exports. Fascinating. The debate often centers on government providing affordable housing or making it easier for the public sector to build. What does each approach get right? And where does it fall short? Okay, so the choices are, just remind me, the choices are number one...

Providing affordable housing or... or making it easier for the public sector to build, or as often it said, cut the red tape. Yeah. I think cut the red tape is free, right? I mean, we talked about, you know, a government budget that's really challenged. You know, what builders build is free. And in fact, it can be profitable if you charge for the zoning, which governments often do here. And I think can be a very efficient way to raise revenue.

Say, look, currently you're zoned only for a parking lot. You want to build a 50-story building. It's going to make you a lot of money, or it would have made you a lot of money before we deleted all the immigration, you know, we're going to charge you money for the privilege. So that's a way. So then you get more market rate homes, and that pushes down rents, not just for rich people. This is research that I've done that, you know, it's consistent with what other people found. If you build a brand new apartment building in Greater Vancouver, it's probably going to free up every year.

If it's 100 units, probably you'll create 50 units in low-income postal codes or sensitive. tracks. Why? Because of what's called vacancy chains, right? Who moves into a brand new apartment building? It's not, you know, Jim Patterson and like, you know, the richest guy in China. That's what people think. You know, these are 400 square foot units. They're not the greatest units in the world. But maybe they're coming from relatively high income census tracts or neighborhoods. Okay. Well, who's replacing them? Why did they move to this new building? Maybe their old unit was old and depreciated. So the person who moves into the that the guy who moved into the new building vacated is coming from somewhere less fancy. And they now have vacated a unit and they get replaced and so on. And the chain eventually ends. Somebody moves out of their parents' basement, which has value. Somebody moves from outside the

metro area. VAP has value. But roughly 50% of the units, you can directly find somebody down the chain who has vacated a unit in a much more affordable neighborhood. So market rate housing creates affordable housing at every level of the housing quality chain. Now, directly building affordable housing, it costs the same, but it's all paid for it by the public sector. To the extent you're subsidizing the rent below market, that's all coming from the public sector. You know, can say, well, the public sector owns land, so that land is free. That land is not free. It has an opportunity cost. You could sell that land to the market. So if the land's worth 20 million bucks and you build an apartment building and make zero rent net of expenses, you have spent $20 million

not selling the land to the private sector or not renting it market and failing to have that revenue that you could spend on solving street homelessness or, you know, the quiet homelessness that so many people struggle through. So, you know, having a lottery where we say, okay, you know, we're going to build 100 units when there's 200,000 people who would like an affordable unit, you know, let's find 100 lucky winners and give them a $700,000 subsidy when they would prefer, or, you know, in present value of rents over time, a $700,000 worth a subsidy, when all those households would prefer the cash to the subsidy. It's really a home run that, generally speaking, we should let the market build and, you know, reduce red tape. Now,

I forget what the now was. But I mean, but the analysis, it's quite clear, I think. You know, would it be better if we had socialism and generally got the private sector out of housing altogether? I think not. You know, I could see a world in which we'd have much denser housing. We wouldn't have the sprawl traffic would be better managed. I don't think, I think that's mostly infrastructure choices more than the private sector loving. sprawl in some way. So, you know, we're not socialist. We generally think the market should provide

stuff. And, you know, do we think our schools are so great? Do we think our health care is so great that we want to leave it to the government to decide? You know, I think the people who are good at politics and rising to the top are not necessarily people who are going to make the best decisions for society. So, you know, leaving something as fundamental as housing to Donald Trump or Pierre Polly ever, or if you're lucky, in my opinion, Mark Carney, I'm not sure that's a great idea. Sorry, what do you mean if you're lucky, like me, Mark Carney? You know, I'm a balding, middle-aged Harvard graduate PhD economist, so I'm pretty excited that we've got another one running the country right now. But you don't always get a Mark Carney running a country,

look to the south, right? You know, the quality of individuals who get through the political system is not always a plus in terms of setting policy. What makes you excited about him being in that position beyond perhaps the skin color and the schools and the education? No, skin color. You know, Obama was the greatest president and, you know, more diversity is better. But the guy's roughly my age. He's a PhD economist. I mean, he went to the same undergrad institution I did.

