Real estate speculation happens across the country, but is particularly popular in our largest cities. Some say foreign ownership and speculation is driving housing prices up for local residents: wealthy investors living in far-off countries buy housing with no intention of living in it. But should the government step in and regulate the practice of flipping houses?

Just a month ago, the Simon Fraser University Urban Studies program held a symposium on housing affordability. Their data-packed brochure indicated that Vancouver has been second to last in housing affordability for the past six years, and 40% of residents consider the high cost of housing to be the most important issue in the city. The city’s annual homeless count has identified an increasing number of homeless people in the city–some 2,700 people in 2014 compared to about 1,100 in 2002. While 35% of homes in Vancouver are rented, only 17% of new construction was purpose built rental housing. Urban Futures has done a number of studies on foreign ownership: in one, they found that the 2011 Census (National Household Survey) showed that Vancouver didn’t have an excessive level of foreign occupancy–that is, about 1.4% of the apartment units in the city were occupied by foreign or temporary residents, but there are no Census data that specify their citizenship, length of stay, or that support a thesis on foreign investment. In another, they found that only 0.4% of purchases in the region in 2010 were made by people living outside of Canada. But an article in the New Yorker last year quoted a report from Sotheby’s International Realty Canada: in the first half of 2013, foreign buyers accounted for nearly half of luxury home sales in Vancouver.

Vancouver Mayor Gregor Robertson announced on Friday that he has proposed that the BC government develop a speculation tax who “buy a home just to make a quick buck” by selling it 6 months later. He’s asking Vision voters to support the call for a new tax on investors, and other tools like an increased property tax on the most expensive residential properties with proceeds invested in new affordable housing.

“Together, we can send a message that housing shouldn’t just be an investment commodity – it should be for living in.” –Mayor Gregor Robertson

Less than two days after Robertson’s announcement, a petition started circulating in Toronto calling on Brad Duguid, Minister of Economic Development, Employment, and Infrastructure, to restrict foreign investment in residential real estate in the Toronto region. As of 5 pm today Shaan Brach’s petition had 10,491 supporters.

I’m sure that the Liberal governments of both Ontario and BC will shy away from regulating real estate speculation and taxing the rich, but nevertheless the petition and call for a new tax do raise several troubling questions: who should be allowed to buy housing in Canada? Should the government (either provincial or federal) intervene when housing prices climb too high for the average person or household to afford? And if so, how should this be done?

Canadian governments have a history of intervening when market conditions create affordability issues for local residents or when housing conditions are poor. Forty years ago, Canada Mortgage and Housing Corporation was busy supporting the development of co-operative and non-profit housing with the ample funding of the federal government. The federal government helped develop co-operative housing from 1973-1991, establishing long-term operating agreements coinciding with the length of the mortgage. They also had programs to help first time homebuyers, supplement rents, and rehabilitate housing in historic and central neighbourhoods. But over the years, their balanced approach to housing affordability changed. The two ends of the spectrum (households with very low incomes and homeowners with enough equity to buy) continued to benefit, but programs that helped renters and low- to middle-income households were gradually dropped.

Municipalities and developers have also introduced innovative solutions to housing affordability:

  • Equity loans–Toronto’s Option for Homes and the City of Saskatoon/Affinity Credit Union Equity Building Program help people move into affordable ownership by loaning purchasers a small percentage of the downpayment
  • Shared equity–at SFU, units in the Verdant building are reserved for university faculty and staff and resale prices are restricted to 20% below market value), and community land trusts.
  • Affordable Housing Trusts–municipalities such as Vancouver, Surrey, Richmond, Coquitlam, and Whistler have developed housing trusts through legislation and with the cooperation of the BC government

The issue of foreign investors driving up housing prices is critical in cities like Toronto and Vancouver, but there’s no quick fix for the affordability problems that took decades to create. In cities like Calgary, Fort McMurray, and Kelowna, affordability is still a major issue even without high levels of foreign investment. In Edmonton, 33.5% of all condominium units are rented. Researchers and policymakers across the country have been trying to find and implement the solutions for at least two decades. A speculation tax would only be part of the solution, but combined with better rent controls and a higher high-end property tax whose revenues would be used to build and maintain housing of different types for different income levels, it could be a good start. We definitely need an increased role for the provincial and federal governments in affordable housing, but that’s not news.

