Let's Give Homebuyers the Choice of Buying New Single-Detached Houses and Still Reduce Greenhouse Gas Emissions
By: Frank Clayton
July 17, 2017
The Province of Ontario is orchestrating the demise of the construction of single-detached houses in the Greater Golden Horseshoe (GGH), an area accounting for about two-thirds of Ontario’s population.1 One of the key reasons why the Province dislikes single-detached houses so much and favours apartments is their greater per unit greenhouse gas emissions.
The Province is intent on minimizing the construction of new single-detached houses
Starting with the Growth Plan for the Greater Golden Horseshoe enacted in 2006 (the Growth Plan) the Province has ordered GGH municipalities to ensure that a minimum percentage of all new housing built is constructed in existing built-up areas (initially 40 percent which has now been increased to 60 percent by the year 2031). Apartments form the bulk of the housing built in built-up areas. In addition, municipalities must ensure that a minimum number of residents are accommodated in residential development on greenfield lands2 (initially 50 persons rising to 80 by the year 2041) which will lead to more apartments and fewer houses being built.
The result of these policy directives is a mismatch between the mix of new housing units built and the mix demanded – in particular, a large shortfall of new single-detached houses – all in the cause of pursuing environmental objectives including reducing greenhouse gas emissions (GGE).
‘Command and control’ regulation vs. market-based policies to achieve lower GGE
There are two broad approaches to achieving public objectives in a mixed-economy like Canada’s: regulation (traditionally ‘command and control’) and market-based approaches that change relative prices (taxes or subsidies).3 The Ontario Government is clearly using ‘command and control’ in its dictates to GGH municipalities to sharply curtail single-detached house construction in favour of apartments.
The ‘command and control’ approach has a number of shortcomings including being inefficient, overly burdensome and not providing an incentive for innovation and investment in new technologies. Market-based policies promote both economic efficiency, greater fairness and encourage individuals and industry to search for alternatives including more economically sound ways to achieving the public policy objective.
What if the Province were to shift from a regulation-based to a market-based approach to reduce GGE in the new housing sector? How would it work and what would the results be?
Template for new housing from a Globe and Mail editorial dealing with zero-emission vehicles
A recent editorial by the Globe and Mail arguing for a market-based approach to lowering GGE in the new car sector4 provides a blueprint which can be equally applied to the new housing sector. The editorial argues the merits of imposing a carbon tax to reduce GGE in the new car sector over ‘command and control’ regulations or subsidies.
It was written in response to a federal proposal (and legislation passed in Quebec in 2016 – draft regulations now out for comment) that car producers be required to increase the share of all new cars sold accounted for by zero-emission vehicles (ZEVs) to X percent by year Y.5 Here is the essence of the Globe and Mail’s argument about why a market-based tax policy is the best approach to increase ZEVs as a percentage of new car sales:
- This kind of ‘command and control’ regulation gets the whole problem of GGE reduction “entirely backward and upside down. It’s not the car companies that need to be persuaded to sell ZEVs; it’s consumers that need to be persuaded to buy them.”
- “the reason consumers aren’t buying ZEVs is simple: Price.”6
- Subsidies might work to encourage consumers to buy ZEVs “but it would be an insanely expensive, highly inefficient way of reducing pollution.”
- A tax on carbon is a much better financial incentive: “Properly done, they make carbon pollution more expensive – and leave it up to consumers to figure out how to reduce their pollution, and their costs. The goal is lower emissions, efficiently achieved by millions of individual choices, not more electric cars, achieved expensively and inefficiently on orders of a central planning agency.”
- “Changing consumers’ habits through pricing is the best way to reduce carbon emissions, because it lets the market work out the most cost-effective solution. Ottawa’s goal should be lowering consumer emissions, at the lowest cost possible, and not rejigging an industry through regulation.”
Application of the Globe and Mail’s ZEV approach to new housing
A carbon tax is the better way to go to reduce GGE in the new housing sector in the GGH than the existing ‘command and control’ approach of the Provincial Government coercing the reduced construction of new single-detached houses. The Province’s approach is imposing huge costs on current and future first-time buyers and migrants to the GGH, as well as undesirable tax free wealth transfers and adverse economic impacts, by causing housing prices to be much higher than they otherwise would be. While many buyers of new homes want single-detached houses, the Province is deliberately constraining the supply – the result: higher prices and more GGE as consumers move farther afield in the quest for affordable single-detached houses and commute longer to their jobs.
The Province’s goal should be reduced GGE generated from the new housing sector not the virtual elimination of new single-detached house construction, which is hurting consumers hard. A carbon tax would allow housing consumers to decide on their own how they will react to the higher carbon price, just like for the car sector under a carbon tax.
Given the robust desire by a sizeable portion of the population for single-detached houses, the industry will not only produce more housing units which are close substitutes for single-detached houses under a carbon tax (e.g. townhouses) assuming the serviced sites are made available through the complex and lengthy land use approval system now in place. Builders will also innovate with new technologies to provide new single-detached houses with less GGE at competitive prices. Builders even now are experimenting with zero-emission houses which would receive added consumer support under a carbon tax regime.
A carbon tax on new cars will also cause consumers to rethink their housing choices since cars generating higher GGE will be more expensive.
Bottom line
The bottom line of an appropriately designed carbon tax on the new housing sector would be the achievement of GGE reductions at a lesser cost to first-time buyers and in-migrant buyers, and smaller wealth transfers and adverse economic impacts. The achievement of lower GGE would be achieved in the housing marketplace with many consumers still purchasing their preferred housing type – the single-detached house – and prices would be more affordable than under the current regulatory regime because of a larger supply.
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(1) The GGH extends from the Region of Niagara and Haldimand County on the south, the Region of Waterloo and Wellington County on the west, the County of Simcoe on the north, and the Counties of Peterborough and Northumberland on the east.
(2) Greenfield lands refer to vacant lands on the urban fringe.
(3) TD Economics, (PDF file) Market-Based Solutions to Protect the Environment (external link) , March 7, 2007.
(4) Globe and Mail editorial, Zero emission cars, powered by 100-proof subsidies (external link) , May 28, 2017.
(5) Zero emission vehicles (ZEVs) include battery electric, plug-in hybrids, and hydrogen fuel-cell vehicles.
(6) Blaming price alone is simplistic. There are also issues of how far ZEVs can travel before refueling and the availability of recharging stations and the length of time to recharge.
Frank Clayton is a Senior Research Fellow at the Centre for Urban Research and Land Development at Toronto Metropolitan University.