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Episode 24: Constructing a solution to the housing crisis

Wooden house, and paperwork with keys and "Like Nobody's Business" logo

The housing market has transformed dramatically in the last few years, especially due to factors like inflation, immigration levels, the cost of living and capacity constraints. It’s a topic being discussed everywhere and at every level of impact– housing is expensive and there’s only so much regulation that can be implemented to soften the blow of a harsh market. So, what can we do about it? What should we expect to see from the government? And is building more homes really the answer? Today, we’ll explore these questions.

Listen to Murtaza Haider, a professor of Real Estate Management and Associate Dean, Graduate Programs at the Ted Rogers School of Management, provide his expertise on the topic. Murtaza is also the research director of the Urban Analytics Institute and has published research on issues ranging from public transportation, to building cities, to urbanization and infrastructure in Canada.

Transcription

Podcast Transcript - Episode 21
Cassandra Earle The housing market has transformed dramatically in the last few years, especially due to factors like inflation, immigration levels, the cost of living and capacity constraints. It's a topic being discussed everywhere and at every level of impact. Housing is expensive and there's only so much regulation that can be implemented to soften the blow of a harsh market. So what can we do about it? What should we expect to see from government and is building more homes really the answer? Today, we'll explore these questions. I'm your host, Cassandra Earle, and this is Like Nobody's Business. I've invited Murtaza Haider, a professor of real estate management and associate Dean of graduate programs at the Ted Rogers School of Management to provide his expertise on the topic. Murtaza is also the research director of the Urban Analytics Institute and has published research on issues ranging from public transportation to building cities to urbanization and infrastructure in Canada. 
Murtaza Haider Hi, my name is Murtaza Haider. I am a professor of real estate management at the Ted Rogers School of Management, and I'm also the director of the Urban Analytics Institute with a focus on urban challenges, bringing an empirical lens. I have been at the Toronto Metropolitan University since 2006, and before that I was a professor at McGill University in Montreal. I have since 1996 been researching the housing dynamics, but more so from the supply side as to how housing is built, where it's built, when it's built, looking at the behavior of builders and focusing on how to build more housing. And that has been the focus since I would say 1996. I have done research on various aspects of it. A particular interest of mine is how housing and transportation interlink that is the accessibility to a place and how does it impact its ability for the resident's ability to move and whatnot. So housing and transportation have been the two long-term focus of my work here. And before.
CassandraEarle I want to start off with a question that I think is on the minds of lots of Canadians. Isn't the solution to a housing shortage to build more homes? Why or why not? Is it that simple? 
Murtaza Haider So yeah, so housing, I was just speaking recently and made the same point that it's a supply side issue. And when somebody says it's a supply side issue, doesn't mean that the demand doesn't matter. What we have to realize is that the growth in our demographic footprint, the population has over the past 50 years increased some because of natural growth, but mostly because of immigration. And that population growth required us to build more housing. And since 1970s, early seventies, we have not built as much housing as was required. And if we had built as much housing as we were building in the seventies, we would've built millions of more homes, which we didn't. To give you an example, in 1970s, we were building roughly 12,000 new homes per year for every million population in Canada. And that number went down to even 5,000 new homes per million population by the mid 1990s. 
Murtaza Haider And that number has slightly improved, but we are nowhere near the construction cycle that we experienced in the seventies. So the question is, what happens when this gap exists and then widens over the years? It accumulates. So any gap or any lack of housing results in shortage, and that shortage accumulates year after year, then you add up 50 years of shortages. And it turns out, and as CMHC points out, we are shot by 3.5 million homes. And if we were to restore housing affordability in Canada, CMHC Canada's Premier Housing Agency estimates that we need to build about 3.5 million more homes by 2030 in addition to what we would've built regularly. So under business as usual scenario, we would've built 2.5 million more homes by 2030. CMHC says, well now add another 3.5 million more homes on top of it, bringing it close to 5.8 million homes. That's a humongous shortage. 
Murtaza Haider Now, when I say that we have a supply side problem, it doesn't mean that I'm saying we don't have a demand side problem. I mean, the supply side problem only arises when demand exceeds supply. So yes, we have a problem. We haven't been building homes, enough homes to provide safe, affordable, and accessible housing for all segments of the society, especially those who are at the bottom of the income pyramid. And those who are at the bottom of the earning profiles. They are struggling not just in home ownership, but also in rental. Rents have moved beyond the affordability levels for those who are minimum or low wage workers. And to address this, we need to provide far more housing, especially housing geared towards low income earners so that we can create an equitable and just society where people feel that they have the opportunity to contribute and benefit from the opportunities we have here. 
