Federal mixed messages on home prices stem from a deeper issue
The federal government has never articulated a coherent vision for the future of middle-class housing
Highlights
The federal government has been unable to articulate a clear message on what needs to happen to home prices.
While the conventional wisdom is that it is due to Ministers going off-message, it is actually due to a larger, structural issue: The government does not know what it is trying to accomplish with middle-class housing. It lacks clear goals and objectives.
The federal government will not fix this problem until it articulates clear goals and objectives for middle-class housing. But as Ontario’s provincial government shows, clear goals and objectives are not enough. Realism and implementation matter.
The housing story of the week was a series of comments by the newly minted Housing Minister Gregor Robertson. When asked if he felt housing prices needed to go down, he responded, "No, I think that we need to deliver more supply and make sure the market is stable. It's a huge part of our economy.”
That generated quite a stir on social media, but the Minister did not back down, clarifying that, “The question I answered was about reducing the price of a family’s current home, which for most Canadians, is their most valuable asset.”
The conventional wisdom is that the Minister’s comments stem from the fact that no politician will say that home prices need to come down, as it will spook existing homeowners. As a homeowner, I understand the sentiment. But Conservative housing critic Scott Aitchison had no problem responding, “Of course prices have to come down”, and I think most reasonable Canadians understand that homes will be forever out of reach for most young people, in much of Canada, at today’s prices.
I believe the issue is deeper and more structural. It is due to the Liberal government never articulating a vision, even to itself, of the future of middle-class housing.
Giving ourselves a GOST of a chance
At the risk of continuing a “should governments be run like corporations” debate, there is an exceptionally useful business framework that can guide our thinking. Rich Horwath’s GOST Framework creates a structure for strategic planning that aids mutual understanding across an organization. As outlined by Adam Fischer, GOST is an acronym for Goals-Objectives-Strategies-and-Tactics; Fischer’s conception of GOST is shown in Figure 1.
Figure 1: GOST Framework Element Definitions
Source: StrategyKiln.
We can easily adopt GOST to housing policy, as follows:
GOALS: What is the qualitative result, or North Star, you are trying to achieve? What does success look like?
OBJECTIVES: Which metrics will you use to determine whether you are getting closer, or farther from your goals? This could include prices, rents, the number of units, etc.
STRATEGIES: This involves identifying the barriers preventing the goals and objectives from being realized and developing strategies to address them. For example, “we will create a more favourable investment environment for apartment developers” or “we will increase cash transfers to low-income families to help them afford rent.”
TACTICS: These are the individual policies, which should be aligned with the strategies identified above, such as “cutting the capital gains rate in half, to create a more favourable investment environment”. (Note: These strategies and tactics are just examples, not endorsements)
The GOST Framework is just one of many approaches, but governments need to know what they are trying to accomplish, ensure that everyone from civil servants to MPs to the general public understands what they are trying to accomplish, and then design policies that move us closer to that goal. It creates the conditions for better public policy, because it allows us to ask questions such as, “Does this proposed idea move us closer or further to our goals?”, “Is this idea the best use of our time and money, or could we accomplish the same outcome at a lower cost through some other policy?” Without this analysis, we’re left with an incoherent mess of policy-for-policy's sake.
Adapting GOST for the federal government’s housing policies for those outside the middle class.
A decade ago, the federal government often used the phrase “middle class Canadians and those working hard to join them”, to distinguish between the middle class and those without the wealth or income to be considered middle class. For the “working hard to join them” cohort, the federal government has done an excellent job of identifying a vision for housing and using that vision to guide public policy.
Translating the federal vision for this group into the GOST Framework looks roughly as follows.
GOALS: These are articulated in the National Housing Strategy Act, the National Housing Strategy, and Canada's Housing Plan. These documents are not always aligned (a problem), and there is no consistent statement of goal (again, a problem), but I would summarize the overarching goal as “ensure the human right to housing is realized for all in Canada”.
OBJECTIVES: “Removing 530,000 Canadian families from housing need and reducing chronic homelessness by half over the next decade” - National Housing Strategy.
