Canada’s housing dilemma

Lisa Raitt:  In April this past year, I had the pleasure of interviewing Dr. Mike Moffitt, who is an expert in Canada with respect to housing policy. He was very, I thought he laid out some interesting facts, and of course some policy ideas. Given that there’s been so much conversation and discussion about the housing crisis in Canada today, and the fact that the federal government is going to be hearing from experts in the next couple of weeks, thought it’d be welcome to reissue this podcast and remind people of some of the things that Dr. Moffitt told us back in April

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host, Lisa Raitt. And in this podcast, I’m going to share insights on current hot topics in the areas of public policy, politics and business with some guests along the way. And welcome back to The Raitt Stuff. Today, we’re going to talk about something that is discussed not only in the boardrooms in Canada, but at the kitchen tables in Canada. And that has to do with housing. If you have folks in your household who are under, I would say, 30 years old who are looking to buy a house, they may be really worried about whether or not they’re going to be able to attain that goal one day. We’ve seen lots of discussion about it, and I wanted to get to the bottom of really what is going on and what can we do to help alleviate the situation. And my mind went very quickly to Dr. Mike Moffatt. So Mike is the senior director of policy and innovation at the Smart Prosperity Institute. He’s also an assistant professor in Business Economics and Public Policy at the Ivey Business School at Western. But his research specifically focuses on the intersection of regional economic development, building child friendly, climate friendly housing and communities and clean innovation. But more importantly, he’s a prolific tweeter and will put out policy issues and take on all comers on Twitter in discussing housing strategy. And I thought it’d be a lot of fun to have a discussion with him here today. So, Mike, welcome and thanks very much for joining us on The Raitt Stuff.

Mike Moffat: Oh, thank you for having me.

Lisa Raitt: So let’s just start with the big question. How bad is it?

Mike Moffat: It’s bad. So it’s different sort of flavours of bad depending on where you are in the country. So the prairie provinces are still relatively affordable. There are parts of Atlantic Canada that’s still relatively affordable. Quebec is relatively affordable as well. But British Columbia, not just Vancouver, and Southern Ontario. And these days, increasingly Nova Scotia, we’ve seen prices go through the roof on both the ownership side and the rental side. So Vancouver, for instance, you’re looking at about $2,700 a month to rent a one bedroom apartment. Toronto is about 26. You know, you get up to Ottawa, you get 18 and 19. And, you know, there had always been sort of a view in this country. It’s like, okay, well, you know, not everybody can afford to live in Toronto, so why not, you know, move to some other community. But, you know, my hometown of London, Ontario, you’re looking at $1,700 bucks a month. So the number of affordable places are going down by the day. And on the ownership side, we have seen some markets, correct. You know, we have seen some housing markets go down about 20 to 25%. But that hasn’t really created any more affordability because interest rates are so much higher than they are now. So yeah, you get some savings on the down payment side, but your monthly payments have actually risen in most markets. Again, because of that offset. So overall, this is a dire situation. You know, people in their 20s, and in many cases 30s, are increasingly feeling like they will never be able to own a home. And you can absolutely see why they believe that.

Lisa Raitt: Yeah. Mike, just out of curiosity, I don’t know if you have this number. I don’t have it. If your rent is $2,700 bucks a month, what’s the salary that you need to be making in order to be able to pay for that?

Mike Moffat: Are you making me do some mental math here? Well, essentially, you probably shouldn’t be paying more than a third of your salary in rent. So 2,700, triple that. That’s what, about 8100 a month times 12. So you’re you know, you probably should be earning six figures.

Lisa Raitt: Imagine. Imagine.

Mike Moffat: Yeah. To rent a one bedroom apartment. This is not some suburban home somewhere with a white picket fence and a yard. How if you’re living in Vancouver, you know, you could have a good job. You’re earning 80, 90 grand a year. How do you not only pay that, but then save up for a down payment to get your own place someday? It’s incredibly difficult.

Lisa Raitt: Yeah, without a doubt. So what we continuously hear is that this is a problem of supply. Can you break that down for me? Let’s talk about the rental first and then we can talk about the ownership. What’s gone so wrong that we don’t have supply anymore?

