Requiem for the Failed Housing Policies of the 2010s

Government of all levels and all political stripes spent the previous decade going about housing policy all wrong. Despite obvious demand pressures that would only intensify with strong population growth and the inevitable aging of the Millennial generation into their household forming years, government policy was entirely directed at rationing demand and targeting a sliver of non-resident property ownership rather than creating abundant supply.

Ground zero

Patient zero for the myopic focus of government policy was of course the Foreign Buyer Tax of 2016. A dominant media narrative combined with insufficient data collection convinced government and public alike that rising home prices were solely due to too much foreign investment, mistaking a symptom for a cause. The impact of the foreign buyer tax was immediate, but ultimately short-lived and prices quickly returned to pre-tax levels.

Cold Fusion

The next prescription was yet another tax, the Speculation and Vacancy Tax (SVT), this time targeting not only non-residents but also British Columbians and other Canadians who owned second properties in the province or who earn the majority of their income outside of Canada. Oddly, this policy was sold to the public as impacting fewer than 1 per cent of households, and yet also having enormous positives for housing affordability. Essentially the cold-fusion equivalent of housing policy. Notably, the SVT was implemented at the same time as the mortgage stress test and coincident with the Bank of Canada raising interest rates, making the impact somewhat difficult to isolate. Regardless, after a brief dip, home prices were once again marching higher by early 2019.

The final straw

The most definitive nail-in-the-coffin for this narrow approach to housing policy was the COVID-19 pandemic. The pandemic shut-down cross border flows of people and money for close to two years. Yet, without non-resident investment, and with only a trickle of immigration, home prices across the entire province rocketed higher, fueled by emergency levels of interest rates and amped-up domestic housing demand.

The (hopefully!) last gasp of the failed policy approach of the 2010s was the two-year foreign buyer ban implemented by the Federal Government and recently extended to 2027. If you’ve read this far you can probably guess that prices have risen higher since the ban came into effect.

Indeed, since these policies were introduced, the average home price in BC has risen more than 40 per cent and affordability in the province has reached crisis levels. Perhaps the most charitable thing to be said about provincial housing policy over the past decade is that without these taxes and restrictions, prices would be even higher. That is a counterfactual argument I would listen to, but cold comfort for British Columbians struggling with housing affordability. Will this be the end of polices aimed at a source of demand that accounts for about 1 to 3 per cent of transactions? Maybe not, considering that 70 per cent of British Columbians surveyed still believe that limiting foreign buyers will help reduce home prices.

Back on course?

Fortunately, outside of a few recent missteps, policymakers have seemingly found a common playbook and are now advocating ambitious targets for housing supply. Both federal and provincial governments are providing previously recalcitrant municipalities with both the carrot of low-cost loans and funding as well as the stick of lost control over zoning policy.

If successful, the Province is hoping that the huge increase in allowable density that anchors its Homes for People Plan will help to create hundreds of thousands of new homes across BC and finally reverse a decade long deterioration in housing affordability.

Our economic modelling at BCREA has shown that a huge expansion of supply would certainly bend affordability back toward pre-pandemic levels, but after so many years of neglecting needed supply reforms, change will not happen overnight and will require unprecedented investment by the private and public sector. That said, while uncertain, there is no viable alternative to fixing housing affordability in the province and a supply-oriented approach has a much better chance of succeeding than the narrow and ineffective policies of the past decade.