Canada can’t have fast population growth, housing supply constraints, and housing affordability

From the MacDonald Laurier Institute

By Steve Lafleur

No one wants to solve the housing crisis enough to make the hard choices.

It’s tempting to try to have it all and policymakers are not immune to this. There are tradeoffs in everything. Ignoring those tradeoffs might work for awhile, but eventually reality catches up to you. Try as we might, we can’t have it all.

For instance, we can’t have rapid population growth, housing supply constraints, and housing affordability all at the same time. We’ll call this the housing affordability trilemma.

The idea of a policy trilemma comes from the Mundell-Fleming model which is included in most introductory economics textbooks. The model was named after Canadian economist Robert Mundell and British economist Marcus Fleming, who developed the idea in the early 1960s. The basic premise of the model, also called the “impossible trinity” or “trilemma” is that you can have two of three policies, but not all three (namely, free capital flow, a fixed exchange rate, and a sovereign monetary policy).

The idea of an impossible trinity can and has been applied to other situations, like the euro crisis in the early 2010s, and provides a useful way of looking at seemingly intractable problems. Plotting the related problems on a Venn Diagram helps visualize the problem. Here is the Mundell-Flemming model, visualized.

(Source: Author’s creation, graphic recreated)

Now, let’s return to housing policy. Few Canadian problems are as intractable as the now nationwide housing affordability crisis. Rents are rising quickly, apartment availability is falling, and home prices are the highest relative to incomes in the G7. As we’ve shown in a recent paper for the MacDonald Laurier Institute, Canada’s population growth is outstripping housing growth. This, unsurprisingly, has undermined housing affordability. Let’s visualize this trilemma.

(Source: Author’s creation, graphic recreated)

At the root of Canada’s housing woes is a severe shortage of homes relative to the number needed. We simply don’t build enough homes to adequately house current and future Canadians.

Not only is there cross-party consensus that there’s a housing shortage, but most parties in provincial and federal elections have proposed policies aimed at addressing it. So why do we still have a shortage?

Let’s go through the elements of the Canada’s housing trilemma (or housing impossibility trinity).

The first element is a fast-growing population. Canada has the fastest growing population in the G7, and last year alone grew by more than a million people. Barring any major shifts in immigration policy, this trend is unlikely to change any time soon. Indeed, the population grew by 430,635 in the third quarter of 2023. That’s the highest quarterly growth rate since 1957.

The second element is restrictions on homebuilding. Whether intended or not, a suite of policies processes and regulations that prevent or limit the addition of more homes both in existing neighbourhoods and at the urban fringe. Barriers to density include local zoning bylaws, lengthy and uncertain consultation processes, and growth plans that exclude building or upgrading the infrastructure necessary to enable more homebuilding in existing neighbourhoods. Policies explicitly preventing the addition of homes outside of existing neighbourhoods include Ontario’s Greenbelt and British Columbia’s Agricultural Land Reserve, while softer versions include local planning targets limiting the share of development slotted to occur on city outskirts. Given these limitations, it’s no surprise that we’ve rarely surpassed 200,000 housing completions annually since the 1970s, while the rate of population growth has reached generational highs.

The third element is housing affordability. That is, the ability for individuals and families earning local incomes to comfortably meet their housing needs. This means shelter costs don’t prevent them from feeding and clothing themselves, but also allow saving and investing in an education, for instance. For example, some peg the cut-off for affordability at 30 percent of income. By that measure, a household would require an income of over $100,000 to afford a one-bedroom apartment in Vancouver, for example.

Whether we like it or not, we can’t have fast population growth, rigid housing supply constraints, and housing affordability all at the same time.

For most of our recent past, the choice we’ve collectively made is to accelerate population growth while maintaining many (if not most) restrictions on both outward and upward growth, meaning we’ve excluded the possibility of achieving broad affordability. The consequences? All the symptoms mentioned before: rising rents, falling vacancies, higher ownership costs.

Despite recent pivots by a growing number of local and provincial governments, the balance of housing and land-use policies remains firmly tilted against reaching the level of homebuilding we need to restore some semblance of affordability, which by some estimates means more than doubling homebuilding. To wit, housing construction has remained remarkably stagnant—even slightly declining—in recent decades. Even the bold changes to zoning recently passed in British Columbia, Ontario and Nova Scotia are unlikely to double the number of housing built provincewide.

But, as the housing trilemma suggests, there are alternative routes. If Canadians remain adamant about affordability, we can demand more meaningful reduction or removal of policies preventing a growth in housing supply, or we can demand a reduction in population growth, or both. These are not easy choices but ignoring them doesn’t make them go away. We need to build upwards, outwards, or both, in order to meaningfully increase housing production. We can’t say no to every solution and expect better results.

The point is, there’s broad consensus that Canada faces a housing crisis, and that major policy actions are needed to fix the problem. There’s also a tacit consensus that the policies feeding the crisis should remain in place.

