solving the global housing affordability crisis: a next-generation approach
Article date: 30 January 2019
Local Community: Canada’s major cities
Facilitator(s)/Consultant(s): Metamorphany Changemakers
Concept and Methodology: Metamorphany’s Local and International Youth-Driven Innovation Program
Global Impact Path: Metamorphany's international cross-border / cross-continental collaboration network in housing & innovation and the international YDI Alumni network
We all know that Canada’s major cities have been battling with housing affordability for several years. In this challenge Canada is not alone. Many of the world’s largest housing markets have been dealing with the same issues faced by Canada’s cities. Over the years several attempts by local and federal governments have been made worldwide to turn the tide. But the divide has globally reached numbers that are almost impossible to turn around. And if we are truly serious about turning the tide, we require bold decisions and a new next-generation approach to solution finding. Today’s challenges will not let themselves be solved with yesterday’s thinking.
Housing affordability in Canada
Unfortunately, Canada is one of the countries that has been hit the hardest by the housing affordability crisis and the ripple effect is threatening families and children and Canada’s economic outlook on a much broader scale. Canada’s success in attracting skilled professionals from all over the world and its integration approaches to new comers has been a major contributor to Canada’s overall economy. But with Canada’s major cities struggling to effectively fight the housing affordability crisis, they are also at risk of loosing valuable skilled professionals who are looking for the best alternatives to build a comfortable life for their families.
Although progress is slow, many of the world's largest housing markets have experienced a simultaneous trend in 2018 towards better affordability, which provides promise for the future. Unfortunately, Canada appears to not yet have benefitted from it. In fact, based on the 15th Annual International Housing Affordability Survey from research firm Demographia1** click/tap word(s) again to close **
1Since 2004 Demographia has held their annual International Housing Affordability Survey across more than 300 metropolitan areas in eight primarily English speaking countries and autonomous territories. A total of 91 major metropolitan markets (housing markets)—with 1,000,000+ population—from Australia, Canada, Hong Kong Special Administrative Region of the People’s Republic of China, Ireland, New Zealand, Singapore, the United Kingdom and the United States are included, including three megacities, with more than 10,000,000 residents (New York, London and Los Angeles). The survey’s 15th edition covers 309 metropolitan housing markets for the third quarter of 2018. Canada’s cities continue to climb up the ladder of the world’s least affordable cities.
Demographia’s surveys have highlighted the growing crisis worldwide in housing affordability year after year since 2004. What is striking in the 2019 Affordability Survey is that for the first time since the surveys started, smaller cities and rural areas have entered the top 20 least affordable cities. Aside from Vancouver (BC), Toronto (ON) and Victoria (BC), who have been titled ‘severely unaffordable’ for several years, BC’s Nanaimo, Comox Valley and Fraser Valley have entered the top.
Despite Vancouver’s achievement to stop further decline in 'affordability', the city rose from the third-least to the world’s second-least affordable city—leaving only Hong Kong above it. The survey found that a median house in Vancouver costs 12.6 times the median 2018 income, the same ratio as in 2017. Sydney, Australia dropped to third place however because the city is becoming more affordable due to rapidly falling house prices. Canada’s largest city Toronto has unfortunately continued its steady rise from the 28th spot in 2016 to 21st in 2017 and the 16th least affordable city among the 91 Major Markets and 309 global metro areas surveyed in 2018. A median home there costs 8.3 times the median 2018 income, a rise of almost 6.5 per cent with 2017.
Demographia defines a housing market as "severely unaffordable" if the median house price is above 5.0 times the median income. If the price-to-income ratio (PIR) is 3.0 or less Demographia considers the market "affordable". Interesting fact is that all of the severely unaffordable markets have developed itself in a local environment of urban containment regulation. For the majority of these markets 'affordable' PIRs of 3.0 or less were typical.
Alain Bertaud—Senior Research Scholar at the New York University (NYU) Marron Institute of Urban Management and Former Principal urban planner at The World Bank—states in Demographia’s 2019 Survey Preface that many prosperous cities consider ever increasing housing prices as an unavoidable side-effect of their economic success. The survey’s 15 year data, however, demonstrates that there is no direct linear relationship between economic success and over-inflation in the PIR, or at least, there does not need to be. Economical successful cities, like for example Houston and Atlanta, have managed to avoid the housing affordability crisis while maintaining high economic growth and low unemployment. It required and requires continuous monitoring of the broader data and acting in accordance with the need of the low and median income households. Something which many of the global cities, including our Canadian cities, have done less holistically and/or successfully.