CassandraEarle Another piece of the puzzle that researchers and news outlets have been referring to as it relates to the housing shortage is immigration. What role does the level of immigration in Canada play on the housing shortage? 
Murtaza Haider Let's look at the fundamental reason why we have immigration. And the fundamental reason for that is that we have a growing economy and that growing economy requires workers. And given that our very well-known and documented lack of economic productivity growth, we are not as productive as United States is. So you can say that our economic productivity is slower. So the only way we can grow the pie is by growing the size of the economy through more work or more workers and more consumers. That means that we will need to have more workers to produce more. Now, if we were to have domestic growth in population, then these new workers will be born here, raised here, trained here, educated here, and then they will join the workforce because the workforce needs to expand. But that hasn't happened. The fertility rates in Canada have been falling since the 1970s. 
Murtaza Haider And so if you look at the number of births per woman in her childbearing age, that number has declined significantly over the past five decades. So the reality is that we are not producing enough children here who will grow up to become workers tomorrow. So you need to bring in workers, and then immigration is the only other or maybe one of the viable alternatives. So when you bring in workers here to feed the growing enterprise, the business and the economy, then you are able to feed that. So basically the immigration is there to help us grow economically or to help us grow our economy. Now, having said that, the increase in population increases the demand for housing and for all of the services demand for housing, transportation, roads, public transit, water, sewers, schools and whatnot, everything that a society would need. So as the number of immigrants increased, or to put it another way, as the population increased, we have been building less homes to welcome those. 
Murtaza Haider I mean, there was a recent report that I just saw, and I can't recall if it was CMHC or the parliamentary budget office, but I think it's the parliamentary budget office that released a report in April, late April that showed that the number of people who entered Canada or the number, the growth in population in 2023 far exceeded the number of homes built. Far many more people were here in a given year than the number of homes being built in that particular year, or that was 2023. So you could see how the disconnect between the demand and supply was only magnified just last year. And the reason last year that is 2023 is a big year for us is because that was the first time that our population grew by a million in one calendar year, and it had not happened before. Or the precedence of it is rare. 
Murtaza Haider And with such large growth in population, almost all of it driven by immigration and non-permanent workers and students. And when they arrive here, they have to live somewhere. And mostly newcomers are active in the rental market. A student doesn't come from a different place and say, okay, I'm going to buy a house in Toronto or Vancouver. They're looking for affordable rental housing. So the demand for rental housing increased significantly the past few years, the past couple of years, and that you could see had a direct impact on housing affordability or rental housing affordability, where you see that the vacancy rates dropped to under 2%, in some cases under 1% in Toronto and Vancouver. And you could see that the rent prices have been increasing at a much sharper rate. Why? Because demand exceeds supply. And we have not been building those rental housing, especially purpose built rental housing that has been almost a scandal in Canada that we built almost most of our purpose built rental housing by early seventies. And then since then, only a trickle, only the last five, 10 years, especially since the Great Recession in 2008 and nine. And I think partly because of the incentives provided by the federal government that you see the resurgence, sort of a resurgence in purpose-built rental, but without hundreds of thousands of new purpose built rental dwellings, we cannot address the shortage in rental supply, and that's a big concern for all. 
CassandraEarle And what about foreign home buyers? How much influence do they have on the market, and is there anything policymakers can do to curb the issues? 
Murtaza Haider Yes. So I think there are two or three dimensions to this question. First, let's address the foreign home buyer's role in existing homes. So you have homes that are already built and they go up for sale and someone who's not in Canada and buy that house. And many believe that tens of thousands of new homes or such homes were being bought by investors from outside that prompted first the provinces to impose foreign home buyers taxes. So Vancouver, British Columbia passed such regulation, and Ontario did the same, trying to curb the demand, the assumed demand by foreign home buyers. It turned out that those numbers were very small, negligible from the overall size of the market. Before Covid, we had about 530,000 homes being sold through the multiple listing service MLS. And that's the average. The before average 500,000. And out of those 500,000, maybe five, 10,000 homes, maybe slightly more, were bought by foreign home buyers, not enough to create a housing affordability crisis. 
