How do you fix housing affordability?
@DirectionNorth has provided a fine start in answering your question.........
I will be me and give a more long-winded one.
Warning, this may read like a long-form essay, but its still the short version.
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Ok, so first we have to define the problem.
What is a housing affordability problem?
Well, it can be many things; in the case of the GTA, it is all of the below:
1) Supply of housing, both ownership and rental is insufficient to meet demand, therefore the cost of ownership and rental is rising quickly and well beyond the means of many. Even though a majority still make it work, so to speak, many
are financially strained to do so and may be short of money for other critical or desired life expenses, from food, to internet to vacations or post-secondary funds for children or retirement money.
2) The cost of housing is driven higher than might otherwise be the case, for reasons other than simple supply and demand; this can include issues such as rezoning, official plan amendments, developments charges, assorted regulatory burdens, land transfer taxes etc. Some of these are very justifiable take on their own; but the cumulative impact is worth considering.
3) Incomes are rising too slowly when comparing Toronto to peer cities with comparable housing costs. This occurs for a variety of reasons, labour supply vs demand, minimum wage regulations, paid vacation norms, etc etc.
4) In every community there are people who cannot afford 'market' housing on their own, for any number of reasons. Short-term unemployment, disabilities, longer-term unemployment, or under employment, extraordinary costs (single parent, no child support as an example). There are two ways to adjust for this, one is to boost the income of said persons, the other is to provide them housing at below market rates. There are lots of different ways to do both, we'll come back to that.
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Now that we've defined the problem, we'll take a deeper dive:
1) How do you match supply of housing to demand? In the short term, you must reduce demand, because increasing housing supply, in the best case scenario has a longer time lag.
Short-term options:
a) Reduce annual immigration quota
b) Reduce number of new foreign students admitted (note, this causes a revenue/profit loss for colleges/unis and must be offset w/new operating funds)
c) Take hard action against investors who own multiple properties, this begins with removing incentives (First time home-buyer credits, but also capital gains exemptions and low rates)
But can include legislative restrictions on owning multiple homes, including condos
d) You can ban 'wholesale condo sales' and specifically severely restrict 'assignment' sales. This will tank the market forcing prices down at least at the margins.
e) Focusing on renter needs, you can legislatively cap rents, and you can employ tax or other rebates to offset those costs for landlords to some degree; and/or provide direct cash support to renters, to a point. One has to watch the latter choice set closely as it can serve for stimulate price upwards offsetting any benefit.
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Longer-term options
a) Increase the supply of as-of-right zoned land for rental and multi-residential housing.
b) Cap development charges and other fixed costs imposed by government, but be sure to offset the revenue impact on public services
c) Increase the number of trained professionals in the trades so its is physically possible to deliver more housing
d) Ensure students, both foreign and domestic don't drive the cost of private-rental housing, by fully funding the requisite amount of on-campus, at-cost housing.
e) Make sure sufficient supplies of government/non-profit/co-op owned housing are built for those who cant afford market housing, such that they are removed from that market, raising vacancy rates and driving down rents
f) Set minimum unit sizes, and elevator requirements such that private, multi-res housing, both ownership and rental is built to serve the real demand, not the investor-driven demand
g) Drive down the cost of private-sector rental housing with publicly funded/guaranteed mortages through CMHC as was done from the 1950s -1970s to great effect.
2) How do we afford building more non-profit or deeply affordable/subsidized housing?
a) Adopt the Vienna model. Each development pays for itself by being attractive and well built in a desirable area and attracting full-market renters, whose surplus rent pays the cost of below market rent for others in the same property.a
b) In relation to the above, do so through a government agency, with government borrowing power, so as to reduce the cost of construction.
c) Don't provide excess subsidies. The choice to peg RGI rents to 30% of income is misguided. There's no magic in that number, its simply where the average cost of housing fell to, at its cheapest. But in point of fact, it is no longer a fair or reasonable number. Even someone on CERB would have had an income of $2,000 per month and that would have limited their max rent to $600, leaving them $1,400 in after-tax income to spend. While hardly comfy or luxurious, this is excessive relative to societal norms. RGI should have a variable rate, based on how many dependents you have, it should vary from 35%-45% of income. This is important. As a starting point, it generates more revenue, lowering the loss/subsidy per unit, which allows more units to be built.
3) How to we raise incomes?
There are a host of answers to this, but the short version looks like this:
a) Reduce labour supply vs demand, this can occur by reducing Temporary Foreign Workers, tightening rules around foreign students working, reducing the threshold for overtime, increasing paid vacation mandates, making retirement more desirable.
b) Force wages up by raising the minimum wage to a number closer to a living wage as many peer jurisdictions already have. Seattle, Washington, for instance, mandates a minimum wage that works out close to $22 per hour CAD.
c) We can reduce fixed costs for business {ie. business education tax, or the wholesale cost of booze) but offset that by raising corporate income tax, making it more desirable and affordable to spend more on wages)
d) We can mandate Sectoral bargaining as was just done in California for Fast Food workers, and is the norm in Scandinavian countries. This empowers labour, unionzied or otherwise to set minimum wages and benefits on an industry-wise basis. For example, grocery store workers, fast food workers, security guards or office cleaners.
e) Restrict contracting out/freelancing in many sectors. When businesses directly employ people they are often more generous as they have to deal w/the issues of poor training/low retention directly.
f) Reduce personal income/payroll taxes for low income earners. This isn't that effective at the lower end of the income spectrum where many people benefit from tax credits already; though it may allow for more retained income per pay cheque vs a single large refund once per year. But it may help people in the lower-middle income category. But remember any revenue giveaway must be offset in some manner.
g) Match University/Community College enrollment capacity to demand for commuter students, reducing demand for housing
h) Increase income supports for those with temporary incomes shortfalls. ie. EI used to be 70% income replacement, today its 55%, this is among the lowest among OECD nations.
i) Increase income support for those with permanent employment impairment (disability) Income support of $1,169 per month through ODSP doesn't even pay or come close to paying, market rent, never mind food and other basic costs of life.
j) Reduce penalties for working for those on social assistance. Currently if you get the meager $733 in monthly income support, as soon as you earn over $300 per month from a job, you lose 50c on the dollar from your benefits for each dollar you earn. Between that and income/payroll taxes and rent--geared to income housing, there is actually a net dis-incentive to work.
k) Penalize excessive part-time employment. This is not about penalizing a small business that needs someone to work Sundays; its about looking at the total hours worked by part-timers and realizing how much potential full-time employment there is, but for a choice to avoid paying benefits or encouraging unionization. This is fairly easily done, most countries have a minimum weekly or monthly wage, not merely an hourly one. This ensures you're not simply carrying excess staff and shorting them on hours.
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That's a short version; there's a lot more detail on how these ideas can be executed.
But to be sure, not one idea I've put forward is not currently in effect elsewhere in the OECD.
There is nothing revolutionary here. Just options.