I mean, of course I'm going to like him. Now, I don't think everything he's done is perfect. I think on housing, the most important thing he's done is to continue CMHC's footprint in rental, which, you know, even that subsidy, even the CMHC subsidy of low interest loans to apartment developers, I sort of question whether government should be doing that at all. But I think they're making money on it. You know, government has made money intervening into mortgage markets. I think that's an interesting puzzle. Fascinating. Let's turn to solutions. If a municipal council wanted to. to make housing more affordable, what should it change first about where homes can be built and how things get approved? Well, delete single family zoning if you're anywhere urban. Just say,

you know, build what you want pretty much up to, don't like destroy, you know. I mean, cutting down trees is a sensitive one, right? So, I mean, you see a lot of single family homes get built, monster single family homes. They cut down trees. I think when trees get cut down, it's a tragedy. but at least if you're going to cut down trees, you know, let's get some homes out of it. So I think, you know, let people build more homes so that there's more homes per person, which is going to lead to lower rents and prices. And that's thing number one that they can do. Thing number two, you know, if all city councils and school districts start doing a better job with education,

maybe we improve the economy, you know, getting businesses in, I think that's most the job of the federal tax system, but anything municipalities can do to improve transportation access, you know, make it easier for skilled workers to get good jobs to have a more dynamic economy, I think is really important now. In the era of AI, post-COVID, we do where you have a combination of work from home and AI, you know, cutting office jobs, I don't know how that's going to work out. But you need to have a healthy economy and you need to have lots of housing. That's how you make housing affordable. For the second policy, how should we change the way we pay for the infrastructure new housing

requires? Well, that's a really interesting question. You know, generally, a principle is users should pay for stuff, and the other thing is a tax system should be efficient. You want a tax stuff that can't run away from the help taxes while still maintaining the level of income distribution you want. And so when you use, you know, impact fees on a tax. new development to say, hey, because of your new development, we're going to need new sewers.

That's a reasonable thing to do and say the developer has to pay for the sewers. There's nothing wrong with that in principle. There's two issues, however. Number one, you might have needed the new sewers or wanted the new community center anyway. So actually figuring out what's the incremental infrastructure costs from a new building as opposed to a general infrastructure need that everybody should be paying for, probably through some combination of property taxes, income taxes, parking fees, what have you, you know, that's a challenging decomposition exercise. Second, to the extent that we want to have more homes because we're worried about affordability, you might want to lowball the impact fees so that, you know, there's more development. All that said, you have to be careful because, you know,

developers will tell you, every dollar you charge us in impact, fees, we have to raise the rent by a dollar. That's, you know, that's non-saurus or charge prices that are a dollar higher. That's not true. And the way you can see that is if a developer's grandmother leaves them a million dollars in their will, the developer's not going to lower prices by a million bucks in the project. That's just not how it goes. What developers will always do it, if they have any brains, is charge the highest price they can while still selling the units in a timely way. And how much the government charged them or didn't charge them, that's a sunk cost that will not affect what developers optimally charge. However, impact fees can affect

crisis and rents if they scare off development. So the Broadway corridor in Vancouver, we're seeing a lot of new applications, but we're not going to see a lot of construction because the ask is so high and everything has to be rental and a lot of the units have to be affordable so the deals aren't profitable. And I think there, the asks made of developers are so great that you're probably not going to see much construction. Now, that's good in the sense that it's going to protect older affordable rental stock, but it's bad in the sense that we're just not going to get a lot of take up and a lot of construction there unless I think probably the ask changes. If governments reduce fees and construction costs, what makes those savings reach renters and buyers? Well, that's just what I was

talking about. A lot of the impact is on land values, right? Suppose you have a parking lot that's worth $10 million, but you know, you could build a condo and your profits from selling it after after your construction cost would be $50 million. That's $40 million in profit if you zone this building. So any impact fees less than $40 million, maybe $30 million to make sure there's a little gravy isn't going to do anything. Somebody's still going to jump at the opportunity. You know, maybe they'll build it a little bit later. But those impact fees can, might do nothing. But if they get too burdensome, then you do chase away development. And when you don't have development, you don't get those vacancy chains that we talked about earlier happening, and affordability is impacted. So the way that

cutting fees could lead to affordability is not that the developer is going to cut the price or rent by a dollar for dollar for all the fees that they save, but instead you might spur more construction on the margin. And when you get more construction, there's more units per person, and that's lowers rents and prices. For the third policy, how should governments use public land to create housing people can afford? Pete, you know, government should use land in the most efficient way they can. And efficiency includes amenity. You know, I think Vancouver has way too many golf courses.

