The Decibel - City Space: Supply alone won’t fix our housing crisis. Here are three other factors

Episode Date: September 2, 2022

If we want great cities, people from all walks of life need to be able to live in them. But even with experts predicting that rising interest rates will drive national housing prices down by as much as 23 per cent by the end of this year, most of us would still consider those adjusted prices totally unaffordable. While most of the housing crisis  conversation has centered on supply — just build build build — there’s a lot more going on that’s causing the problem. In our last episode of the season, Adrian talks to three experts about other housing crisis factors that don’t always get the spotlight. Guests for this episode are Andy Yan, an urban planner and director of Simon Fraser University’s City Program; Naama Blonder, a Toronto-based architect and urban planner with Smart Density and  Rachelle Younglai, The Globe’s real estate reporter.

Hi, I'm Mainika Raman-Wilms, and today we've got another episode of City Space from The Globe and Mail. If you're living in a city, you probably had a conversation or two about Canada's hot housing market. Actually, chances are you've either had or heard many of them. That's because frustration over housing affordability is everywhere. And that makes sense. If we want great cities, people from all walks of life need to be able to live in them. But for many Canadians today, finding an affordable place to rent in the city is increasingly a pipe dream. Let me throw some numbers at you. In Toronto, the average rent is around $2,327 a month, up 16.5% from last year. The price of homeownership is surging too.

At the beginning of 2022, the average price of a residential property for the entire province of British Columbia was just over a million dollars, 23.5% higher than it was in January 2021. Sure, some experts anticipate that rising interest rates could drive national prices down by as much as 23% by the end of this year, but most of us would still consider those adjusted prices totally unaffordable. And it's not just a big city problem either. Smaller cities and towns are also feeling the effects of a runaway housing market, with locals being priced out of places they've lived their whole lives. But when we talk about solutions to this real estate mess, one thing keeps getting brought up. And that's a belief that when it comes to tackling the housing crisis nationally and abroad, it's all about supply and demand, pure and simple.

Pundits, governments, heck, even the Canada Mortgage and Housing Corp., the federal housing agency better known as the CMHC, touts this to be the major challenge when it comes to housing affordability. That there are more people in need of a place to live than places to house them. And that the more governments and developers build, the faster we can solve the problem. And of course, that's part of it. But is it really all so simple as that? Just build, build, build? Well, if you've been listening to City Space for two seasons now, you probably know our answer. Absolutely not. Housing affordability is a problem that touches so many cities all around the world. And each one has their own challenges that fuel their distinct version of this crisis. But on this episode, we're going to look at a few factors that can generally be applied to most cities. That's financial investors, zoning laws, and an increase

in building or renting properties for profits instead of for residents. So in this last episode of season two, we're talking with three experts who detail these major factors contributing to our housing crisis and some of our keys to our way out of this. I'm Adrian Lee, and this is City Space. Andy Yan is an urban planner and director of Simon Fraser University's Citi program. He's an expert on, well, a lot of things, but also on how foreign and domestic investors play a serious role in affecting the housing market. Here's our conversation. So much is made about the housing crisis that we're experiencing as this issue that is strictly about supply and demand,

I think a lot of the time. But how much of a role do financial investors or speculators have in fueling that? Well, I think that a lot of this is really understanding how very much when we talk about housing, it's not only supply and demand, but also finance. So I think in that context, in talking about the role of financialization as well as investors, we actually find it's fairly significant in general in both Toronto and Vancouver. When it comes to non-owner occupancy, which is a measure of investment, we actually find that in general, we're talking almost 20% in the terms of Toronto, but 25% in terms of Vancouver, that when we talk about housing units, that's the percentage of non-owner occupied units. Now, when we kind of go in and then drill into very specific types of

housing, we actually find that in the city of Vancouver, when we talk about condos, 47% of those condos are non-owner occupied. That is, one can assume are investor-owned. So you can kind of see how much the idea of investors do come into play in terms of Canada's housing markets. So we should draw a line here between investors more generally and foreign investors from outside Canada specifically. And for the latter, in April, the Canadian government announced this two-year ban on home ownership from non-Canadians and imposed taxes that were even higher than the ones that had already been imposed in a number of provinces.