This leaves Canada and its major cities in a position where it would at this point in time require much more to turn the tide than merely the lessons learned from other global cities that have done better on the subject of "housing affordability".
The crisis’ Ripple Effects impact every household—Rich and Poor
Housing affordability is more than a housing issue. It impacts on a much larger scale on the total economy. Hsieh and Moretti, two economists, found that the high price of housing in some otherwise very successful US cities has a ripple effect2** click/tap word(s) again to close **
2Chang-Tai Hsieh and Enrico Moretti, "Why Do Cities Matter? Local Growth and Aggregate Growth". NBER working paper 21134, National Bureau of Economic Standards, Cambridge, MA, May 2015
for source click here, distorting the spatial allocation of labor nationwide. They calculated that the cost of the misallocation of resources caused by unaffordable housing represented about 9.4 per cent of US GDP in 2014. Their paper also demonstrates that the long-term welfare of households already owning a house—who may feel that they benefit from climbing housing prices—is significantly decreased. Where high housing prices create an immediate hardship to low and median income households, over the long term, every household—rich or poor—would eventually become poorer. This is due to the fact that the imbalance in resource allocation will decrease investments and the productivity of the entire country. This could be partly caused by what in the world of Complexity Science is known as the "scaling law"3** click/tap word(s) again to close **
3In 1999 physicist Albert-László Barabási, discovered that complex issues operate as dynamic (not static) networks that evolve in accordance with general patterns. Scaling laws can be found where there may be a buildup of tension to a very high degree. They are the characteristics of epidemics, wars and even the growth of cities and distribution of wealth. He found that the distribution of wealth and growth of cities, when left w/o intervention, evolves until it resembles a scaling law. Meaning, such a "network" tends to evolve until a number of privileged traders have taken possession of pivotal points. or "power law".
How to ensure an affordable home for every Canadian?
Information by scientists such as Barabási and others could have and would have predicted a crisis such as housing affordability in growing and large cities long before its downward spiral; and it should have increased motivation for holistic preventative measures. Either way, it is safe to say, that based on the current numbers it will take more than the preventative measures that some cities might have taken years ago, and a drop in house prices, to make our Canadian cities affordable again. We are in need for next-generation innovative solutions to tackle the Canadian Housing Affordability Crisis. And we have to act now!; work collaboratively accross sectors; and be willing to embrace change. I hope we can all agree that we owe this to our children and grandchildren. We cannot leave them with yet another majorly complex problem to solve after our us. We also owe it to them to involve them, where and when possible, in our solution finding and decision making process.
“We can't solve problems by using the same kind of thinking we used to create them.”
— Albert Einstein (1879 - 1955) —
German-born theoretical physicistDeveloped the theory of relativity, one of the two pillars of modern physics.
The National Housing Strategy
Canada’s first-ever National Housing Strategy is a $40 billion, 10-year plan with inspiring goals. The federal government is bringing together public, private and non-profit sectors to ensure Canadians nationwide will have access to affordable housing that meets their needs. The strategy will first focus on the most vulnerable Canadians by removing 530,000 families from housing need and cut chronic homelessness by 50 per cent.
By the end of it up to 100,000 new homes will have been built; the middle class will have been strengthened/rebuilt; Canadian economy will have been fuelled; homelessness will have been halved; and a new generation of housing with affordable, stable and livable communities in Canada will have been created. Communities that will have the amenities, transportation and opportunities needed to be successful and where families will thrive.
“I think people are looking at Canada and realizing we're a place that is building for the long term and where the world's going to be.”
— Justin Trudeau —
Canadian politicianserving as the 23rd prime minister of Canada since 2015. Leader of the Liberal Party since 2013.
Metamorphany's Youth Driven Innovation Program
While we see a truly inspirational drive from the public, private and non-profit sectors to address our housing affordability crisis, our world around us, but mostly ahead of us, is rapidly changing. The housing affordability crisis does not stand on its own and its future fate is highly dependent on and interrelated to our changing world. A world in which an estimated 85 per cent of jobs which will be available by the end period of the National Housing Strategy, have not yet been invented.
We therefore need a holistic approach. One that helps us solve our housing affordability situation, while ensuring that we keep looking forward to safeguard a sustainable and prosperous outcome for our families and future workforce. It is of vital importance that we help our current most vulnerable Canadians, and also protect the generations after from potentially ending up in similar challenging situations. And what better way to live up to this responsibility then by involving our communities and our next generation home owners and future workforce in our solution-finding process of shaping a new future proof Canada. A Canada where every Canadian has the opportunity to thrive.
We look forward to it.