I don't golf, so, you know, I think it's basically a total waste, you know, it's not particularly eco-friendly. You'd be better off with trees or whatever. But I love open space. You know, I mean, I don't think Stanley Park should be turned into housing. I think it should be a beautiful park and a great amenity, and I think more open space is better. So you have to think about the true opportunity cost of stuff, and some of that can be sort of non-monetary benefits. But generally speaking, we should do whatever is best with the land. So if the best use of the land in terms of the market and considering the externalities that any development form has is a shopping center, sell it to a shopping center developer.

If it's apartments, sell it to a developer, or maybe hold on to it and build it at market rental. as the city has talked about doing. You know, you figure it out what's the most profitable to the city to do, but also think, okay, there's effects of what we build on our community and, you know, in terms of amenity, in terms of nature, in terms of spillover effects on other industries and congestion. So you have to think about all of that and you make the right choice. It's a hard choice and I'm sure governments get it wrong all the time. For the fourth policy, how should we help people who still can't afford housing,

even if we build substantially more. Yeah, some people just have low incomes, and I think you give them money. And this goes to a point I forgot. I forgot my final point. There are some cases where you have to give somebody a home and you have to supervise that home, right? So if you have somebody who's struggling with addiction, if you have a woman taking her children fleeing domestic violence, they need a special form of housing and they need some kind of supervision. You can't just say, hey, here's some money, good luck.

right? So there are cases where what you need to do is give people dedicated homes in this particular environment. But if you have like a firefighter and their spouse, the teacher, I trust them with the money. You give them money if they don't have enough money. For the fifth policy, what would you change about how we tax housing and land if you were able to right now? Would you just remove that on the housing piece of it and just focus on the land that you've described? Yeah, land value taxation is certainly efficient and you don't have to go all the way there. What you could say is your assessment is frozen as of today. Now, if we need more property taxes, we're going to raise everybody's rate of tax on that assessment or we'll raise the assessment, but that's going to be constant across individuals. So you can have your

land and structure value today and just going forward, that's not going to change no matter what you do to your property. We could go all the way there. I think that's probably unrealistic. So what are some steps we could take in that direction. Number one, think very carefully about impact fees and, you know, think about selling zoning for cash, which is a very efficient way to raise money that can wind up with more housing because it's more attractive to the community to have the homes and more gets approved. So that's one way. Two is what I call an alternative minimum tax. Now, the speculation and vacancy taxes that we have and the foreign buyer taxes that we have are meant to dissuade people from holding units empty. And that works. And that works. But there's still lots of people.

You know, the median owner of the most expensive 5 or 10% of homes in greater Vancouver pays about $15,000 a year in income tax. Vancouver is a great place, and Toronto has this as well, but Vancouver is such a great place to have money, not a great place to make money, and you have a lot of really rich people who don't pay any income tax who live here. Now, you don't need to get into taxing nationality, which I think flirts with the bigotry that I really seek to avoid.

at all costs. And what you can do instead is say, look, what's your property worth? Okay, and if it's your primary residence and you're paying more than 1% of that in income tax, which anybody who earns a living does pretty much, then you're good to go. But, you know, if your house is worth 20 million bucks, so 1% of that is 200 grand, and you're paying like nothing in income tax, you're going to pay an income tax surcharge. Okay. And, you know, to together, you know, to, get you up to paying at least 1% of the value. You can deduct all the rent you collect so that if you're renting out to somebody regularly, that could raise $2 billion a year that could go to helping poverty. It could go to cutting taxes, making it a stronger economy. But it's a waste of money because,

you know, rich guys that own super expensive homes, I just don't see the cost in making sure they pay a reasonable amount of tax. You know, a $20 million house, you need to have income of $5 million a year, again, unless you've got mommy or daddy money to pay the mortgage, and five million bucks a year in tax, you'd be paying like two and a half million in taxes. So, you know, making sure you pay one percent of property value in tax is not unduly burdensome, and I think would be a super efficient way to get towards that idea of land value taxation without doing something nobody wants to do. We're heading into municipal elections and potentially a provincial election in British Columbia. I'm just wondering, of the solutions we've discussed, which should leaders act on