STRATEGIES: The government might not describe it in these terms, but I would summarize it as " increasing the stock of non-market, below-market, and market-rate rental housing.” The Housing Plan also articulated how Canada found itself in this situation: “Successive governments at every level and of varying partisan stripes chose not to invest in building homes. They failed to understand the need to build homes for future generations of Canadians… Over time it became more challenging to build homes in Canada. Restrictive planning policies prevented the construction of high-density housing near existing infrastructure and transit. Municipalities started charging extra fees to help meet budget demands. Provinces fell behind on supportive housing investments. And the federal government pulled back when it should have stepped up. These factors created higher costs, construction delays, and a lack of affordable housing options.”
TACTICS: A variety of programs designed to accelerate the growth of social housing and market-rate rental, from CMHC programs like MLI Select and ACLP to tax measures like eliminating the GST on purpose-built rental to accelerated capital cost allowance provisions, and policies not yet enacted like MURB and Build Canada Homes.
From a supply-side point of view, it has worked remarkably well. Rental starts have grown absolutely rapidly over the past decade.
Figure 2: Rental ownership housing starts, number of units, by year, in Canada
Source: The Next Housing Minister Must Restore the Dream of Homeownership
From an affordability point of view, it has worked a whole lot less well, as rents have climbed because, until recently, demand growth has outstripped supply growth due to rapid population growth. Had the federal government enacted more sustainable population growth policies, its measures to increase rental supply would be hailed as an enormous success.
The federal government lacks goals, objectives, and strategies for middle-class housing
When it comes to housing the middle class, the federal government lacks clear goals, objectives, and clear strategies, leaving it with a grab-bag of disconnected policies. The closest the government has come to a goal is with the statement in the Housing Plan that “no hard-working Canadian should have to spend more than 30% of their income on shelter costs. No Canadian should have to live without knowing they have a safe and affordable place to live.” But this is simply a restatement of one-third of the definition of core housing need, which is already covered by the concept of housing as a human right, as discussed earlier.
The government’s goals do not address whether the middle class should be able to afford to own a home (rather than rent), where these homes would be located, or whether they are large enough to raise a family. This leads to government objectives like building 500,000 homes without consideration of their size, location, or price point and a grab bag of disconnected policies like removing the GST for first-time homebuyers.
As we saw this week, this also means the government is unable to give a consistent answer across Ministers on whether home prices will need to fall. The federal government can’t answer this question because it has never developed goals and objectives for middle-class housing.
It is not impossible to develop goals and objectives for middle-class housing. MMI’s North Star is the goal that drives all of our housing work:
Missing Middle Initiative’s North Star: A Canada where every middle-class individual or family, in every city, has a high-quality of life and access to both market-rate rental and market-rate ownership housing options that are affordable, adequate, suitable, resilient, and climate-friendly.
This goal can be operationalized into objectives using the definitions we have provided for each term in the North Star. Other groups have advocated for different objectives, including Paul Kershaw of Generation Squeeze, who has advocated for home price targets.
Perhaps not surprisingly, the Canadian politician who has done the most to develop a business strategy-like approach to housing policy is former businessman and current Ontario Premier Doug Ford. A couple of years ago, at Ford Fest in Kitchener, Ford set a clear objective for middle-class housing:
We're going to offer a 1600 square foot home with a basement that's finished that you can rent out or have a family there. You're going to have a backyard with a fence and you're going to have a paved driveway for under $500,000.
Reasonable people can agree or disagree with this objective, but it is difficult to argue that it is unclear. It also lends itself well to crafting strategies and tactics, such as land use changes, regulatory and tax reform, and so on. Ford has not been at all successful in achieving that objective, partly because of a lack of realism, but mostly due to challenges in implementing the strategies and tactics. Which goes to show that while clear goals and objectives are necessary, they are not sufficient. Implementation and realism matter.
The federal government can fix the mess it has created. It can clearly articulate goals and objectives for middle-class housing. Until it does, expect more poorly designed middle-class housing policy and increasing backlash from Canadians, as Ministers are unable to articulate a clear message on housing.