Do you think that's going to have an effect in cooling the market meaningfully? By itself, not really. But then, of course, the major changes have already occurred. And this is the thing is that it's not only about these foreign buyers taxes, but it's actually how there were changes in Canadian lending practices in terms of how you can qualify for a mortgage, who can qualify for a mortgage, as well as documentation, all through which I think has been part of a set of reforms into the way we lend money out for housing. And really, as a catch-up to what is international best practices, that is something that has really come into play in the last two years. And really, as a catch up to what is international best practices, that that is

something that has really come into play in the last two years. And really, I think we have yet now to really see the cumulative effect. But then, of course, right now, we've seen interest rates increased rather sizably compared to really what's happened in the past two to three years. And I think that that has certainly increased the cost of borrowing for residential units. But then I think at the same time, it's also increased the cost of borrowing for residential units. But then I think at the same time, it's also increased the cost for borrowing for construction. Now, the interesting question is that, well, what does it mean towards the accessibility to those homes, at least particularly through a home ownership lens? Now, of course, what's the other side of it is that it's probably

also made a building as in borrowing for rental similarly more difficult now. And similarly, how that has a knock-on effect towards the role of where and what kinds of rental housing can be developed. So you can kind of see how this is really almost a game of 3D chess, that little things happen here, but yet they have big effects there. And I think that this is, of course, the tremendous complexities of trying to navigate through housing policy, as opposed to really following just one overly simplified solution set for this issue. Are there countries that have successfully done some of that stuff as far as implementing measures to deal with that kind of investment mentality?

One looks at, say, European countries and how they've taken a much more tenure-neutral approach to housing that our system in, well, in Canada and the United States is so hinged on homeownership to attain a level of security of tenure that it is completely biased against renters. What they've done in certain European countries, in Germany in particular, is really ensure that their financial policies are tenure neutral. That is that somebody who rents their housing is not at a disadvantage financially in terms of borrowing or pensions as to someone who owns their homes. And I think that that one approach is one that hasn't necessarily been done in Canada is a much more tenure neutral approach towards our financial

supports. When we talk about pensions, when we talk about lending credit, that that is, I think, something that has yet to be really acknowledged at the federal levels in Canada. But then I think it's also looking at, again, the type of housing that we're building, that when you look at, say, some of the types of non-market housing that's built in Hong Kong or Singapore in high-density cities. And again, it's a fact that Canada is a very big country and that having one solution in downtown Toronto is not necessarily the solution set you want in Winnipeg. And how do you adapt to the local conditions, much less the particular needs of the household you are trying to house? There's a lot of Canadians that own multiple investment properties.

For example, recent data shows that 15.5% of individual homeowners own 31.1% of all residential properties in Ontario as of 2019. And then in BC, 15% of individual owners held 29.1% of the provincial housing stock. What is your temperature read of the situation right now? Well, that's going to be the interesting thing to watch. One kind of begins with how the fault is not within the stars. It is perhaps within ourselves. And very much it is just how foreign investment is not within the stars, it is perhaps within ourselves. And very much it is just how foreign investment is combined with domestic investment. This is going back to the

question of investment in general. How does investment fit into the provision and the fundamental human need and human right to housing? And I think that that statistic really goes down to when we pursue particular policies in, say, housing supply, that we really be deliberative and purposeful in terms of whom we're trying to house, whom are we building for. And the issue isn't just a unit count, but then a multi-level approach towards ensuring that all Canadians have a place to live. That was Andy Yan from Simon Fraser University. Next up, we'll talk about what zoning has to do with all this. And hey, if you had a micro nap when you heard that word just now, maybe this will get you going. Our next guest will explain how zoning rules are largely responsible for obstructing the missing middle of housing that many cities dream about. More on that after this.

Nama Blonder is a Toronto-based architect and urban planner with Smart Density, a firm that works with developers and municipalities to maximize the efficiency and effectiveness of density in cities. Zoning is a big part of that, and while it may not be the sexiest of topics, she says we need to understand its role in the housing crisis and how, without reforms, the concept of just-add supply can't really be given a fair shot. Here's some of what we talked about. So first of all, big questions first.

What exactly is zoning? You know, what are we talking about? How does it work? Beyond zoning, I would like to bring another term to this conversation, and that is land use. The land use map is a specific aspect of the official plan. But it's so important because if you look at the land use map is a specific aspect of the official plan. But it's so important because if you look at the land use map, you see different colors and different colors speak to the different users.