immediately? Well, I think governments are and should continue to push on deregulating zoning. So I'm very pleased with Bill's 44 through 47 in principle. What those have done is told municipalities they have to allow more dense housing. But I always say that's like telling your kids they have to make their bed. You know, your kids don't have to make their bed even if they say so. municipalities don't seem to act to enact zoning reform even when the province says they ask to. So actually, you know, making sure stuff gets followed, that's hard. But for the communities, I'd like to see them avoid nimbism. And that's challenging because an individual community has every incentive to say no to denser housing, right? Why should we be the suckers who ruin our amenity so that everybody else can have more affordable housing? You know, the District of West Vancouver can't have much effect on housing affordability because they're one of 20, how however many jurisdictions in greater Vancouver. So rationally, they're going to do the selfish thing and say, no, no, we want to keep our high level of amenity, except to the fact that, of course, you know, if you live in Amble Side

or Dundrave or something, if you up zone your house to apartment, you could get super rich. Yeah. So that would be, you know, something I'd really like to see people doing in this election. And, you know, at the provincial level, like I said, the province too can, you know, raise the provincial portion of school taxes and cut income and sales taxes. and I think they should go for the alternative minimum tax that I proposed. Do you think one of the pieces that's missing is just maybe a message to citizens about the why and the need

and making that more clear to everybody involved? Like basically making the pitch, like, we have the most challenged young people that Canada has really ever seen. They are falling behind. They are not accessing the housing market. the way your generation or previous generations have. They are falling behind. This is the first generation that's behind the eight ball in a really meaningful way.

And we can do steps A, B, and C, you're going to hurt on your taxes. You're going to hurt on how we develop. You're going to hurt in the short term in these 10 ways. But we're doing this to make sure that we don't fail a generation of people. And if you walk alongside us, we will do everything we can to address the health care and these other programs. Schooling, education will make those the best in the world. But you're going to have to sacrifice on these other fronts in order for us to get there. Is there like a need for politicians to kind of zoom out a little bit and understand the issue in a deeper way?

Well, let me pivot from that a little bit. You know, there was a guy 2,000 years ago named Jesus Christ who told people that they should, you know, think about charity and doing good things for other people instead of being greedy. And I think even before that, you know, you had golden rules. But, you know, our world is about to incinerate with global warming. and nobody wants to hear that they should pay more gas tax or that they should, you know, do active commuting or sacrifice vacations or anything for global warming. People do not want to hear you should sacrifice so that something bigger can happen. Maybe they don't trust it. Maybe people are inherently greedy.

I don't know. But, you know, my experience, which is limited in political science, tells me that people are selfish jerks when they go to the voting booth. So I don't think saying, hey, we all need to sacrifice so you should pay more property tax is going to go anywhere. So you have to try and find things that are win-win. Let me give you an example in terms of upzoning. So, you know, missing middle. Why don't we have more missing middle like townhome, not big tower, not single-family townhome? Well, I think there's a reason for that.

Suppose you own a single-family home in a neighborhood that's a very desirable one. You know, maybe you're Amble side or Dundrave or Kitsilano, what have you. and you know you've got a nice single family area and suppose zoning goes to duplex or multiplex right so you can build four units it's not super profitable so your land value doesn't really inflate from the option to redevelop but you do get a lot of construction in your neighborhood and now you have to fight out for a parking space total loser why would you want that now if that same neighborhood says go for it build 50 stories like senok like the market would actually build it but were unrestrained

Now your $3 million house might be worth $5 or $6 or $7 million. And unless you're like unbelievably rich, getting an extra $3 or $4 million in property value is great. Yeah, you have to move, but you're rich. You know, like nobody, if anybody likes their neighborhood $4 million, like they'd be sad if they had to sell their $3 million house for $7 million and go to a different neighborhood, anyone who would be sad about that,

society does not need to worry about at all, and it's not most voters. So, you know, just be strategic in how you do stuff and try and package things in win-win ways. I think, you know, government does leave a lot of money on the table in terms of tax and zoning, and that's where the alternative minimum tax idea comes from. Figure out stuff where there's very few losers and a lot of winners. When policy is inefficient, you can make so-called Pareto gains where you make somebody better off without making anybody or anybody's important in terms of voting better off. Fascinating.