Canada’s housing boom was recently hailed as one of the longest in the Western world. But as 2011 drew to an end, housing market experts issued dire warnings that the housing market is cooling. Merrill Lynch, the Bank of Canada, TD, Royal Bank of Canada and the Bank of Montreal have all said that Canadians could face challenging markets for the next two years, particularly in BC and Ontario.

Despite Toronto’s red-hot market, Rob Carrick of The Globe and Mail says one of the best ways to build wealth in 2012 is to avoid “drinking the housing market Kool-Aid”. Among his other tips: “Explore your inner renter” (Gen X and Gen Y, and Boomer editions). Carrick is one of many experts advocating renting over housing as the market destabilizes. US apartment vacancies hit a ten-year low in December at 5.2 percent as rising foreclosures, tighter mortgage lending standards, and low housing starts made rental housing the best-performing segment of commercial real estate for two straight years. In addition to traditional low-vacancy locales like New York City, low vacancy rates abound in New Haven, CT, Minneapolis, MN, Portland, OR, and San Jose, CA; rents rose the quickest in Chattanooga, TN and Austin, TX. Canadians, holding on to the dream of homeownership with the grim desperation of Americans before the mortgage crisis, remain unmoved.

Last month, The IMF (that’s the International Monetary Fund, not the Impossible Missions Force) called for a review of the rules that govern Canada Mortgage and Housing Corporation, one of the largest financial institutions in the country, which operates without formal oversight. The IMF suggested the crown corporation needed stronger risk management because CMHC backs mortgages with less than 20% down through mortgage insurance, Canadians have record levels of household debt, and some cities have housing-bubble prices. With household debt at a record 150 percent of disposable income, the IMF warned that a drop in housing prices would be a blow to indebted consumers. The Canadian economy, which grew by 3.2 percent amid global financial meltdowns, is expected to weaken this year.

With the country in its 13th year of rising home prices, experts have been predicting a price adjustment for many years. CMHC has taken several steps to tighten mortgage lending and last year the federal government made changes to the National Housing Act to compensate the government for the risk it is taking through CMHC’s mortgage insurance. With the US housing market still in recovery and the Chinese government taking steps to prevent a housing collapse this year, Canada is poised for a tumultuous 2012.

The home building industry may not have recovered in the US, but apartment construction is making a comeback. Within a few short years of the foreclosure crisis, everyone from architects to developers to planners have begun turning back the clock to a time when renting apartments and living in rooming houses were affordable, socially acceptable alternatives to homeownership.

Recently, journalist Neal Peirce advocated the return of rooming houses to address the need for smaller, more affordable units for young people, who have been adversely affected by the US recession (“Bring back the rooming house?”, November 12, 2011). Like other notable writers (Edward Glaeser, Richard Florida, Mark Hinshaw, Joanna Pachner), Peirce argues that it’s time to turn a new page on the postwar suburban single-family home:

“Unquestionably, tens of millions of oncoming youth will disconnect from the American vision of home as a “homestead”–the self-contained units of our American forbears, translated since World War II by a suburban home occupying its own lot.”  Neal Peirce, Washington Post Writers Group (

Among the reasons young people will need new, affordable housing options: lower salaries, lower employment rates, delayed marriage resulting in more single-person households, a desire to live in mixed-use neighbourhoods near transit, and lower car ownership (does this sound familiar?) In Canada, the rising demographics (youth and young adults, immigrants, single-person and single-parent households, seniors) would probably jump at the chance to live in rooming houses, worker housing or affordable rental units, considering housing prices across the country. For example, where do you live if you’re an immigrant in Canada on a temporary worker permit? Your only real choice is renting a market-rate apartment, likely sharing with people you scarcely know. Downsizing senior? Good luck finding a condo that costs less than your house once maintenance fees are added in. Young adult working in your first job? You’ll be forking over about one-third of your salary to rent, even if you live in a mid-sized city.

Hinshaw, a Seattle-based architect and planner, argues that the recession has forced cities to think about Smart Growth rather than rushing forward into new development faster than public investments can be made (“Recession is producing a needed reset on land use”,, September 30, 2011). Now, cities and counties have the time to decide how and where to move forward. Some areas where local governments have made progress, according to Hinshaw: economic development through the construction of shared public spaces, redesigning streets to encourage different travel modes, and the development of rental housing.

