The Housing Affordability Task Force is urging the province to override local governments to boost the supply of new housing.
There's been a lot of pushback against the report from municipal politicians defending local decision making processes that have consistently failed to improve housing affordability. We need more housing to improve affordability, but these changes involve trade-offs — particularly for homeowners.
In this post, I borrow ideas from Alex Danco to explain how legislating the Task Force recommendations would change the way housing works. The extent to which this post makes sense is mostly due to his ability to communicate complex ideas through simple frameworks.
At a glance
The exclusionary value of homeownership
Housing as a system of local influence
Toronto's compromise between homeowners and developers
How Task Force recommendations remove friction
The exclusionary value of homeownership
Housing is an unusual asset because part of its value is in what it excludes. Most assets are valuable because of what they produce or make possible; but the price of a home reflects everything it's not and can't easily become.
Housing isn't a product of the free market, it's the result of a legal and regulatory environment that dictates what you can and can't do with your home. For example, zoning laws create exclusionary value in your home by preventing your neighbour from tearing down their house and building a condo.
Key to maintaining exclusionary value is the expectation that these restrictions will persist. If the rules change to make it easy for your neighbour build a condo, the exclusionary value of your home disappears.
To preserve the exclusionary value of their homes, homeowners leverage their power as voters to influence the local system that governs housing.
Housing as a system of local influence
A simple way to think about this system is as a 3-way power relationship between homeowners, developers, and local politicians.
Homeowners want friction. When you buy a home, part of what you buy is friction. In other words, a set of rules that prevents your neighbourhood from changing. For example, Toronto has a rule that new development must respect the physical character of the neighbourhood. As a result, only low-rise housing gets approved in low-rise neighborhoods -- the rule prevents neighbourhood change.
Developers want to build. Developers build what's possible and profitable. Where laws and regulations make building expensive, small developers and projects aren't viable; so big developers build large luxury housing developments that justify the time, risk, and costs required to get them to the finish line.
Local politicians want a compromise. In search of a balance that keeps homeowners/voters happy and allows new development to generate economic activity, local politicians mediate a compromise between homeowners and developers.
Systems of local influence evolve differently in different places; but once it's in place, it's hard to change.
Toronto's compromise between homeowners and developers
The easiest way to understand Toronto's compromise between homeowners and developers is to view the city from above.
Toronto’s compromise is simple. Huge swathes of high-rise condo development is directed into the downtown and Yonge Street corridor in exchange for the preservation of the surrounding low-rise neighbourhoods.
The atrophied pattern of development has been shaped by local laws and policies that reflect the priorities of Toronto's local system of influence.
The result has been the bifurcation of housing options – deciding where to live becomes a choice between a small apartment or a million-dollar home. The lack of choice creates a city that's hostile towards young families, recent immigrants, students, and essential workers.
Local politicians understand the problem, but they're hesitant to renegotiate the compromise – the system's broken; but broken for whom?
So long as the exclusionary value of homeownership is preserved and new high-rise developments get built; there's no incentive to reorganize the system from within.
That's where the Task Force recommendations present an opportunity to shift the balance of power.
How Task Force recommendations remove friction
The Housing Affordability Task Force wants the province to circumvent the local decision-making process to make it easier to build new housing.
There are 4 recommendations that, I think, could change the way housing works by removing friction that homeowners and local politicians use to block new development.
Allow every single residential lot to be redeveloped into a fourplex; up to four units and four storeys. This change removes the friction that preserves the exclusionary value of homeownership. Gone is the expectation that local zoning laws will prevent your neighbour from building multifamily housing.
Override the ability for local politicians to prioritize the preservation of the physical character of a neighbourhood. Removing the friction created by this popular objection to new development severs the negative feedback loop through which politicians in low-rise neighbourhoods only approve low-rise housing that reinforces the existing physical character.
Incentivize more housing density in school districts with excess capacity. An uncomfortable part of the value of living in a good school district isn't just that your kid gets to go to that school; it's also that other kids don't. Many schools with extra capacity are in areas with high concentrations of exclusionary value, i.e. where it's hard to build. Incentivizing more density near schools removes friction that keeps new people out and erodes the exclusionary value of nearby housing.
Remove the right to appeal new development without evidence and make appeals more expensive when staff have recommended approval. Homeowners file "nuisance" appeals with no expectation of actually blocking new development all the time. They leverage the appeal as friction that slows down neighbourhood change. This change introduces new friction that raises the bar for an appeal and requires appeallents to have more skin in the game.
The Task Force recommends moving decision making power from municipalities to the province to make it easier to build more housing. Their report lays out what can be described as a housing abundance agenda. Now it’s up to the province to legislate the optimistic housing agenda that prioritizes growth over preservation.
We need more housing to improve affordability, but these changes involve trade-offs — particularly for homeowners. We should recognize that homeownership is one of the only ways Canadian households build wealth in a time of rising inflation, lagging income growth, and a shrinking social safety net. If we're going to prioritize building more housing over building wealth through housing, we also need to make sure we're creating new opportunities to build wealth.