Mike Moffat: Yeah, well, we’ve been building supply mostly at the same rate. There has been some changes of the type of supply that we’re building. So we’re building more studio apartments, condos, that kind of thing. Some fewer single detached homes. But overall, the rate of supply, new supply hasn’t changed all that much in 20 to 30 years. What has changed is population growth that we’ve seen over the last decade or so increases in immigration targets, but we’ve also seen big increases in the number of what we call non-permanent residents. So these are groups like international students, temporary foreign workers and so on. And although they’re often not buying homes, they need somewhere to live, so they are renting places. So it’s that mismatch between, you know, more of the same on the supply side that we’re just not building more homes at a faster rate and increases on the population side that’s causing this this mismatch. And again, we’ve always kind of had that mismatch in, let’s say Lower Mainland BC and the GTA, but now it’s expanding out to larger parts of parts of the country.

Lisa Raitt: Yeah. When in doubt, ask the government to fix things. Not. That’s not we should do. But nonetheless that’s what a lot of people think. The federal government has a federal housing strategy. Four points to it. What do you think? Do you think it’s going to get the desired outcome, which is to have more housing built?

Mike Moffat: I do, but not at scale, right? That’s you know, it almost feels like we’re trying to drain the ocean with a coffee mug. So it’s like, is it working? Well, I suppose at some level, but just not at the scale we need. So I would sort of put what the federal government is doing into four broad buckets. So the first is building more social housing, affordable non market rate housing. We know that there’s parts of the market that the private sector will just never be able to build for a profit and still make affordable. So they’re doing things there and I think that’s useful. And you know, we can talk about implementation and things like that, but at least theoretically it makes sense. The second is helping municipalities with things like approvals. So there’s this housing accelerator that the Federal Government says will help build 100,000 homes over the next decade or so. Again, I think that’s a useful policy. Municipalities could really use help on things like the approval process. So you see some municipalities still doing things by facts like they don’t have like a digital platform. So I think there are things that could speed up approvals. So those two things are good. I think where where we have problems on the other side is the third leg is chasing away investment dollars, particularly foreign investment dollars. The Federal Government’s idea is that those investment dollars are going to buying up existing properties and we need to stop that. And in my view, that’s completely misguided, we spent so much time in this country trying to attract investment dollars, and then we find one sector where we do and we say, no, no, get out. I think we need to look at how we can better redirect those dollars. And then the fourth thing we do is help homeowners with the first time homebuyers credits and things like that, and these have gone back for a while, but that’s essentially just more money chasing the same number of homes, right? So it’s like playing a game of Monopoly, and at the start of the game, everybody gets ten times the amount of money that they say in the rules doesn’t change the outcome of the game. It just creates a whole lot of inflation. So that’s how I would view what the government’s doing, that it’s doing two things that that make sense and two things that are at best neutral, and at worst counterproductive.

Lisa Raitt: Okay. So if it’s 50%, what do you what’s your observation on something that we can do?

Mike Moffat: I think the big thing is reversing course on the investment side. Instead of trying to chase investment dollars away, redirect them. And how we can do that is by changing the tax code to make it more attractive to build new properties. If we can create a condition where the risk adjusted rate of return is higher on new build than existing builds, you’re going to get a bunch of shovels in the ground and there’s ways to do that. That back in the 1960s and 1970s. I’m going to get really wonky and your tax accountants are going to love this conversation, we might lose everyone, might lose everyone else. But yeah, but but back in the 60s and 70s, there were a lot of provisions on things like accelerated capital cost allowance, right? So basically allow the tax deductibility on new builds that used to be about 10% on a lot of apartments and those big sort of concrete towers that we have in every city, you know, just these massive apartment buildings that were built in the 1960s. Many of them aren’t the most attractive places, but they house a lot of people and they were built in part with those incentives. Over time, we’ve changed that. We’ve made the provisions less attractive. You know, it’s now about 4% deductibility per year, and there’s other other expenses where you have to treat them as capital rather than operating expenses. But I think we should look at changing that. This federal budget, for instance, had a lot of tax provisions to help the building of EV battery plants and solar farms. We could use the exact same logic to build more affordable purpose built rental in this country.

Lisa Raitt: And explain for me why this is important from an economic development point of view.

Mike Moffat: I think the big challenge that we have is getting labour to where the jobs are, right? That there are certain, there are certain things that just need to be in certain places, right? So there’s a lot of high tech manufacturing and other warehousing jobs, and things like that need to be near a major airport. So you look at Pearson Airport, there’s a lot of warehousing, manufacturing jobs and so on. Problem is, you can’t live anywhere near Pearson Airport on a manufacturing or warehousing salary. There’s a big mismatch, there’s a big problem there. So, it basically acts as a, the housing system acts as a deterrent on labour mobility that people aren’t going to the jobs to which they’ll be more productive and best utilize their skills. They’re going to the jobs in the communities where they can actually afford to buy a home. So a lack of housing affordability creates a lack of labour mobility where these jobs are only going to be able to be filled by people who can somehow afford to live there in the first place. You know, maybe they’re living in their parents basement or what have you. So I think that’s that’s a problem and it’s a drag on the overall economy.