“For far too long, elected officials and citizen groups have treated apartment developments like a pariah, relegating them to noisy arterial streets or slamming them behind strip malls. It’s as if only decent folk are those who own single family homes. If we learned anything from the past five years it is that the American ideal of home ownership has been cruelly oversold.”  Mark Hinshaw,

Changing development conditions (stricter lending standards, foreclosures, and a rapidly growing rental market) have made investing in multi-family rental housing a safe move for developers who, just a couple of years ago, would have built high-rise condos. Increased demand for rental units has resulted in rent increases in many cities that can provide developers a reasonable return on their investments (“Demand for Denver apartments exceeds supply”, November 29, 2011, NPR). NPR reports that this could be a lasting trend; one that harkens back to an era of when renting was more common than owning in many countries. In Canada, for example, pressing postwar housing needs were met through a boom in apartment construction during the 1950s.

If only Canadian provincial and federal governments would enable developers to build rental housing, rooming houses, granny flats and other housing types that would provide alternatives for various demographic and income groups. We’d have to turn back the clock to the 1970s, when experiments like co-operative housing became popular in Canada as foreclosures and interest rates rose. It seems that during economic crises, homeownership loses its rosy glow. Renting, co-housing, co-operatives, rooming houses, and rent subsidies make more sense to policy makers, developers, and planners during economic downturns, when few can afford to buy and governments are too poor to subsidize ownership. And yet, as all the authors cited in this article point out, North Americans still display a slavish dedication to the “dream of homeownership”; most have long forgotten that the “dream” was enabled by dirt-cheap postwar mortgages, artificially-low interest rates and government incentives for first-time homebuyers. If the current rental housing trend persists for more than five years in the US, and Canada finally passes its national affordable housing strategy, we might see the beginnings of a paradigm shift to rival the one that gave us single-family suburban homeownership in the first place.

The City of Vancouver Housing and Homelessness Strategy, approved Thursday July 28th, is a bold move in the context of Canada’s increasingly unaffordable housing markets. The comprehensive, ten-year plan calls for the creation of 38,900 affordable homes in the city: 7,900 supportive and social housing units, 11,000 rental units, and 20,000 condos and “ownership” units. To help finance construction, the city intends to offer $42 million in land and capital grants to developers. 3650 of the supportive and social housing units will be built in the next three years. 1,700 of these were previously announced, but 1,950 are new developments which the city will build and run with BC Housing and non-profit associations, a model that has worked for decades in Vancouver. BC Housing will contribute 276 of the units, developers will build 205 (mostly due to density bonusing) and the city will seek funding for the remaining 319.

Until now, the city has remained in limbo in terms of building affordable housing, despite millions of dollars in contributions to its Affordable Housing Fund through density bonusing and a 20% social housing requirement for major rezonings of lands to multiunit residential use. Leaving construction of affordable homes to private developers hasn’t worked, so the city will partner with developers by providing grants and land in exchange for social and supportive units. The city will also lever its land resources and capital projects against funding from provincial and federal governments. The plan also calls for the city to approve more laneway housing and secondary suites. New affordable rental units have been achieved recently through the City’s Short Term Incentives for Rental Housing (STIR) initiative.

Like many municipalities tired of playing chicken with upper levels of government, Vancouver now has its foot firmly on the accelerator. The housing affordability crisis in Canada has reached ridiculous proportions, but we’re still working on the national affordable housing strategy (Bill-C-400), which replaced Bill C-304 from the previous session. Industry warnings of a housing market collapse have been circulated. And yet, the price of renting has increased much slower than the price of ownership over the past twenty years, as Canadian Business illustrated recently (“Rental Complex”, July 14, 2011). This article, the latest in a series of pieces in the popular press exploring the follies of ownership in today’s market, exposes the increasingly doomed love affair Canadians seem to have with homeownership:

“With widespread warnings that we’re approaching the peak of the housing boom, with Canadians more indebted than ever…why aren’t more of us re-examining the math? The reasons are cultural and emotional, backed by ill-conceived public policy. This Canadian Dream is an expensive delusion. There’s never been a better time to rent.” Joanna Pachner, Canadian Business

Along with increased acceptance of renting, the fallout from the US mortgage crisis includes recognition that the suburban, single-family home is no longer in huge demand: households without kids will increase by 90% from 2010 to 2020, according to Arthur Nelson, professor of planning at the University of Utah. This means far fewer buyers than sellers for single-family housing and an increased demand for multi-family and rental housing. As demographics and attitudes towards housing shift, the City of Vancouver is once again on the leading edge of policy innovation, though the plan is not without its critics. Hopefully elements of the plan will be evaluated throughout implementation, and discussed in other municipalities, which could help accelerate Bill C-400–the absence of a national affordable housing strategy has been holding up programs and funding between all three levels of government.

