Politicians act like they’re 'solving' Canada’s housing problems while continually making them worse
There has emerged in recent months a near consensus in Canada that more government intervention is required to ensure housing affordability.
Suggestions for government fixes for housing markets are coming even from the market-friendly Macdonald-Laurier Institute (which called for government support for down payments) and conservative economist Herbert Grubel (who argues for reducing immigration to relieve housing pressures).
Recently, former Toronto chief planner Jennifer Keesmaat penned a Maclean’s commentary lauding the City of Vancouver’s housing strategy — 83 pages of central-planning initiatives intended to fix the city’s housing problems.
Keesmaat suggested a “myriad” of opportunities for government intervention, including “innovative taxation policies” and government loan financing.
And all this comes on the heels of the Trudeau government’s $40 billion National Housing Strategy, which justifies its spending on the basis that “housing rights are human rights.”
But the need for housing is no reason for massive government intervention. Quite the opposite: whenever politicians take action to make something more available to the public, or to improve its quality, they almost always make things worse instead. We’ve already seen that minimum wages intended to improve employment make jobs less available, business subsidies intended to encourage industry penalize efficient firms to reward the inefficient, and education and health spending grow as outcomes get worse.
The most counterproductive “solution” to housing has been government rent control, which reduces rental supply and provokes a deterioration in the existing rental stock. Polls find that over 90 per cent of economists agree rent control is destructive. As economist Assar Lindbeck, a socialist, once remarked, “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”
Unfortunately, Ontario and British Columbia have been championing rent control laws. Vancouver Mayor Gregor Robertson recently mused to the CBC that he is hoping for provincial support “to entrench more rent control going forward.”
The Vancouver strategy relies on the wisdom of politicians not only to control prices, but also to produce the “right supply” of housing. But governments can’t possibly presume to know the right supply of any market good, let alone the specific location, size and type of house that people will want today, tomorrow, and next year.
The Trudeau government’s National Housing Strategy puts the same misplaced faith in bureaucrats to know the “right” type of housing. For example, according to the federal government’s plan, “housing investments should support Canada’s climate change agenda.” That’s why the policy “includes ambitious targets to reduce greenhouse gas emissions” — which is obviously a demand coming from Liberal politicians and not from those Canadians struggling to pay for housing.
What will be the result of politicians increasingly exercising control over housing investment? Milton Friedman once remarked that the consequences of well-intentioned government programs could accurately be predicted by reversing the expectations of those advocating the programs. Evidence from Vancouver and Toronto already affirm Friedman’s observation.
In September, a report found that 1,000 units planned for rental in Toronto were cancelled or turned into condominiums following the province expanding rent control in the spring. And in Vancouver, government housing policies are also backfiring. As reported recently by The Globe and Mail, developers confronted by “a maze of contradictory demands and agonizingly slow permitting times” are cancelling rental unit projects and reconsidering future building plans.
We already have enough government solutions for housing making things worse for people trying to secure housing. The last thing we need is more of them.
Herbert G. Grubel
is Professor of Economics (Emeritus) at Simon Fraser University and a Senior Fellow at the Fraser Institute in Vancouver, BC, Canada.
He has a PhD in Economics from Yale University and had full-time teaching positions at Stanford University, the University of Chicago and the University of Pennsylvania. He had temporary teaching and research positions at the US Treasury Department, the Australian National University, Oxford University, Free University of Berlin, University of Singapore, University of Cape Town and Johns Hopkins University in Bologna. He moved to Simon Fraser University in 1972 and had to retire in 1999 at age 65.
He served in the Canadian Parliament as a member of the Reform Party 1993-97.