Lisa Raitt: You know, you’re on my show two years ago, it was during COVID and you told the story about somebody who was living in their car during the week because they couldn’t afford.

Mike Moffat: Yeah! And you hear stories about that. So basically it was a guy I had met in Windsor, Ontario, had a job in Toronto, and what what he would do was basically just be with his family in Windsor on the weekend and drive the four hours to the GTA and you know work and essentially, you know, live in his car, shower in the gym, that kind of thing, and then drive back on on Friday. And that’s, you know, that’s just not a great way to live. So these issues are not just sort of economic of, you know, what does it do to GDP and things like that, but what does it do to well-being? What does it do to the environment to have people do four hour commutes? So all of these questions and, you know, that’s one of the things that I would like to see from government is, you know, all levels of government start to think about issues of, you know, how are we going to hit net zero by 2050 and our immediate targets, and one of the ways that we can best reduce GHG emissions in this country is allowing people to live closer to where they work and shop.

Lisa Raitt: Yeah, that makes a lot of sense. So last question, because I know that we’re running short on time here. We went through COVID for the past three years, it’s almost three years now, did we lose ground? Did we gain ground in terms of affordable housing? Is it worse than it was three years ago?

Mike Moffat: Absolutely worse. Rents are up up to 15% or more in a bunch of cities. So, you know, I keep mentioning my home town of London. Rents on new leases are up 24% year over year. Because what happened is we had a bit of a reprieve from population growth during COVID that a lot of the international students either didn’t enrol or could could stay at home. So we’ve seen our population grow in 2022 at record levels. We added, I think it was over a million people to our population. And, you know, traditionally Canada’s adding about 250 or 300,000. So it’s sort of triple growth and housing starts and completions were up a little bit. But when your population growth is up about three X and your housing starts are up about 15%, you’re not keeping pace. So we need to, you know, we’ve both the federal government and the provincial government in Ontario have set housing targets for completions over the next decade. We’re essentially building at about 55% of the rate that we need to to hit those targets. So we have a long way to go.

Lisa Raitt: Where can people find the work that you publish?

Mike Moffat: So the best again, Twitter. I spend way too much time on there. So at Twitter, I’m @MikePMoffatt, M-o-f-f-a-t-t So two F’s and two T’s. The other way is Smart Prosperity Institute. So I would just suggest googling, Googling that, it’s institute.smartprosperity.ca, But it’s probably easier to go through Google.

Lisa Raitt: Yeah, well, as I said, I advocate that if you have Twitter, you’re a good person to follow because I’m always learning smart things about it. I really appreciate your time today, Mike, and I also want to say that I know you do a lot of work as an activist in disability rights. I want to commend you for that and want to let you know that I support you and want you to keep doing what you’re doing.

Mike Moffat: Absolutely, I know, both you and I spend a lot of time caregiving. And so, you know, I feel like we’re kindred spirits on this. So likewise, you know, keep up the great work.

Lisa Raitt: Thanks, appreciate it. Great! Thanks everybody for tuning in. Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at [email protected]. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been The Raitt Stuff.

Disclaimer: The materials disclosed on this podcast are for informational purposes only and subject to our Code of Conduct as well as IIROC rules. The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets and, to the extent that such information and data is based on sources outside CIBC Capital Markets, we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. This communication is tailored for a particular audience and accordingly, this message is intended for such specific audience only. Any dissemination, re-distribution or other use of this message or the market commentary contained herein by any recipient is unauthorized. This communication should not be construed as a research report. The services, securities and investments discussed in this report may not be available to, nor suitable for, all investors. Nothing in this communication constitutes a recommendation, offer or solicitation to buy or sell any specific investments discussed herein. Speakers on this podcast do not have any actual, implied or apparent authority to act on behalf of any issuer mentioned in this podcast. The commentary and opinions expressed herein are solely those of the individual speaker(s), except where the author expressly states them to be the opinions of CIBC World Markets Inc. The speaker(s) may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to those instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC Capital Markets is a trademark brand name under which Canadian Imperial Bank of Commerce (“CIBC”), its subsidiaries and affiliates provide products and services to our customers around the world. For more information about these legal entities, as well as the products and services offered by CIBC Capital Markets, please visit www.cibccm.com.