Bill Rankin's map of Chicago

A couple of years ago, when I attended the Association of Collegiate Schools of Planning annual conference in Chicago, I was stunned to hear that Cleveland and Chicago are the most segregated cities in the US. As I’ve written before, Canadian cities simply don’t have these levels of segregation; obviously not for African American and Hispanic populations, but also not for other groups. Recently, I’ve come across a series of maps illustrating the difference between American cities that are more segregated vs. more integrated, thanks to some enlightened cartographers. It is very interesting to compare these maps to the (albeit simpler) maps of visible minorities in Canadian cities recently published by the Globe and Mail.

Bill Rankin‘s map of Chicago illustrates the sharp divides between white, black, Asian, Hispanic, and other ethnocultural groups. It was originally published in Perspecta, the journal of the Yale School of Architecture; Rankin is a PhD candidate in architecture and the history of science.

After seeing this, Eric Fischer produced similar maps for the 40 largest American cities. He used the same process as Rankin (one dot for every 25 people and same colour code, using the 2000 Census data).

We can see some segregation in New York City, but there are zones of integration.

Eric Fischer's map of New York City

Detroit’s 8-Mile district stands out as an example of entrenched segregation. Many of the maps of smaller cities, like Buffalo, Toledo, and Raleigh, highlight inner city concentrations of African Americans.

Eric Fischer’s map of Detroit

Eric Fischer's map of Los Angeles

On the other hand, check out Riverside, CA, which looks very integrated. Los Angeles also has a lot of integration, and San Antonio is very integrated.

Eric Fischer's map of Riverside

A couple of weeks ago, the Globe and Mail posted a series of “heat maps” showing the concentration of visible minorities in Canadian cities. They don’t break down the statistics (from the 2006 Census) into specific ethnocultural groups, as is the usual Canadian trend; there are simply too many groups to map. But they are interesting nonetheless. The maps are interactive, allowing you to zoom in, so I can’t reproduce them here. Check them out at under Multiculturalism.

Vancouver’s map shows that in most census tracts in Vancouver, Burnaby, Richmond and Surrey, over 30% of the population are visible minorities. Toronto has a similar pattern: over 30% of the population in Toronto, Brampton, Mississauga, Richmond, and Ajax are visible minorities. The central Toronto map shows some interesting areas of lower concentration: areas around the subway lines, west Toronto and the Beaches. In Calgary, Winnipeg and Ottawa, the census tracts with over 30% visible minorities are mainly in the suburbs.

Montréal is even more fascinating because it shows a very different pattern. The visible minority population there is almost exclusively concentrated on the island of Montréal, with lower rates of concentration in the suburbs: the older pattern of immigrant settlement that we still see in smaller cities. This is likely due to sheer numbers: Toronto and Vancouver receive tens of thousands more immigrants each year than Montréal.

Obviously, the American maps show that not all cities south of the border are sharply segregated, but even in the smaller cities, like Toledo, Ohio, there are lingering segregated African American populations. This in itself is not an issue; the maps of Canadian cities show lots of neighbourhoods with high concentrations of visible minorities. The real issue is when these concentrations are due to poverty or discrimination (either societal or institutional, such as in the housing market). American housing research seems to indicate that much of the segregation is in fact due to these two factors. Entire programs are devoted to fixing this problem: Housing Choice Vouchers, for example, aim to remove people from entrenched areas of poverty into neighbourhoods where they may have better educational and job opportunities.

I think these maps illustrate again how different Canadian and American cities are in terms of ethnocultural groups: both in terms of their composition and their spatial dispersal. This continues to create policy differences between the US and Canada, not only in my own research areas of housing, transportation, and immigration, but in many other areas affecting municipalities: welfare provision, health care, and education to name a few.