To put it more bluntly, everyone wants to solve the housing crisis, but no one wants to solve the housing crisis enough to make the hard choices. Until we collectively shift our priorities, we are choosing to sacrifice housing affordability. We can’t have it all. If we insist on maintaining fast population growth and restrictions on supply, we’ll get the broken housing market we deserve.

Steve Lafleur is a public policy analyst who researches and writes for Canadian think tanks.

Related Topics:#CanadaHousingCrisis #HousingAffordability #HousingSupply #MacdonaldLaurierInstitute #PopulationGrowth #SteveLafleur

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Carbon tax bureaucracy costs taxpayers $800 million

Published on November 19, 2024

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From the Canadian Taxpayers Federation

By Ryan Thorpe

The cost of administering the federal carbon tax and rebate scheme has risen to $283 million since it was imposed in 2019, according to government records obtained by the Canadian Taxpayers Federation.

By 2030, the cost of administering the carbon tax is expected to total $796 million, according to the records.

“Not only does the carbon tax make our gas, heating and groceries more expensive, but taxpayers are also hit with a big bill to fund Prime Minister Justin Trudeau’s battalion of carbon tax bureaucrats,” said Franco Terrazzano, CTF Federal Director. “Trudeau should make life more affordable and slash the cost of the bureaucracy by scrapping the carbon tax.”

The government records were released in response to an order paper question from Conservative MP John Barlow (Foothills).

The carbon tax and rebate scheme cost taxpayers $84 million in 2023, according to the records.

There were 461 federal bureaucrats tasked with administering the carbon tax and rebate scheme last year, according to the records.

The CTF previously reported administering the carbon tax cost taxpayers $199 million between 2019 and 2022.

Projected costs for administering the carbon tax and rebate scheme between 2024 and 2030 are $513 million, according to the records.

That would bring total administration costs for the carbon tax and rebate scheme up to $796 million by 2030.

But the true hit to taxpayers is even higher, as the records do not include costs associated with the Fuel Charge Tax Credit for Farmers or the Canada Carbon Rebate for Small Businesses.

“It’s magic math to believe the feds can raise taxes, skim hundreds-of-millions off the top to hire hundreds of new bureaucrats and then somehow make everyone better off with rebates,” Terrazzano said.

The carbon tax will cost the average household up to $399 this year more than the rebates, according to the Parliamentary Budget Officer, the government’s independent, non-partisan budget watchdog.

The PBO also notes that, “Canada’s own emissions are not large enough to materially impact climate change.”

The government also charges its GST on top of the carbon tax. The PBO report shows this carbon tax-on-tax will cost taxpayers $400 million this year. That money isn’t rebated back to Canadians.

The carbon tax currently costs 17 cents per litre of gasoline, 21 cents per litre of diesel and 15 cents per cubic metre of natural gas.

By 2030, the carbon tax will cost 37 cents per litre of gasoline, 45 cents per litre of diesel and 32 cents per cubic metre of natural gas.

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COP 29 leaders demand over a $1 trillion a year in climate reparations from ‘wealthy’ nations. They don’t deserve a nickel.

Published on November 16, 2024

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From Energy Talking Points

By Alex Epstein

The injustice of climate reparations

COP 29 is calling for over $1 trillion in annual climate reparations

A major theme of COP 29 is that the world should set a “New Collective Quantified Goal” wherein successful nations pay poor nations over $1 trillion a year to 1) make up for climate-related harm and 2) build them new “green energy” economies. In other words, climate reparations.¹
What would $1 trillion a year in climate reparations mean for you and your family?Assuming the money was paid equally by households considered high income (>$50 per day), your household would have to pay more than $5,000 a year in climate reparations taxes!²
Climate reparations are based on two false assumptions:1. Free, wealthy countries, through their fossil fuel use, have made the world worse for poor countries.
2. The poor world’s main problem is dealing with climate change, which wealth transfers will help them with.

But free, fossil-fueled countries have made life better for poor countries

Free, wealthy countries, through their fossil fuel use, have not made the world worse for poor countries—they have made it far, far better.Observe what has happened to global life expectancies and income as fossil fuel use has risen. Life has gotten much better for everyone.³
The wealthy world’s fossil fuel use has improved life worldwide because by using fossil fuel energy to be incredibly productive, we have 1) made all kinds of goods cheaper and 2) been able to engage in life-saving aid, particularly in the realms of food, medicine, and sanitation.
Without the historic use of fossil fuels by the wealthy world, there would be no super-productive agriculture to feed 8 billion humans, no satellite-based weather warning systems, etc. Most of the individuals in poor countries would not even be alive today.

Free, fossil-fueled countries have made the poor safer from climate

The wealthy world’s fossil fuel use has been particularly beneficial in the realm of climate.Over the last 100 years, the death rate from climate-related disasters plummeted by 98% globally.
A big reason is millions of lives saved from drought via fossil-fueled crop transport.⁴
The “climate reparations” movement ignores the fact that the wealthy world’s fossil fuel use has made life better, including safer from climate, in the poor world.This allows it to pretend that the poor world’s main problem is dealing with rising CO2 levels.

