Summarize in up to four sentences.: Business
There Is No Housing Crisis
Supply alone will not solve a problem that large sections of the population don’t want to fix
BY RICARDO TRANJAN
Updated 8:42, Aug. 7, 2023 | Published 6:30, Aug. 7, 2023
A collage of three black-and-white photos: A condo building, a person signing a lease, and keys on a door.
Celina Gallardo / Unsplash

IN A NEWS ARTICLE titled “The Middle-Class Housing Crisis,” the Toronto Star warns that “if rent control were suddenly to cease, many families would suddenly be confronted by the danger of eviction or the necessity to find other accommodation because they could not afford to stay where they were.” An investigative news story in Maclean’s contends the “housing crisis,” which “shows no immediate signs of easing,” is fuelling tenant organizing across the country. In Quebec, Le Devoir reports on a press conference organized by tenant committees demanding provincial investment in affordable housing. A commentary published in a BC magazine argues that “we must have more homes and we must have them at prices people can afford to pay.”

Don’t let an algorithm tell you what to read. Sign up for The Walrus newsletter today.

Type your email

 By checking this box I consent to the use of my information for emails from The Walrus.*
Submit
For many readers, these stories sound like a random selection of the last week’s news. They could have been. The “housing crisis” is a recurring topic in Canadian media, with hardly a week going by where we do not hear new and daunting findings about how unaffordable housing has become. It is also a dominant theme in public policy circles, where “housing crisis” comes up regardless of the topic of discussion. Never mind the many podcasts, conferences, articles, and reports on the “housing crisis.” All of this fuss conceals the fact that political struggle over housing is old news. The Toronto Star article is from 1950, the Maclean’s story appeared in 1969, the Montreal press conference took place in 1980, and the BC commentary dates back to 1911. More importantly, the problem with all of this crisis talk is that there is no actual “housing crisis.” That’s right—there is no crisis.

Many Canadians Will Never Own a Home. Does It Matter?
I’m Haunted by the Mansions of My Youth
How Empty Storefronts Are Killing Our Neighbourhoods
THE WORD CRISIS suggests something that is infrequent, surprising, and widely undesirable—something that leads to dire consequences unless it is brought under control. The United Nations defines a humanitarian crisis as “an event or series of events that represents a critical threat to the health, safety, security, or well-being of a community or other large group of people usually over a wider area.” Examples include pandemics, natural disasters, and war. An International Monetary Fund study defines a financial crisis as “an amalgam of events, including substantial changes in credit volume and asset prices, severe disruptions in financial intermediation, notably the supply of external financing, large-scale balance sheet problems, and the need for large-scale government support.” In fewer words: countries gone bankrupt.

It is fair to expect governments to act with resolve when dealing with real crises, swiftly deploying the personnel and resources needed to stop the bleeding. COVID-19 was a health crisis, and governments did what they did to contain the spread of the virus. Financial crises like the 2008 economic meltdown are met with prompt and costly government measures. The Russian invasion of Ukraine prompted a speedy, large-scale response from several countries and international organizations.

In contrast, Canada’s “housing crisis” is a permanent state of affairs that harms people in, or in need of, rental housing; roughly one-third of the country’s households. The other two-thirds own homes whose values rise much faster than other investment options. New homeowners may face high housing costs, but mortgage payments are accompanied by long-term growth in their personal wealth. Landlords, real estate investment firms, and developers operate in a stable and lucrative business environment. Even 2020—the first year of the pandemic when entire sectors of the economy were shut down—was a good year for the industry. Banks and other mortgage providers create money, lend it, and charge interest on it. If that wasn’t already a sweet deal, the federal government assumes a share of the risk of these mortgages so that banks can make easy money worry free.

A housing system that serves all but one group is not in a state of crisis; it is one based on structural inequality and economic exploitation. For some readers, “exploitation” may sound too harsh a term. Renting properties is not only legal but morally acceptable, and some people argue landlords help tenants by providing them with a place to live. In the political economy tradition, exploitation has a specific meaning: it refers to a group or class of people appropriating an unfair share of the fruits of the labour of another class. The classic example is workers and bosses.

The highest paid CEOs in Canada earn the equivalent of the annual income of average workers in just one morning. People need to work, and if the jobs available are low paying, they have no choice but to accept them. The wages these workers take home represent but a small portion of the total value of their work; executives and shareholders pocket most of that value. This is legal and widely accepted, which doesn’t mean it is not exploitation. On the contrary, it is exploitation because laws, institutions, and moral norms allow some people to enrich on the backs of others. Unless tightly regulated, labour markets enable exploitation.

So does the rental housing market. Unlike most services and commodities, the price tag on rental units has no real relationship to the cost of providing housing. Rents are determined by “what the market will bear,” as economists say. Even if a property has been paid for three times over (by previous tenants), landlords can charge well over the cost of maintaining that unit if that’s what similar units are going for in the market. If the financial plan for a new building is to recover costs over twenty years but the market squeezes more out of tenants than initially forecasted, the result is higher profits sooner than expected, not lower rents. The question is never whether the rental property will generate profit but, rather, how much profit and how soon. The business is stable and lucrative because people have to live somewhere. If the cheapest available option takes the lion’s share of their incomes—as with a third of tenant families—they have to take it. Laws, institutions like landlord and tenant boards, and moral standards permit and legitimize wealth accumulation through rent collection.

In the aftermath of the 2008 financial meltdown, rental properties became the targets of investors and speculators unwilling to let a good crisis go to waste. The COVID-19 pandemic became an opportunity for landlords to evict tenants, who fell into arrears due to the economic shutdown, and hike up rents. Government actions in recent years included partial cancellation of rent controls, wage freezes, the use of excessive force in the clearing of homeless encampments, the fast-tracking of evictions through virtual hearings, and the failure to protect people living in multi-tenant housing. The air feels heavy. But none of this is fundamentally new—or unexpected.