Murtaza Haider That number is too small to have a meaningful impact. However, the provinces interfered and they said that we would impose new taxes on foreign home buyers. Nobody would object to it. Why should we are looking after the welfare of Canadians if some new taxes are being imposed on foreign home buyers, let that be the case. But at the same time, be mindful that we have also got this big cohort of snow boats like the individuals from Canada, mostly seniors that retirees who've got properties in Florida. Sometimes you impose taxes on foreign home buyers, they do the same to you. So there could be some reciprocity resulting in Canadians paying more in taxes in Florida and elsewhere, because we put taxes on people from Florida or the states buying homes here. But let's leave that topic aside. Then the federal government came in and they said, you know what? 
Murtaza Haider We're going to put a ban on foreign home buyers. So they came up with a ban for two years, which they renewed it for another two years. So it's currently foreign home buyers cannot legally buy homes in Canada. Again, no harm, no foul. I mean, Canadians should not be concerned because the Canadian housing should first be available to Canadian buyers, and it makes sense. The fact remains that such new taxes on foreign home buyers or completely shutting them out have not made our housing more affordable, primarily because supply is the issue, right? You're not building enough homes. But one could argue that in the absence of such constraints, foreign home buyers would have contributed however small they would have to the increase in prices. And I can entertain that argument as well. Now comes the question of foreign home buyers investing in new homes. That is not multiple listing service, but homes that have not been built, and they are in the planning stage. 
Murtaza Haider Now, if you push foreign home buyers or foreign investors out of the housing market completely, especially the under construction dwellings or the dwellings that are being planned, then you are shutting down investment. And that would be a very slippery slope, primarily because we don't have those trillions of dollars in Canada to invest in the construction of new housing and foreign investment into the construction of new housing would be critical for us to be able to build, no matter 3.5 million homes or 5.8 million homes without that foreign investment. Just do the math. Let's say we need to build 5 million more homes by 2030 or 2034. So 5 million homes. Let's put in a very conservative construction of $400,000 minus the land cost and minus the soft costs 400,000 small units. And I know that nothing could be built in city like Toronto for 400,000, but there are places like New Brunswick and Nova Scotia and Prince Rhode Island, you could still be able to build something that 500,000 homes, 5 million homes at $400,000, that's an investment of about $2 trillion. Well, who has that money? I don't have it. I don't think Canadian government has it. So you realize that the new construction would rely on foreign investment and without foreign investment it couldn't be done. So yeah, foreign home buyers tax, are they good or bad? Well, they don't hurt Canadian buyers, so sure, I think they're good, but will they solve the big problem? The answer is no. 
CassandraEarle What about developers? Is any of this lack of housing the result of their bandwidth? Does their capacity or lack thereof make an indent on housing affordability? 
Murtaza Haider Yes, I think that's where I'm of the view that we also need foreign builders. The reason I say this is because there's a finite number of workers in Canada who are trained to be retained in the construction business, and these are mostly licensed workers, plumbers, electricians, people who do the drywalls and whatnot. These are people who have to not be forced, be trained, educated, and then they have to do apprenticeships. And that takes a lot of time. So when you have major projects coming in, when you're building 2 million homes, it would pretty much consume all of the labor force that we have. And I did some numbers long time ago, and I was under, my understanding was that if you're building under construction, homes are about half a million in Ontario, it would have a downward impact on new construction because anyone who could be involved in construction is already employed building the homes. 
Murtaza Haider So new homes and new constructions would require new workers, which we don't. So for this reason, I'm a strong advocate for bringing in foreign labor and foreign builders, not just labor. So when you look at labor, I was reading a paper done by one of my undergraduate students who I'm very proud of, and they found out that when Brexit happened, and that's when the UK decided to leave European Union, then many workers who were from European Union had to return back to their homes, home countries. And that resulted in an output flow of about a few hundred thousand workers, many of whom were construction workers. So there is now a trained workforce scattered across Europe who were working in England. So they were working in very similar construction environments as ours, but are no longer working because they were removed from that labor market. Which means that if we are looking for labor, we can bring in that labor from European Union countries, and I think mostly with Poland and others where you have this skilled labor and if they have worked in England, maybe there's some English proficiency as well. 
