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Our housing crisis

By: | February 22, 2013

Why the skyrocketing cost of housing in St. John’s is a problem for everyone in the province.

Last week the CBC held their annual pancake breakfast to raise money for the Newfoundland and Labrador Housing & Homelessness Network. They organized pancake breakfasts around the province and ran stories about how rising housing prices are squeezing the poor, many of which were quite interesting (I especially enjoyed the Crosstalk episode “Can you afford to live where you live”).

Not just a poverty issue

Regrettably, the CBC has chosen to frame the housing squeeze mostly as a poverty issue. This framing lends itself to human interest stories about poor unfortunate people who are couch surfing or sleeping at the post office or loitering at the mall to keep warm. Surprise and concern is expressed about the way “those people” live and an appeal is made for charity. Give a few dollars at the pancake breakfast or drop off some canned goods at your local soup kitchen and come away with a sense of pride that you have made a difference. A week later the issue falls off the radar and we get stories describing our property market doing “twice as well” as the rest of Canada, as though the surging cost of housing is terrific news.

I should clarify that I do not mean to discourage media outlets from covering what is a very important issue. I certainly do not want to belittle the efforts of church groups and community organizations who are doing all they can with meager resources to mitigate the most severe effects of the rising cost of living. My point is that the scale of the problem is far too great to be solved through charitable giving (incidentally, CBC is estimating about $35,000 was raised from those pancake breakfasts). This issue will not receive the attention and resources it deserves if we keep thinking about it as “their problem” rather than “our problem”, and I fear that focusing only on those worst affected will keep us in the wrong mindset.

As a purely practical matter, activists must appeal to the self-interest of the wealthy and upper-middle class, because in our imperfect democracy it is only their opinions that have much influence on public policy. Fortunately, the better-off have good reason to prefer lower housing prices. The ballooning cost of housing, particularly in the North-East Avalon, may be the single most important drag on economic growth and job creation that we face today.

The numbers…

We begin with a few numbers. Since 2007, the average sale price of a house in the St. John’s census metropolitan area (CMA) has doubled and rent has increased about 30% (all figures nominal).

 

(St. John’s Housing Prices. Source: CMHC Housing Now reports).

(St. John’s Rental Prices. Source: CANSIM table 027-0040).

 

This price surge is being driven by rising demand due to population growth. The St. John’s CMA is growing by about 3,000 people per year. This population boom is mostly due to the arrival of young adults.

(Population Growth by Age. Source: CANSIM 051-0046). 

 

A telling statistic is that 56% of people in the province aged 25 to 29 live in the St. John’s CMA, compared to only 30% of people over 60.

In my last article I explained that migration between provinces is mostly about young adults looking for good jobs, and the same goes for migration within the province. A serious unemployment problem in rural Newfoundland is driving people to St. John’s (and to a lesser extent other population centres including Clarenville, Gander, Bay Roberts) where the job market is much stronger.

(Unemployment rate by area. Source: CANSIM 282-0119).

(Unemployment rate by area. Source: CANSIM 282-0119).

 

(Median Total Income of Families. Source: CANSIM 202-0404).

(Median Total Income of Families. Source: CANSIM 202-0404).

 

Oil’s not the only factor

Some people argue that this a just a temporary oil boom, and there is some truth in that assertion. But oil does not explain why people are moving to the big cities across Atlantic Canada; Halifax, Moncton, Fredericton and St. John are all growing rapidly while population is declining outside of those CMAs. Migration from rural to urban areas has been ongoing in Canada for more than a century. Today, 80% of Canadians live in urban areas compared to only 61% of Newfoundlanders and Labradorians. The fishery and forestry do not provide the level of employment they used to. Most jobs now are in the service sector, so workers become more productive by moving to large communities where there are people in need of services. For all these reasons, the urban-to-rural migration is likely to persist for some time.

Young adults are getting squeezed between dismal job prospects in rural Newfoundland and sky rocketing housing costs in the CMA, and this drives many to leave the province. Enabling people to move to where they can be most productive is crucial for job growth and for our future prosperity.

Build more houses

So what should we do about the housing squeeze? The obvious answer is build more houses. If supply increases to meet housing demand, then pressure will come off of prices. There are some encouraging signs in the housing data that supply is starting to catch up: housing starts (i.e. the number of newly begun housing projects) have risen from 1,480 units in 2007 to 2,153 units last year,while the rental vacancy rate in St. John’s rose to 2.8% in 2012 after four years of hovering around 1%.

Some people complain that most of the new houses are expensive (they averaged $387,493 last year), but I think this gets the reasoning wrong. If there are willing buyers for these expensive properties, then building them eases demand on the remaining housing stock and helps reduce price inflation. If there are no buyers, then the price of new housing will fall. A bonus that comes with expensive new houses is that their owners pay more property taxes which helps reduce the burden on the rest of us.

We should be more concerned about the density of new development, particularly near the city centre. Land is a scarce and non-renewable resource that we must ensure is used efficiently. High density development proposals are too often met with not-in-my-backyard resistance from people concerned about traffic and parking. When these developments get quashed it drives up prices and taxes for everyone else. People who live within a 30-minute walk of downtown should accept that they live in a city and that traffic is part of city life.

Other possible solutions

I’m skeptical about rent control. There may be some abuses out there, but fundamentally rent is rising because demand is outstripping supply. If rent control discourages investment in new rental properties, then it makes the problem worse. Rent control may also encourage people to stay in properties that are no longer a good fit for them and does nothing to help young adults entering the market.

Smart changes to the municipal tax system would help. Many economists believe that property tax is a barbarous relic and that it is better to tax land value. The reasoning is that taxing buildings discourages investment in buildings, but taxing land does not affect the supply of land. We should also consider eliminating the water tax, which is regressive and discourages basement apartments because it is assessed according to the number of housing units.

I do not want to focus on homelessness, but it is worth noting that housing the homeless actually saves tax payers money by reducing spending on healthcare and law enforcement. For example, a report done for the Halifax Regional Municipality found that “actual costs vary, but the pattern is clear: homelessness is expensive, and substantial broad cost savings of about 40% can be achieved by investing in supportive housing.

There are lots of good ideas out there for dealing with the housing crisis, but those ideas will come to nothing until we start taking the issue seriously. This is a problem that should concern us all. This is our housing crisis.

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