Just a three months after Edward Jones released a report about the precarious state of the Canadian housing market, housing sales fell in Toronto and Vancouver. Citing prices higher than historical averages, easy credit, and lax government policy that allows people to get in over their heads as the three conditions that create a housing bubble, Edward Jones seemed to be right on the money. Is Canada’s housing bubble finally about to burst?

In Toronto, new home sales in June 2010 were 43% lower than they were twelve months earlier, and July was the third consecutive month of decreasing sales. Housing starts in June were 15% lower than they were in May. But not much hand-wringing is going along with these trends: many experts, like Toronto Real Estate Board president Bill Johnson, say the market “has become more balanced.” After all, average prices are still 6% higher than they were last year, and most of the decline seems to be in first-time buyers. Higher-than-average buying in the first quarter of 2010 means that total sales this year are still up by 11%.

Vancouver has also seen record drops from last year, a 45% decline from last July and the third-lowest July in a decade. But again, this had little effect on prices: the average house price in Vancouver fell by just 0.2% to $793,193. Real estate agents estimate that about a third of the buyers are first-time buyers.

Outside of the major centers, where listings were lower and the market appears to be cooling, there are plenty of houses for sale in small- to mid-sized cities. Nevertheless, both economists and the general public are becoming concerned about the state of the housing market and economic instability, as well they should be. I’ve written before on the instability of housing as an investment and the major government supports that encourage the vast majority of people to believe homeownership is the only option. Is this really the only way to house our population? More specifically, should it be the only housing alternative to receive such funding and policy support? Although there has been some tightening of lending policy and mortgage availability, there are still a lot of policies and incentives supporting homeownership. What about using some of this leverage to support rental, co-op and other types of housing?

“Why doesn’t the president of the United States ever get up and say, ‘You can be a full-fledged American citizen and rent an apartment — it’s OK.” David Wessel, economics editor, Wall Street Journal

Americans now pay more for housing than ever before, according to a report by Harvard’s Joint Centre for Housing Studies. In its annual report The State of the Nation’s Housing 2010, researchers write that 18.6 million Americans spend more than half their incomes on housing, up from 13.8% in 2001. While this figure includes both owners and renters, 45.1% of renters are in the bottom income quartile. Homeownership is at a historical low, household income barely increased in the past decade, and rental vacancies are at a historical high. No wonder the authors are calling calling the first ten years of the 2000’s “the lost decade.” But housing “unaffordability” isn’t anything new, nor are our solutions to the problem.

While the Harvard researchers blame falling wages and high unemployment (9.9% in April 2010), high rental vacancy rates and low supply of the most affordable and smallest units are also major issues. Fewer homes were built in the US in 2009 than in any year since WWII, particularly multifamily homes: 62% fewer multifamily developments were begun in 2009 than in 2008. Demolition and conversion of existing low-income rental units is also a major cause for concern. Lower immigration rates are also taking their toll: there was a sharper decline in the number of foreign-born households under the age of 35 than in native-born households from 2009 to 2010. Minority households have been hit hard by the mortgage crisis. In 2009, minorities accounted for 37 percent of householders aged 25–44 and 39 percent of those under age 25. The minority homeownership rate is still expected to increase by 2020, despite lower incomes among foreign-born and minority households and lower immigration rates due to the economic recession.

Some progress has been made in terms of rental housing: rental conversions from foreclosed housing has already been done in many cities, but Housing and Urban Development (HUD) considering introducing market-rental units into its publicly-funded affordable housing developments in order to help pay for much-needed maintenance on the buildings. And the pro-homeownership policies keep coming, including the renewal of the federal tax credit for first-time homebuyers (and its expansion to repeat homebuyers) and Federal Reserve purchases of mortgage-backed securities to help keep interest rates low. But with the expiration of the tax credit program in April 2010, Harvard’s Joint Centre for Housing Studies warns that any good news may not be long-lasting. The problem, they say, is that there is unusually low demand for new homes. The ratio of housing and transportation costs to income has risen steadily over the past fifty years (see Figure 30 and 31 of the report).