The poor world’s problem is poverty, not rising CO2 levels

The poor world’s main problem is not rising CO2 levels, it is poverty—which is caused by lack of freedom, including the crucial freedom to use fossil fuels.Poverty makes everything worse, including the world’s massive natural climate danger and any danger from more CO2.
While it’s not true that the wealthy world has increased climate danger in the poor world—we have reduced it—it is true that the poor world is more endangered by climate than the wealthy world is.The solution is for the poor to get rich. Which requires freedom and fossil fuels.⁵

Escaping poverty requires freedom and fossil fuels

Every nation that has risen out of poverty has done so via pro-freedom policies—specifically, economic freedom.
That’s how resource-poor places like Singapore and Taiwan became prosperous. Resource-rich places like Congo have struggled due to lack of economic freedom.
Even China, which is unfree in many ways (including insufficient protections against pollution) dramatically increased its standard of living via economic freedom—particularly in the realm of industrial development where it is now in many ways much freer than the US and Europe.
A crucial freedom involved in rising prosperity has been the freedom to use fossil fuels.Fossil fuels are a uniquely cost-effective source of energy, providing energy that’s low-cost, reliable, versatile, and scalable to billions of people in thousands of places.⁶
Time and again nations have increased their prosperity, including their safety from climate, via economic freedom and fossil fuels.Observe the 7X increase in fossil fuel use in China and India over the past 4 decades, which enabled them to industrialize and prosper.⁷
For the world’s poorest people to be more prosperous and safer from climate, they need more freedom and more fossil fuels.The “climate reparations” movement seeks to deny them both.
The wealthy world should communicate to the poor world that economic freedom is the path to prosperity, and encourage the poor world to reform its cultural and political institutions to embrace economic freedom—including fossil fuel freedom.Our leaders are doing the opposite.

Climate reparations pay off dictators to take away fossil fuel freedom

Instead of promoting economic freedom, including fossil fuel freedom, wealthy climate reparations advocates like Antonio Guterres are offering to entrench anti-freedom regimes by paying off their dictators and bureaucrats to eliminate fossil fuel freedom.This is disgusting.⁸
The biggest victim of “climate reparations” will be the world’s poorest countries, whose dictators will be paid off to prevent the fossil fuel freedom that has allowed not just the US and Europe but also China and India to dramatically increase their prosperity.
The biggest beneficiary of “climate reparations” will be China, which is already emitting more CO2 than the US and Europe combined. (Though less per capita.)While we flagellate and cripple ourselves, China will use fossil fuels in its quest to become the world’s superpower.⁹
The second biggest beneficiary of “climate reparations” will be corrupt do-gooders who get to add anti-fossil-fuel strings to “reparations” dollars and dictate how it’s spent—which will surely include lots of dollars for unreliable solar panels and wind turbines made in China.

Leaders must reject reparations and champion fossil fuel freedom

We need leaders in the US and Europe who proudly:1. Champion the free world’s use of fossil fuels as an enormous good for the world, including its climate safety.
2. Encourage the poor world to embrace economic freedom and fossil fuels.

Tell your Representative to do both.

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1 Scientific American – COP27 Summit Yields ‘Historic Win’ for Climate Reparations but Falls Short on Emissions Reductions

UN News – UN Secretary-General António Guterres called on Tuesday for countries to step up contributions to a financial mechanism to assist developing countries affected by climate change.

Phys.org – COP29 climate finance deal ‘must cover loss and damage,’ experts urge

COP29 official website – Fund for responding to Loss and Damage ready to accept contributions

2 Global population was about 8.02 billion in 2023.

World Bank data

About 7% of world population are considered high income, which translates into about 562 million individuals. Considering 3 people per average household in high income households, this translates into about 187 million households.
Pew Research – Are you in the global middle class? Find out with our income calculator

$1 trillion per annum paid by 187 million households means the average household would pay about $5,300 per year.

3 Maddison Database 2010 at the Groningen Growth and Development Centre, Faculty of Economics and Business at University of Groningen

World Bank Data

Scripps Institution of Oceanography – The Keeling Curve

G. Marland, T.A. Boden, and R.J. Andres, Carbon Dioxide Information Analysis Center, Environmental Sciences Division, Oak Ridge National Laboratory – Global, Regional, and National Fossil-Fuel CO2 Emissions

4 UC San Diego – The Keeling Curve

For every million people on earth, annual deaths from climate-related causes (extreme temperature, drought, flood, storms, wildfires) declined 98%–from an average of 247 per year during the 1920s to 2.5 in per year during the 2010s.

Data on disaster deaths come from EM-DAT, CRED / UCLouvain, Brussels, Belgium – www.emdat.be (D. Guha-Sapir).

Population estimates for the 1920s from the Maddison Database 2010, the Groningen Growth and Development Centre, Faculty of Economics and Business at University of Groningen. For years not shown, population is assumed to have grown at a steady rate.

Population estimates for the 2010s come from World Bank Data.