The purpose of the rental market is not to ensure the highest possible number of families is securely housed. The purpose of the rental market is to extract income from tenants, and as far as this goal is concerned, it works like a charm!

THIS DISTINCTION between a “housing crisis” and a rental market that enables exploitation has practical implications. How we talk about these issues shapes what we conceive as possible and desirable responses to them. A “housing crisis” suggests the need for a technical solution and coordination between various stakeholders, all of whom desire the same outcome: the end of the crisis. Nobody is at fault. Politicizing the issue is unhelpful. We need win-win solutions. The right policy mix, backed by adequate government funding, is the only way forward; it would benefit everyone. This is, by far, the dominant view of how to deal with housing issues in Canada.

In this perspective, the market itself is never the problem. If rents go through the roof, working families cannot afford modest units, and parents have to choose between paying rent and putting food on the table, then something is off with the rental market; it is not working as it should. Real estate lobbyists and some housing experts argue the problem is that supply is not catching up fast enough with demand. If we build more housing, the argument goes, people will have more choices, and rent will be lower. The main problem with this “supply-side” argument is that it is not true.

In Economics 101, students learn the law of supply and demand, wherein prices fall if supply exceeds demand. The real world is more complicated, and that is particularly true of housing markets. There are many reasons for not treating housing as a market that arrives at an optimal balance. The most important is that land, on which housing is built, is a fixed resource. We cannot produce more of it (though we can make better use of urban land). Highly desirable land—be it downtown Toronto building lots or prairie farmland—is fixed in quantity and scarce. There is little of it. Those who own it have the upper hand.

Another important difference between real-world rental markets and the law of supply and demand taught in Economics 101 is that housing is not bananas. Bananas spoil quickly, so it is in the interest of sellers to get rid of them, even if for a lower price than initially expected. Housing increases in value over time; someone holding on to an empty apartment in Vancouver is making lots of money in absolute terms, even if comparatively less money than if the apartment were rented. When a new tenant agrees to pay a higher rent for years to come, the waiting pays itself off in a few months, and the rest is profit. The correlation between the supply and price of rental housing is much more complicated than the proponents of “supply-side” arguments make it out to be.

For example, proponents of the “supply-side” argument frequently point to low vacancy rates as an indication that supply is low, which drives rents higher. During the COVID-19 pandemic, the national vacancy rate went up from 2 percent to 3.2 percent, a 60 percent increase. What happened to rents? They, too, went up, by 3.6 percent. In Toronto, vacancy rates more than doubled between October 2019 (1.5 percent) and October 2020 (3.4 percent). What happened to the average rent in the city? It rose by 4.7 percent. A Canada Mortgage and Housing Corporation report explained that, in hot markets like Toronto and Montreal, landlords chose to wait longer to fill vacancies or offered one-time rent discounts instead of lowering rents.

In 2021, a prominent housing expert, Steve Pomeroy, demonstrated that “between 2006 and 2016, Canada added 1.636 million households and built 1.919 million new homes . . . almost 30,000 extra homes were constructed each year compared to the increase in the number of households.” And yet housing prices and rents went up at a breakneck speed during those years. Neither Pomeroy nor I contend that Canada has enough housing or that additional supply would not be beneficial. The point is that supply alone will not solve the problem.

WHY, THEN, are “housing crisis” and “supply-side” arguments so prevalent? Canadian political economist Robert Cox famously said, “Theory is always for someone, for some purpose.” He was criticizing studies that take the existing social order and institutions as a given. Problem-solving theories, as he called them, don’t ask how things came to be, who benefits from the way things are, or whether things could be different. Instead, the focus is on smoothing out any troubles with the existing institutions. By not only accepting but helping to troubleshoot the current order, problem-solving theories legitimize and entrench the status quo. While priding itself on being value free and offering practical solutions to concrete problems, this type of research serves the interests of those who are comfortable with the way things are and would rather avoid substantive changes.

A lot of housing research adheres to this problem-solving approach, and in doing so, it serves the interests of the real estate industry. If we believe lack of supply is the cause of lack of housing affordability, the solution is building more. If we build more but rents continue to go up, we must not be building enough. Build more, faster! How? Governments must provide financial and regulatory incentives to developers and remove rent controls so that landlords find the business more attractive. The “supply-side” argument serves a clear purpose: to sweeten the deal for developers and landlords. This argument has been made for decades; it has justified countless subsidies for the real estate industry; it has not lowered rents, and it will not go away either. An argument that so directly supports the interests of an influential economic elite is not going anywhere, no matter how much empirical evidence is mounted against it.

The widespread use of “housing crisis” also helps to preserve the status quo. It reinforces the idea that Canada’s housing system worked well at some point but something unexpected happened, bringing about unseen and widely undesirable outcomes. That’s not true. For a large share of the population, the housing system never worked, and the current state of affairs is making lots of people rich, like very rich. It’s not really a crisis if it has lasted more than a century and large sections of the population wouldn’t have it any different, is it? Still, the housing debate in Canada centres on finding innovative, effective, evidence-based solutions to this so-called crisis. Years come and go. Public consultations lead to expert reports that call for more public consultations. The ultimate outcome of this policy merry-go-round is to conceal the power politics behind housing.

Excerpted from The Tenant Class by Ricardo Tranjan, copyright 2023. Reproduced with permission from Between the Lines.

Ricardo Tranjan
Ricardo Tranjan is a political economist and senior researcher with the Canadian Centre for Policy Alternatives. He holds a PhD from the University of Waterloo, where he was a Vanier scholar. A frequent media commentator in English and French, he lives in Ottawa.