As I’ve written before, without massive government programs to support homeownership and assistance for low-income renters, housing has ever been a good deal. Check out the CBC’s digital archives on the development of suburbs. In a video clip from 1954, the narrator explains how expensive homes are for the average person and how far people have to live (up to 50 miles from the city center) to afford them. In 1953, the average Canadian earned $971/month before taxes. Don Mills, the first suburb in Canada, had house prices beginning at $11,000 all the way up to $100,000. Rental rates at that time were $300/month for the average apartment in Toronto (already hovering around 30% of the average Canadian’s income, the level most housing authorities classify as affordable) and $100/month for a basic three-bedroom in the city centre. In the new market-rate high-rise apartment complexes in the suburbs of Toronto, apartments went for less than $100/month. In Montreal, then the largest city in the country, 70% of homes were apartments and the going rent was $70-100/month, only slightly more than the rents in Winnipeg ($80/month). A house in Vancouver was $2,000 cheaper than in the east at the time. While 1950s housing solutions (demolition of existing older housing to make room for low-income public housing developments in city centres, massive concrete high-rises in the suburbs) may have been questionable, they were quite desirable at the time: the wait for affordable housing, like the still-under-construction Regent Park) was 2 years for a $29-90/month rent-geared-to-income apartment. The average rent at Shannon Heights, a 1950s assisted rental development in Halifax, was only $90/month. Commuting to the city became a new drag, and buses quickly replaced streetcars and trains, steps were taken to make commuting more enjoyable. A 1963 video clip records a housewife saying that the lack of transportation options in the suburbs mean she spends considerable time driving her teenagers around; another says her family moved to the suburbs because that’s where they could get a mortgage.

Whatever housing problems we face today, whether it’s affordability or commute distance, they’re nothing new. Solutions to these problems, like artificially stimulating homeownership through tax incentives and policies, are likewise nothing new; housing affordability problems persist. Recently, researchers at the The New York Times compared the cost of living in a suburban house to an urban apartment in the New York City metro area, and found that the suburban option cost a surprising 18% more (“High-Rise, or House with Yard?” July 2, 2010): the big difference was the higher property taxes, and their comparison didn’t include the cost of home repairs. Even the The Wall Street Journal is publishing articles saying homeownership doesn’t work (“Is the Homeownership System Broken?”, June 22, 2010): WSJ economics editor David Wessel is quoted as saying, “So now we have a system where a lot of people own homes but don’t have any equity in them, which means you don’t get any of the virtues of investing in them. And the government has been forced to take over the mortgage financing system, which suggests that it wasn’t a very strong one if the government has to take it over.” This is quite a turn of events. Could North Americans be forging a new path in housing policy?

I’ve often felt that homeownership is not the rosy American Dream that it claims to be. I find homeownership limiting, both economically and geographically: my parents and their friends, and now friends my own age, seem to sacrifice anything and everything in order to make mortgage payments. The years I worked at Canada Mortgage and Housing Corporation, taught me how the federal housing agency was created partly to help sell the idea of homeownership right after WWII and enable it through a series of government-backed programs and policies. Then there’s my own research in the area of immigrant settlement and housing choice, which included a serious look at Canadian federal housing policies that have slowly eroded rental housing, co-op housing and social housing as options while supporting homeownership through numerous incentives. Let’s just say that it’s no surprise that at age 36, I’m still a renter, bucking the DINK and yuppie trends, a little cynical about the myth that renting is just “throwing your money away.” After all, renting has allowed me to remain flexible, pick up and move to different cities, travel, and live in neighbourhoods I never could have afforded if I had bought.

It appears that Richard Florida agrees with me. Higher rates of renting, public transit use and residential mobility are all key themes in Florida’s latest book, The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity, released two weeks ago (read a review of the book, and other Florida works and quirks, on Urbanophile). Florida belies the myth that housing is a good investment, particularly when it’s held for 20 or 30 years: the rate of return on housing in the US has generally been quite low, in fact from 1890 to 1990 it was exactly zero. We’ve all seen how difficult it can be to sell a house in recent years in the US, and in earlier recessionary times in Canada: my parents’ current house was bought for $20,000 less than a similar house a few blocks away because the owner had lost her job in the 1990s recession and had to sell quickly. A friend’s parents sold their house in 2007 for almost the same price they paid for it in the early 1980s because the mill in their town had closed, leaving most of the residents out of work.