Any questions that people listening should be asking the people running for city council or mayor or MLAs, any things they should be putting to them as we enter these elections? Well, let me address one thing that I think you hear in the popular discourse, which is, you know, economists like me say, hey, there's supply and demand. We need to build more homes to create greater affordability. People like my colleague Patrick Condon, who's not an economist, will say, what are you an idiot? You know, it's like son of Sam talking to his dog or something like that. You have this made-up supply curve and demand curve.

What I see is we've built more in prices of prison. So that tells me, in David Leva, another colleague of mine recently wrote this in the Vancouver Sun. That tells me that if you build more, prices rise. Because when we have more building, prices rise. And we said, wait a second, that's not what's going. on. What's going on is demand has risen, which is push and pushed people towards building more homes. And had we built even more, prices wouldn't have risen by as much. So, you know, should we trust economists or should we trust our lying eyes? And, you know, that's a hard one for the

public. And I think we should have more discussion of that. And I'd love to see that issue hammered out. But you know what? I've actually been pretty impressed. Nimbism is, you know, there's the old Bell Brooks movie, you know, history of the world. they say, you know, should we continue to build more castles for the rich or should we build decent housing for the poor? What does the Roman Senate say? And they all raise their fists. F, the poor. And so, you know, Nimbism is very old. I've been very impressed by the acceptance of the need for more housing that's come up politically. And I think the reason is, again, the millennials are such a huge part of the population and they vote. I think there is political

awareness that more needs to get built. I recently hosted a debate for mayor. of Vancouver and three of the four participants were all on board mostly with more density. You know, they did talk up community involvement and process, but I think there's a general recognition that more homes are needed for more affordability. I think there's been a lot of acceptance of that in the last 10 or 20 years, 10, 10 years. Any questions that people should ask those people running from that debate that you experience? What should they be putting to these council because I'm watching a lot of the discussions on mayors and councils and they're like make our city better and future tomorrow. And it's like, what is this? Like give me a policy.

What are you going to do differently than the last guy? Like, what are we talking about here? I push people on the in-kind versus cash transfers that I talked about. Is there a way that we can convert from asking developers for, you know, affordable units that the developer decides who to rent to? Can we move from that to just give us money? And you know, I think the developer. would prefer it and the beneficiaries would be better off. So I'd like to see more discussion of that issue. I think that would be the number one thing where I think some some public discourse would be very helpful. And, you know, maybe I'm missing something. Maybe there's a reason to have housing lotteries instead of cash redistribution. I don't know what that reason is. But I think I'd love to see

a more full public discussion of that. Yes. I imagine the critiques of that argument are likely going to be around how government uses that money. And whoever you spoke to, who says, said, oh, great, I can do whatever I want with that money is like the exact problem that we have, I would say, provincially and federally right now, is a willingness to spend. Yep, tying politicians' hands, I can see, but wasting money is not great. Tom, how can people follow your work? You can find me at blogs.ubc.c.ca.ca. slash Davidoff. I'm mostly off social media, but, you know, you Google me. You'll find my stuff. Well, thank you for being willing to do this. I'll say from the outside,

So we were looking at doing a debate between you and another individual. I don't want to name that person out of respect for their decision not to participate. But I really respect your responsiveness to the idea of participating your willingness to have that conversation. And I found you to be very practical in this conversation. I think I have a little bit more optimism maybe about people's willingness to rise together under good leadership. If they know what they get and what they lose in a more clear way than I feel like we get right now, which is like you get a little bit of this, a little bit of that, but we can't do this. And it's just like not clear if I could have option A or option B, which one I would choose.

And I think if we made that more clear to voters, I think they'd be willing to entertain the idea, as they've done throughout the civil rights movement and all of these things where we told them the value add and what the changes were going to look like. So I'm just grateful you were willing to push back on that because it's important to have your ideas challenged. And you see things in trends and in decision making of mass people. And so I think there's a lot of insights that that provides. Aaron, it was such a pleasure chatting with you. Thank you very much for your time.

The pleasure is online.