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Don’t be influenced by offer skeptics
Published on October 16, 2023 • Last updated 1 day ago • 4 minutes reading time
Homes under construction in Toronto. Some argue that larger households in Canada mean we may not need much more housing. Photo by James MacDonald/Bloomberg
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Deteriorating housing affordability is causing many young adults to delay starting their households and many of them staying with their parents or in other shared housing for longer, meaning that households are larger than they would be if there was sufficient affordable housing would be available.
Surprisingly, however, with the larger household size in Canada, some argue that we may not need much more housing. But if enough housing isn’t built, more young adults will be forced to live together, while prices and rents will rise even faster. Larger household size should be the reason for building more housing, not fewer.
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A short report from the Bank of Nova Scotia is the most cited reference when it comes to Canada (with an average of 424 homes per 1,000 people) lagging behind other G7 countries. A breakdown of population-adjusted housing stock for census metropolitan areas (CMAs) found that Toronto’s CMA had the lowest population-adjusted housing stock at 360 dwellings per 1,000 residents, meaning it has an insufficient housing supply.
But not everyone agrees with this. Steve Pomeroy of Focus Consulting Inc., for example, argues that larger households mean Canada needs less housing than other G7 European countries.
Due to larger family size (2.47 people per household compared to the G7 average of 2.31), “Canada needs to produce 405 houses per 1,000 new residents, less than the G7 average of 431.” He said Canada has since 2001 With the exception of a few years, it has exceeded the number of dwellings required to accommodate its population.
Pomeroy isn’t alone in expressing skepticism that supply is the solution to the housing shortage, suggesting that Canada may not have a housing deficit, or one as large as Canada Mortgage and Housing Corp.’s estimate .that 5.8 million new homes need to be built by 2030 to restore affordability.
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Paul Kershaw, a professor at the University of British Columbia and founder of the advocacy group Generation Squeeze, said in a recent editorial: “The focus on ‘Build!'” Build! “Build ignores that lack of supply is not the only or even primary factor affecting rental and property prices.”
He noted that Scotiabank data “also shows that Alberta has a lower housing stock per capita than most other provinces, but housing prices in Alberta are about half as expensive as Ontario and B.C.”
Housing affordability is a complex issue with no easy answers. But those who believe property prices will not be affected by increased supply are also arguing for an increase in the supply of purpose-built rental housing (PBR). If supply cannot impact prices, why will it impact rents?
Housing affordability manifests itself at the local or city level. Alberta may not have an overall housing affordability problem, but Calgary and Edmonton do. The population-adjusted housing stock in this province’s two most populous cities is lower than in Montreal, Ottawa-Gatineau, Vancouver and Winnipeg.
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However, the relatively lower real estate prices in Calgary and Edmonton are a direct result of the aggressive expansion of housing supply. These cities have built housing at a much faster rate than other major cities over the past 35 years. Most houses in Calgary didn’t exist in 1990. Nearly half of Edmonton’s homes have been built since 1991, compared to fewer than one in four homes in Montreal.
Although much less populous, Calgary and Edmonton have built far more homes than Montreal since 1991. Additionally, an apartment in Calgary has, on average, 35 percent more space than in Vancouver.
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Conflating household size and affordability is nothing but trouble unless one recognizes that large household sizes can also be a consequence of worsening housing affordability. You need to look at housing conditions in developing countries, where acute housing affordability problems lead to larger households and overcrowding, to understand the fallacy of using larger households to undermine the drive for more supply.
Keir Matthews-Hunter, a housing planner for the city of Toronto, has studied the relationship between household formation rates and the supply of rental housing in Canada and said rising housing costs have undermined young adults’ aspirations to run independent households.
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In an article published in Housing Studies, he said there is a causal relationship between household formation (also known as headship rate) and the supply of PBR housing. “A one percent increase in the relative supply of purpose-built rental housing leads to an increase in rates of family and non-family household formation among young adults of 0.24 percent and 0.14 percent, respectively.”
Put simply, without an adequate supply of rental housing, young adults will be delayed in starting their own households, so adult children will continue to live in their parents’ basements, resulting in larger households, evidence of a housing shortage, and not otherwise.
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Housing Minister Sean Fraser recently acknowledged that despite the federal government’s renewed interest in housing, there is no magic bullet. Short-term solutions to improve housing affordability may be difficult to find, but what is critical is that public sector policymakers do not allow themselves to be influenced by supply-side skeptics who fail to see the urgency of building more housing.
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Building a home is more difficult when interest rates are high than it was when interest rates were at record lows. A “war effort” was needed to build more houses. Tinkering around the edges will only worsen housing affordability.
Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be accessed on the Haider-Moranis Bulletin website at www.hmbulletin.com.
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