So, for example, pink would be mixed use and purple would be employment and yellow. And if you heard the term, the yellow belt speaks to a very restrictive land use that allows for residential only. At the same time, this yellow is the vast majority of our city. So when we speak about the housing and housing crisis and housing affordability, we cannot ignore the fact that the vast majority of our city is zoned for low-rise buildings. And that's where the problem starts. You said the word restrictive. And I think when people think about zoning and they think about land use laws and restrictions, they think that it's quite constraining. There must be a good reason that they exist, right? I mean, like any other policy or laws, it's for us to have the society we want.

But it's also time, especially in this generation, and we need to revisit this box and we need to revisit these laws and ask ourselves, is it working for us now? And I would say that what used to work for our parents' generation is not working for us. And so when you talk about what worked before and what worked for, say, our parents' generation, that was primarily zoning for single-family detached homes. Certainly, they have a lot of desirability to them. They are private. They are spacious, generally.

They are often well-located. But what we understand now is that they're inefficient, right? I mean, listen, no one goes to Montreal when you have those beautiful streets and those walk-ups and three to four stories buildings that obviously house more than single family in those buildings and say, oh, this is the ugliest street I've ever seen, right? They're like, oh my God, this is a beautiful city, a beautiful neighborhood. And I wish we could duplicate that. And it's definitely a cultural thing because in other places, in European cities, having a backyard in the middle of the city is unheard of.

You're not walking in Paris or Barcelona and you have single family houses with backyard. You just don't. And that proximity to transit and proximity to expensive infrastructure that only few get to enjoy, that is a huge problem for our future. It's a huge problem. So the concept of having single family homes on individual properties, it's not a sustainable direction and we must change it. And the city is working on changing it. And what are cities doing to change that right now? The city of Toronto in the past two years is looking for, it's called EON, or Expanding Housing Options in Neighborhoods. This is the name of the new policy. And they broke it down to different aspects of what this missing middle could be. So starting from garden suites to

duplexes to multiplex to low-rise apartment buildings. But they are saying, okay, we have a problem with our zoning. What can be done to change that box to allow perhaps more than one unit on a single property and allowing for low-rise apartments? So the way the city defined it, it's still up to four stories. This is where they belong, according to the city's vision. But within our neighborhoods, what is now just streets of single family homes, the city is saying, OK, how can we allow for more people to live here?

And this is part of their policy. Now, Toronto is not the first one to do that, both in the US and Vancouver has been, you know, leader in this fair. Portland, Minneapolis, Seattle, they all looked into their very restrictive zoning and said, okay, what can be changed? And this is just, you know, close to our border. So cities across North America looking into their, you know, zoning and say, okay, we are growing, more people want to live in cities, and our cities need to accommodate that growth. And so cities have known a lot of these things for some time. And, you know, we talked about the missing middle just now.

And there have been advocates for the missing middle for the better part of a decade or more in certain places. So why has it been so difficult to get governments to act the way that they are currently starting to do? That's a very good question. And obviously that, you know, yellow belt thing is something of the last 40 years, perhaps. But if you think about it, 10, 15 years, no one even thought there was a problem. No one ever thought that something needs to be changed. And I think we start right there of acknowledging that we have a problem, that something needs, something got to give and saying, what is it? So I think it took us a while to understand there is a problem.

So, you know, when there is such a loud demand for that kind of missing middle piece and governments and developers are sort of making more of the detached or semi-detached single family units that don't quite meet that, you know, what role specifically does zoning law play in that kind of situation? When you say the missing middle, yes, we covered the technical definition of up to four stories, but we also need to understand that missing middle has maybe a soft definition of middle of income, middle of sizes, middle of something between the house that I can no longer afford and smaller condo units. So I think when it comes to zoning, it's exactly that,

that the missing middle could allow for those soft middle things to happen. So right now, we don't have that middle. But the zoning will allow, the zoning that does not exist at the moment, will allow for new types of units, new types of buildings, maybe even new developers, smaller scale developers could build maybe moms and pops, something that so far, if you didn't have a massive access to capital, you couldn't build, you had to be a very established developer. So with the new zoning, you're bringing new players, you're bringing new type of buildings, new type of units. So as you look across, you know, major cities in Canada, how are folks in your mind faring right now when it comes to altering those zoning laws to unlock certain aspects of what has become a housing crisis in cities everywhere?