Murtaza Haider So you can readily increase the size of the labor force. All you have to do is to have the provincial agencies that regulate these professions. These are professional organizations. So there'll be licensing authority for plumbers, there'll be a licensing authority for electricians, have them expedite the process of licensing these workers and create perhaps new internship programs that you have licensed professionals coming in from abroad, and they work under the supervision of master builders here and earn, and they contribute to construction while they are earning their credentials to be licensed in Canada. So that's one approach. The other approach that I have is to bring in builders, people who have companies that have built cities in places like China. China has a tremendous amount of expertise in building not homes, but cities. And they have actually built a take Shenzhen as an example. In the 1970s, it was a small sleepy fishing village. 
Murtaza Haider And now Shenzhen is a global seaport where the seaport has a capacity of about 25 million containers. In comparison, our largest seaport is in Vancouver with a capacity of about 3 million containers. So you could see within a short span of 30, 40 years, they built out of a village, a full city, and not just a city, but a global hub for trade and commerce. So there are builders there who have built this during Covid at the onset of Covid, we saw how they built a massive hospital in seven days, right? You remember that clip? They showed how in seven days they just built a hospital. We don't move a file in seven days from one part of our desk to the other part. We are very slow. We are, the regulatory burden is the choke hole we have on construction in Canada. It takes awfully long to get approvals, and then it takes awfully long to build. 
Murtaza Haider If you live in Toronto, you must have heard the good news that the access to downtown Toronto through Gardner Expressway is now down to one lane and not just for a week or month, but for a few years. And therefore you are going to embrace gridlock, perpetual gridlock for years. And the question is, why is it acceptable for a city like Toronto? Why those involved in such decision making thought it's okay to do this. So this shows to me that the urgency of building or the way to build faster and in quicker time, that realization has gone. And there's probably no one left advocating for building faster, quicker. So yeah. So the question is do we need foreign trained workers? And I say not just foreign trained workers, but building companies, builders who have the expertise of building towns, cities to come in 5 million homes in 10 years at an average number of two persons per home. 
Murtaza Haider It's 10 million people. That's more population than many provinces. If you look at New Brunswick, it's not even a million Nova Scotia, hardly a million, a little over a million. Prince Edward Island is a full province with less than 300,000 people. You have Newfoundland, Labrador, I don't know, half a million people with the exception of Ontario, 15, 16 million Quebec, maybe 12 million, and British Columbia, five, five, 7 million. The rest of Canada is very small in demographic terms. And if you are building 5 million homes, I'd rather not build them in Toronto or Vancouver. There's much more places to be inhabited. And you can build a new Canada with 10 million new people in the next 10 years by bringing in builders who can build cities, not infill, not just the missing middle type of construction. We need to build more cities. We need to build new cities. And we did that at one point. 
Murtaza Haider If you look at the Shaw Festival that happened at Stratford, that's a cultural icon. That was a deliberate attempt by the government to build an industry. And that industry's theater. And there's a pick the location and funded the construction of those theaters. And you build a city called Stratford, right? And now you go there for Shaw Festival and whatnot and more. We have done that on a small scale we did for cities with 40, 50, a hundred thousand. Now it's a time to build cities of 1 million. And that's not a difficult thing to do. And the size of 1 million Calgary is a size of 1 million. Edmonton is a size of 1 million. We need to build 10 more cities. And I would say we would bring builders in and say, 'Hey, you five builders, that's your city. Build it 1 million people, 250,000 homes and build the remaining infrastructure of offices and schools and police stations and hospitals and water treatment plants and sewage and transportation infrastructure.' All that goes in globally. Such expertise exists. We just pretend it doesn't and then we continue to suffer. 
CassandraEarle So circling back to the original question, now that we've explored all the possible explanations of the housing shortage, how can we make housing more affordable? What can we do? 
Murtaza Haider The government and the private sector and the society has to come and work in cohesion. And if they're not aligned on the objective, then it's difficult to move forward because they all have some control in determining the future for housing and housing affordability. Let's look at people. People who are complaining about housing affordability. They are also the ones who resist construction of new homes. So the Nimbyism challenge we face, NIMBYs is not in my backyard, is if you go and say, we would like to build an apartment building of 10 floors, and then they'd commission a study and found out that let's say if it's in my neighborhood and now the sunset that I used to enjoy, I will have 15 minutes less of a sunset because there'll be a new building blocking the sun. Well, that's a good enough ground for me to go and march to the city hall and contest the construction of new homes. 
