Canada's Housing Bubble

Jan 27, 2011 Barbara Yaffe communities.canada.com

The Winnipeg-based Frontier Centre for Public Policy is warning that cities that fail to address their sky-high housing costs could face a downturn that will damage their ability to provide for their residents. The advice is aimed particularly at unaffordable housing markets like Vancouver where a median-priced home now costs the equivalent of 9.5 years of median household income, in contrast to an affordable 3 years of income.

The Frontier Centre's observation comes a day after the Seventh Annual Democraphia International Housing Affordability Survey revealed that some markets in Canada have become severely unaffordable for home buyers.

Internal migration traditionally has been driven by things such as opportunities, jobs, incomes, writes David Seymour, a senior policy analyst at the Frontier Centre. But with house prices climbing so aggressively in certain Canadian cities in the past two decades, he predicts, increasingly, municipalities with modest housing costs like Regina and Saskatoon will be attracting the country's younger, mobile, employed people.

In that event, it's possible that a demographically declining group of Canadians, the ones producing wealth and paying taxes, will opt to live in affordable cities, leaving oldsters to habitate places like Vancouver and Toronto. In other words, potentially, Toronto and Vancouver's senior citizens -- who of course at that stage of their lives will be  dependent on government services and pensions  -- will find themselves in cities with declining tax bases, and no one to sell their homes to.

That latter point is worrying as some seniors may find themselve wanting to draw on their housing equity to be able to afford the potentially higher cost health care services that may lie ahead.

"Putting these...factors together," writes Seymour, "there is a case to be made that offering affordable housing may be one of the most important things that governments within Canada can do to maintain their jurisdicction's competitivenss."

The right-leaning public policy think tank says studies show that municipal and regional planning policy tends to influence housing affordability, and that the fewer impediments imposed on builders, the easier and more affordable it will be to produce new housing.