So we had Vancouver as the leading city, identified the missing middle up to six stories, almost half a decade before Toronto even thought about it. I know Ottawa has started and it's not easy. You need to remember that Toronto and Vancouver being the largest cities in Canada, it probably is easier for them. The pressure is much, much greater, but any other smaller city that trying to make a change, it's much, much harder, especially when people move to those smaller cities to maintain a certain vibe to their lifestyle. Building more infrastructure and growing outwards forever is definitely not the way we want to grow. Even if that single family house with a backyard, it's what we think is desirable and what we want. We need to question that because first of all, at some point we will run out of land and really the direction should be building inwards or upwards. We think that now there's a housing crisis. Can you think about our

children's generation in 25 years from now? Think of what a chaotic city might be for our children's generation if we won't act faster. Granting that there's no one-size-fits-all approach to zoning, certainly every city has their own zoning laws, every city has their own unique contexts and regulations, but are there sort of one or two practical and effective changes that you think a good number of cities can do to their zoning that could help with that crisis? I think making this missing middle as of right. So as of right, meaning that there's no approval process and you can apply directly for a building permit as long as your building complies with the zoning. Because one of the things that really affect affordability is yes, construction costs, but there's not much that we as professionals could do about it. Let's admit it. Labor and whatnot, it's beyond our control. However,

the approval process that currently could take you the same amount of time as building the building, we can make that shorter, easier, smoother. Then it's something that all Canadian cities should look into. What could be in, and by the way, by changing the zoning, you will allow it as of right. So by changing the zoning, you get to change what is approvable, what is buildable and get your building permit and start construction. So if you are now looking to minimize or cut in half, how long it takes you from buying the land to building the building, if you're looking at three years of approvals and three years of construction,

now you're talking about 50% of that. And that has a direct influence on what you're building and its affordability. Thanks to Nama for joining us. Next up, we look at the gap between developers doing their best to turn a profit and city residents with fewer and fewer viable options about where to live. More after this. So we wanted to talk to our in-house house expert, and that's Rachel Young-Lai. She's the real estate and housing reporter for The Globe and Mail. We spoke about how we're between a rock and a hard place. City developers

will, of course, build what's most profitable, often something small and expensive, but city residents increasingly need neither. So Rachel, what's going on here? I mean, it comes down to cost. That's the number one reason. Finding the land to build a single family home or to even build townhomes or townhouses. It's hard to find that land, especially in a major urban center like Toronto or Vancouver. So land is the first reason. And then the second reason is once you do find the land, if it isn't a lot of land, there's nowhere to go but up. So they go up and that results in condo units or apartment units. And in order to build them and make a profit, they have to be small because it's

very expensive to build. Building materials are very expensive. Labor costs are very expensive. And in order to build a condo, you have to pre-sell two-thirds of the condo building in order to get construction financing. And unless you sell them, your condo is not going to get built. And so when you sell them, most people who buy condo units don't want to spend a million dollars on a two bedroom when you can buy a semi-detached house in the GTA. So that's really, it comes down to the cost and what people are willing to pay when those condo projects are being developed. And it's kind of odd because I think when folks think about the density that is usually attached to condo builds, we often think about that's going to be more accessible, more affordable. And yet that's not the trend, right?

It doesn't help that there have been supply shortages during the pandemic. And there are thousands of construction workers on trades, people that are set to retire over the next 10 years. So there's just a shortage of people to do the work. And at the same time, we have all these major infrastructure projects that are taking place right now. And if you look at Toronto, we're redoing the highway. So all these people are just spread too thin, right? There's just not enough workers to do the work.