Murtaza Haider And you multiply it by every neighbor that already exists. And then their ability to influence the decision making of the counselors, municipal politicians, they elect. So municipal politicians are also people who then become part of this NIMBY culture. And you can approach a counselor and say, look, this is going to be a great building. It'll provide home for will have 400 new dwellings, then about 800 new people can live in your neighborhood and they can vote for you. Say yes, but my existing voters will not like it. So not in my term of office, NIMTO, not in my term of office, is NIMTO, not in my backyard is NIMBY. You put NIMTOs and NIMBYs together, you have no housing. So infill becomes a big problem. Then you have environmentalists who believe that any green land should not be developed. So for good reasons, green belt should not be disturbed. 
Murtaza Haider But then again, most of Toronto was green belt at some point 300 year, 400 years ago, it was all green. It wasn't like it was a barren desert that we constructed. Toronto and every city in North America, every place Montreal, 700 years ago, most likely would be a forest. I mean Montreal, the mountain, you go on the mountain, it's all beautiful trees and whatnot. That was the rest of the city, I assume, a few hundred years ago. So development did take over Greenland and turn it into settlements, and that's what development takes place. Now, the environmentalists want us to intensify or densify. NIMBYs don't want us to be building anything near where they live. Environmentalists don't unless build on greenfield. And then also BANANAS. BANANAS are people who are built absolutely nothing anywhere near anything. So you have NIMBYs, NIMTOs, and BANANAS, and we are stuck. 
Murtaza Haider So you have to convince people or you take away their right to oppose new construction. So that's one. The governments have to agree that it takes awfully long to approve developments. We are right now reviewing about 73 development applications in the city of Toronto that took over a thousand days to approve. A thousand days is more than three years. So you just imagine that you applied for development and then you're waiting. And it could be a mistake or it could be shortcomings and part of the builder that they didn't put a proper application in, or it could be the shortcoming of the processes. We have put in place that it takes three years to develop. We have found out that arranging a meeting for the city and the counselors and others to debate, that can take six months or a year or more. So these are things that we've identified that could be streamlined. 
Murtaza Haider Application comes in the moment, city says it's complete. That is nothing more is required of the builder who proposed the development from that time onwards. Decide within 30 days period, 30 days, finish your groundwork because you've got so much of data and everything already in place. Use your existing knowledge basis and make a decision from there to three years. That makes no sense. And then the federal government has a big role and it's already doing a lot of good things. Usually I'm quite comfortable critiquing ministers of housing, but this time current minister Sean Fraser is I think he's genuinely doing, interested in helping and is doing a lot of good work. And so the good work could be provide interest free or subsidized loans to builders who are building affordable housing. Don't subsidize builders who are building mansions. They can figure it out by themselves. 
Murtaza Haider And people who are interested in getting mansions built, they will have the ability to capitalize that project. But for affordable housing, we need to incentivize builders to build those. And for that, we need to put in money, the federal money and through mortgage insurance, the CMHC earns a lot of money, and that money could be invested aggressively and strategically in building. So you have to have all tiers of government. The provincial government doesn't control much in terms of money, but it controls land. It can restrict or limit municipalities control over the kind of restrictions they impose on development. So provincial governments could be enablers in providing developable land to developers. So governments and others and the private sector, they have to be diligent and they have to embrace new technologies. Why does it take exactly the same amount of time to build a new house now that it did in 30, 40, 50 years ago? 
Murtaza Haider Things have moved fast, but I don't think the construction of housing has been streamlined and made efficient in a way that from start to finish, we should be able to finish a single family detached home in a month or two. It shouldn't take as long as it does now. And a lot of it has to do with labor is not there and the way you have scheduled everything, the carpenters are going to be delayed. So they take a week more and whatnot. At the end of the day, it takes nine months to a year to finish a house that should be done in two months or less. If you order a prefab construction from start to finish, that house arrives in 90 days to 60 days. They finish a house, put it on a truck delivery to your house. So house can be built, a small house, can be built in 60 days. There's technology available there. I think what the governments can do is turn this into a massive new industry of building prefab homes. But then again, if everybody looks at a prefab home and say, I don't like it, then you have constructed a million homes that nobody wants to buy. So there has to be a convergence of what people want, what we can build, and how we can build.
CassandraEarle Like Nobody's Business is a presentation of Toronto Metropolitan University's Ted Rogers School of Management. For more information, visit torontomu.ca/ted rogersschool. Thank you for listening.
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