“Lasciate ogne speranza, voi ch’intrate”
-Dante Alighieri
So reads the sign on the gate of Hell. Had the language of Dante been English instead of Italian, it may have read, “Abandon all hope, ye who enter here.” Thus was the beginning of the descent into the nine circles of eternal damnation in his Divine Comedy.
That’s as apt an introduction to the concept of affordable housing as I can conjure.
The term itself has become an oxymoron, the butt of cruel jokes, a meaningless political trope, an impossible dream or, at best, a relative term that inflates the meaning of affordable to absurd heights.
It’s impossible to read a newspaper, or watch or listen to a newscast without stumbling across politicians from all levels of government holding forth on the need for affordable or more affordable housing. The lack of affordable housing is just one brick in the wall of woes the leader of the official opposition builds to imprison the current prime minister.
In an attempt to give meaning to the meaningless, Charles St-Arnaud, chief economist of Alberta Central—self-described as the central banking facility and trade association for Alberta’s credit unions—recently released a study titled, What Does it Mean to Restore Housing Affordability? Significant Sacrifices and Adjustments.
Affordability, as defined by the author, is a mortgage-to-income ratio of 25% of total housing costs—mortgage, property taxes, insurance, condo fees and heating costs—keeping housing costs at or below 30% of income.
This is probably a good place to note the latest census indicates 43% of Whistler households spend more than 30% of their income on rent. Careful readers may have picked up on the word “rent” in that sentence. Why rent? Probably because few of Whistler’s 14,000-plus residents can afford to own houses in Whistler. Those who do are likely to have either lived here long enough to remember when houses were affordable, or nearly so, or retired here to their second home—or one they purchased when they cashed out of a high-priced market like Vancouver.
While it’s comforting to hear politicians talking about making housing more affordable, what does it mean in real-world terms? Cutting through the math of Mr. St-Arnaud’s report, there are three levers he focuses on to determine affordability: house prices, wages, and interest rates.
To achieve affordability the three levers have to dance with one another. If, say, house prices stay the same—are frozen—wages have to go up and/or interest rates have to fall, or both, to achieve affordability. If wages stay the same, house prices and interest rates have to fall. If interest rates stay the same, house prices have to fall and wages have to probably go up.
That’s how it works together. Here, focusing on Canada’s largest cities, is what he reports.
Affordability is at its lowest in four decades.
Boosting housing supply will be key to restoring affordability, though not sufficient.
At current levels of income and interest rates, house prices would need to decline by 50% in Toronto and 35% in Vancouver to restore affordability.
Holding house prices and interest rates at current levels, incomes would need to double in Toronto and increase by 83% in Vancouver to restore affordability.
With expected lower interest rates later this year, house prices would have to decline by 39% in Toronto and 33% in Vancouver just to return to pre-pandemic levels of unaffordability.
If they did, incomes would have to rise by 65% in Toronto and 50% in Vancouver. If incomes increased at 4% per year, it would take a decade or longer to restore affordability, during which time house prices would not increase.
He concludes by suggesting achieving affordability can only come at a cost to current homeowners, ether by a reduction in values or stagnant values for a long period of time. Of course, the knock-on effects of reduced values would be mortgages that were under water for many who’d purchased homes in the past five years, and severe economic distortions for everyone else.
In addition, a stagnant housing market would likely be a disincentive for homebuilders to build new homes in the numbers needed to house a growing population and catch up with the under- and unhoused population currently existing.
But a lack of action is likely to create a permanently unaffordable housing market in Canada and place significant costs on the rest of the economy.
So suppose we continue to do what we’ve been doing, which is to say nothing. In that case, households will spend more of their income on housing and less on other parts of the economy. Debt will go up, making people more vulnerable to unexpected economic shocks. The labour market will be impacted as people refuse to accept employment in more expensive places—lookin’ at you, Whistler. Inequality and social issues will increase between homeowners and renters and perpetuate intergenerational poverty.
St-Arnaud sees two paths toward affordability: a fast drop in house prices or
a prolonged adjustment that’ll take more than a decade.
I see a political can being kicked down the road for the foreseeable future.
With Whistler being exempted from all federal and provincial Hail Mary passes instituted to date to tackle affordability—empty home tax, speculation tax, Airbnb moratorium—the effect on local market housing will be zero, with prices being left to the invisible hand of supply and demand.
That, of course, leaves as the only hope for most Whistleratics whatever housing the municipality can build through the efforts of Whistler 2020 Development Corp. With the focus largely on building rental housing, that means coming up with funds to get it out of the ground.
The Resort Municipality of Whistler recently announced $2 million from the Municipal and Regional District Tax, “hotel tax,” will be directed toward the efforts. More, much more, is needed.
Last September, Toronto proposed a graduated, municipal land transfer tax on homes, starting at 3.5% on homes valued at more than $3 million and rising to 7.5% on homes more than $20 million.
While the province of B.C. hungrily protects what it collects through the property transfer tax on the sale of every house in Whistler, it has apparently not been overly welcoming of a similar municipal transfer tax being instituted by Whistler. Too bad. With the price of houses here, that would be a great help.
And let’s be honest, prices of houses here are directly enhanced by the creation of employee housing, since Whistler wouldn’t be what it is without those employees.
Market housing will never be affordable here. “Affordable” employee housing will be the only game in town. And it takes money to make it affordable.
Who pays? Who should pay?