Overinvestment in housing has decreased investment in other areas like medical technology, software and alternative energy. Florida has written before about the dangers of putting too many eggs in one basket: at the height of the mortgage crisis in the US (in a November 28, 2009 article in the Globe and Mail), he wrote that the mortgage system was directly responsible for the crisis, and that the era of overinvestment in homeownership and car ownership were over. Interestingly, Florida also applies his argument to individuals: Canadians carry more mortgage debt as a percentage of their disposable income than Americans, meaning we have far less to spend on other things. A friend of mine who works in mutual funds and investments tells me the average homeowner pays for their house two and a half times due to interest. This is probably no surprise to those of us living in the country’s biggest cities, where housing prices are astonomical and have not shown any decline in growth since the US mortgage crisis. In fact, housing prices in Canada increased 20% last year.

Florida argues that in cities with higher homeownership, unemployment is also higher because homeowners are less likely to pick up and move when things get tough. He believes that mobility is often the key to employment, and more flexible housing choices are key in times of economic instability. It seems there are other people out there like me, who prefer the flexibility of renting because we want to remain mobile and have no desire to live in one place for twenty years. We aren’t all that uncommon either: 40.1% of the Canadian population moved within the past five years, according to the 2006 Census; 14.1% moved within the last year. Florida correctly predicted that rental housing would play a major role in stabilizing the US economy after the mortgage crisis: families were able to move into foreclosed properties that were renovated and re-marketed as affordable rental housing. This was because the Obama administration wasted no time in investing $4.25 billion on the creation of tens of thousands of federally-subsidized rental units using the federal Making Homes Affordable program.

Vintage 1950s matchbooks featuring real estate ads

In his May 3rd article in the Globe and Mail, Florida goes as far as saying that “home ownership is an impediment to Canada’s long-term prosperity” because high house prices, low interest rates and lax government policies in Canada could spell trouble for the housing market. Even though people have been talking about the “bubble” for over fifteen years, Edward Jones’ recent report predicts Canada’s is about to burst. The federal government recently made it more difficult to get a mortgage and is considering other measures to tighten mortgage availability in order to protect the market from collapse. They eliminated the no down payment mortgage option before the US crisis began, but there is still a 5% down option. What is particularly interesting to me as a non-economist is how the housing market has historically been used to maintain or even increase consumer spending to stave off or recover from economic recession: besides the post-war era, we saw low interest rates brought in after the 1989 stock market crash in Canada and after 9/11 in the US to encourage people to keep buying homes. I guess there’s a fine line between “removing barriers to homeownership” to encourage spending and bringing on an economic meltdown by letting anyone with a a couple of bucks buy a house.

Massive marketing was required to sell the idea of homeownership as a stable, more respectable lifestyle choice. Let’s not forget that those first homes were practically given away at very low prices and low mortgage rates, their construction highly subsidized by federal governments in both the US and Canada. Those cherubic children, war brides and returning vets in 1940s suburban home ads were so convincing that most of us still believe homeowners are somehow better than renters: even Florida hints that switching from homeownership to renting might have “unforseen social costs” for cities and regions. Our own values and biases about homeownership drive the market. Yet a mere 60 years ago, renter households were the majority in both our countries.

The classic French text Un chez-moi à mon coût (2000) (edited by Eric Brassard), which I read at the urging of a fellow renter working at CMHC, carefully dissects all the economic myths of homeownership, arguing that it is often the non-economic factors that are the most influential. The book presents case studies of housing choices of a variety of professionals, both renters and owners, who argue that there is no sound economic argument for homeownership or against renting: it just comes down to personal preference. But we’re so invested in the homeownership ideal that investing in rental housing, or convincing middle-income families to rent, would take a lot of work. The tide may be turning in the US, but with high housing prices and fairly easy access to mortgages, we may not see this shift in Canada until our own mortgage crisis rears its ugly head.

As many of you know, there have been some very interesting developments in American cities over the past couple of years. Some cities have experienced decreased car ownership, there was a decrease in Vehicle Miles Travelled in 2008, and even the American Dream of homeownership has taken a left turn. Now, the Environmental Protection Agency reports that the proportion of homes being built in central cities has doubled since 2006.

The EPA report Residential Construction Trends in America’s Metropolitan Regions summarizes a study that examined residential permit data over 19 years (1990-2008)  in 50 metropolitan regions. In roughly half of the regions, there has been a dramatic increase in the share of new residential permits built in inner cities and older suburbs.