So what kind of movement or action have you noticed from folks in charge, governments or example, or building developers to address the issue of the units not being necessarily the size that people actually want to buy? So there has been a push to build more purpose-built rental units. And some of those rental units are larger than one bedroom, but that has only happened recently. And we're not going to see those units come online for a few years. So yes, municipalities are doing that. The federal government is trying to put money into projects like that. So yes, there is something being done, but it's not going to happen overnight. That seems to me like this destructive and unhelpful cycle, right? At least for people who want to actually live in the city and need more

than one bedroom for the size of their family. So what is a kind of realistic solve for this, given the differences in terms of what government can do, what private developers want to do? How do we balance all that? Cut the cost of construction and development down. That would be one, but that's hard to do because you can't reduce the price of materials. You can't do that. You can't reduce the price of labor or the cost of labor because we have a labor shortage right now. You could help provide incentives to build larger units and they are trying to do that. But in a place like Toronto, you can't do that because there isn't the space, not in the core. Edmonton is one place where they have been more successful in building lots of different types of units, townhouses, four-plexes,

two-plexes, bigger spaces for people. But Edmonton is not a major job market like Toronto. Many people want to work in Toronto because that's where the jobs are. What we hear so much is that this is a supply issue that just like point blank period, the solution is built. But can we sort of tackle that from a demand side too? And what does that look like? Yes, I think you can. And part of the demand for housing right now is from investors and people who are buying the property for asset appreciation. So for the jump in house prices that they're going to see after four or five years, or even if you look at the past two years, I mean, house prices are up 50%. You could try to curb investor demand, but there has been no appetite to do that in Canada.

Well, one of the big reasons that folks are investing in these properties and one of the sort of ballasts for that kind of investment for Canadians is Airbnb, right? Or companies like that where it encourages short-term rental and that will help mitigate the mortgage you take out and frankly, make you more money. Do you see the government doing anything about that? So they're trying to. So in the city of Toronto and Vancouver, both cities have tried to ensure that people who own condos or people who own houses are not renting out their houses for a weekend and making a lot of money on a weekend rental when they could

be renting that entire condo or that entire house to a family or anyone that needs to live in it longer than a weekend. And they're doing that by saying that you can only rent a room in your primary residence. And so you have to be in your house if you rent a room in your house or in your condo if you rent a room in your condo. And that's for any short-term rentals, that's less than 28 days. So the Canada Mortgage and Housing Corporation released a report that looked at the housing crisis and was trying to figure out exactly how many housing units needed to be built to meaningfully address some of what we're talking about. What are your thoughts broadly on what they found? Well, it was interesting because they said that nearly 6 million new housing

units needed to be built by 2030. Of course, everyone knows that's not realistic. But I mean, it was interesting because they decided to look at the last time that the country was in an economically stable time, which they consider 2004. And they looked at what were people paying for their shelter. And they found that on average, it was like 40% of their after-tax income was going to shelter. So they were trying to bring us back to that level. So if we were to go back to only paying 40% of our after-tax income for shelter, how many housing units would

have to be built? And then they came up with this number, nearly 6 million. So it's not a realistic number to you. You can't achieve it by 2030, but they were at least taking a stab at how much has to be built. And their thinking is by creating more housing, building more housing, that will help bring the average price down. And people who want to invest in housing or want to buy housing, won't have this idea that house prices will continuously go up by 20% every single year. And that will just like cool demand because your house is not going to go up 50%, 20%. Big question for you. So you've reported on housing for a number of years

and you talk to a lot of experts in the field and maybe there's no direct answer. That being said, let's say you were given a magic wand and you are able to basically do what needs to be done to address the housing crisis. What does that look like for you? Be more aggressive on short-term rentals. Deal with the empty homes.

Deal with short-term rentals. And make it harder for retail investors to buy second, third, fourth, fifth, like dozens of properties. It's just, if we were in a situation where people were not struggling to find affordable housing, then okay, invest. But we're in a situation where people are struggling to find an affordable place to live and you're competing all the time with investors. Well, that's it from us here at City Space for Season 2. We hope you liked it. We sure liked making it.

City Space is produced by Julia De Laurentiis Johnston. It's written by Julia, Kieran Rana, and me, Adrian Lee. Our theme song is by Andrew Austin. Evan Miles of Post Office Sound edits our show. Our executive producer is Kiran Rana. Thank you to our guests this episode, Andy Yan, Nama Blonder, and Rachel Younglai, for lending us their time to record this show remotely. If you like what you've heard, please give us a rating or review on Apple Podcasts. And if you have suggestions for what issues you might like us to cover moving ahead, you can email us at podcasts at globeandmail.com. And as ever, tell your favorite

city dweller about city space, too. I'm Adrian Lee. Thanks for listening.