Among the cities that saw a substantial increase are New York, Los Angeles, Oakland, Sacramento, Miami, Chicago, Denver, Portland, Seattle, and Fort Worth. But even smaller centres like Birmingham, Milwaukee, and Kansas City saw substantial increases in the share of residential permits in their inner cities. Cities with low increases include St. Louis, Detroit, and Salt Lake City, while Cincinnati, Cleveland, Hartford, Providence, and Buffalo all had slight decreases. Particularly interesting are the graphs which show detailed trends for specific metropolitan regions, contrasting urban fringe, 1st tier suburb, and city permits. In many cases, we can see the beginning the mortgage crisis on these graphs: between 2004 and 2006, urban fringe areas began their decline and cities began their ascent.

A lot of this has to do with housing type: national data confirms that the proportion of single detached housing permits decreased from 71% in 2000 to 59% in 2008. Townhouses remained relatively stable, while condos increased from 4% to 7%, rented condos from 16% to 24% and large multifamily buildings from 11% to 23%. I find these numbers surprising: little by little, the American Dream seems to be crumbling before our eyes. We have to remember that not all of this change can be pinned on the dismal housing market, since the trends persist over 19 years.

The EPA cautions that, while the data reveals a substantial shift in residential patterns, a large percentage of construction still takes place on previously undeveloped land. While the share of residential permits increased in many regions, in some these still account for less than half the overall share at the regional level. They would like to do further research on what is driving the shift: real estate market fundamentals or public sector policies? What type of residential units are being built on previously-developed land, and what percentage of these are transit-accessible? However, they did feel safe in saying that, “This acceleration of residential construction in urban neighborhoods reflects a fundamental shift in the real estate market,” citing lower crime rates in urban areas and increased demand for homes in walkable neighbourhoods close to jobs.

An interesting development has been sweeping away the iconic ideal of homeownership in the US. It isn’t a new idea, but in recent years it has certainly been an unpopular one: renting. With the housing market so unstable, many Amerians are turning to renting for an affordable and, surprisingly, more stable housing type.

Mark Whitehouse reported in the Wall Street Journal (“Default, then Rent”, December 16, 2009) that many homeowners have recently discovered that “giving up on the American Dream has its benefits”. If this sounds shocking, read on: Whitehouse writes that even as the housing bust “tarnishes the near-sacred image of homeownership, it may be clearing the way for economic recovery.” This is mostly because of mortgages that by far exceed the value of homes and bargain-basement rents, which free up lots of money for struggling families. As the US sees is lowest homeownership rates in twenty years (currently 67.6%), homeowners are seeing major benefits from shedding their mortgage debts and starting over. In fact, even efforts by the Obama administration to get banks to lower mortgage rates to keep households from foreclosing have been criticized as influencing families to make decisions that are not in their best interests.

In many places, such as Palmdale Arizona, luxury homes are being converted to rental properties using the federal Making Homes Affordable program. Former homeowners note that some of the benefits of renting include: not paying property tax, homeowners’ insurance, or dealing with repairs or maintenance.

While foreclosure still carries a stigma, and many feel taxpayers are paying for those who foreclose and can afford to pay their mortgages, these new renters are transforming the real estate market in many areas. Rental managers are being more flexible about who they take on as tenants, knowing the majority are “good people who just got loans or bought at the wrong time,” to quote a rental agent in Palmdale. Since the Obama administration committed $4.5 billion in economic stimulus money to the creation of these types of rental units, renting has become more commonplace.

Housing prices are stabilizing in the US but experts say they will not reach their boom levels again for years, if not decades. In his New York Times blog, Edward L. Glaeser, a Harvard economics professor, writes that the price of a house should be about the cost of building a home in most parts of the country where land is abundant and there’s less regulation. In the denser, larger cities, land is more restricted and regulations are stricter. Glaser writes that Americans should “stop thinking of your home as an investment that will yield comparable returns to the stock market. Housing is a form of consumption that yields benefits in the form of a more pleasant life, not a bigger balance sheet.” With so many houses glutting the market, it will be awhile before prices start to rise.

These are fascinating developments in the US, where homeownership has been the mantra for sixty years. It’s too early to predict if the changes in housing tenure will last, but they certainly give us food for thought. In Canada, the affordable housing bill (C304) has again been stalled by the Prime Minister’s proroguing government, but as a private member’s bill (Vancouver East MP Libby Davies introduced it) the committees will resume their discussions once Parliament restarts in March. We still have a long way to go, but breaking away from a one-size-fits-all model for housing is a good start.