New Zealand’s innovative approach to housing growth offers valuable insights for addressing Canada’s housing affordability crisis
There was a time, not so long ago, that house prices tended to be around three times or less that of household incomes in most, if not all, the housing markets of Canada, the United States., Australia, the UK, Ireland and New Zealand. But over the last half-century, some municipal and provincial governments were enticed to adopt measures to stop the expansion of urban areas (sprawl), using urban containment strategies, especially urban growth boundaries and greenbelts.
While perhaps pleasing planners, the results have been disastrous for middle- and lower-income households, sending the price of housing “through the roof,” lowering living standards and even increasing poverty. International research has associated urban containment with escalating the underlying price of land, not only on the urban fringe (where the city meets rural areas) but also throughout the contained area.
Canada’s housing affordability crisis is centred in CMAs subject to urban containment. Vancouver, which routinely places second or third least affordable out of 94 major metropolitan areas in the annual Demographia International Housing Affordability report sponsored by the Frontier Centre for Public Policy, has experienced a tripling of house prices compared to incomes. Over less than two decades, the Toronto CMA has experienced a doubling. Both CMAs are seeing massive net migration, principally to nearby less expensive markets (such as Kitchener-Waterloo, Guelph, London, Nanaimo, Chilliwack and Kelowna), which are also seeing their housing affordability vanish with their Vancouver and Toronto-like policies.
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Governments in Canada have adopted densification strategies in recent years on the assumption that making cities more crowded will restore housing affordability. The evidence for that is scant, and the recently elected New Zealand National/ACT/NZ First coalition government has withdrawn its support of that nation’s densification program. Like Canada, New Zealand has seen its house prices escalate compared to household incomes because of its urban containment policies. Auckland has routinely ranked as one of the least affordable markets in the Demographia International Housing Affordability report.
The new government proposes to get at the heart of the issue by addressing the cost of land in its Going for Housing Growth program. Among its recommendations:
- Local governments would be required to zone land for 30 years of immediate growth. According to the government, localities have limited growth on their fringes, and the “artificial scarcity limits have driven up the price of land, which has flowed through to house prices.” Noting research indicating that “urban growth boundaries add $600,000 (C$500,000) to the cost of land for houses in Auckland’s fringes”, the government cites the cost of land as the main driver of house price increases.
- The policy will rely on a 2020 Act allowing agencies and private developers to establish infrastructure vehicles to finance development-related infrastructure, with the costs being repaid by the beneficiaries over a 50-year period. This removes the infrastructure burden from governments and is similar to the Municipal Utility Districts (MUDs) in Texas and Colorado. MUDs are independent entities empowered to issue bonds and collect fees to finance and manage local infrastructure for new developments.
- The government will withdraw its support of the 2021 Medium Density Residential Zoning (densification only) program, making it optional for local councils.
In contrast to approaches solely focused on densification seen elsewhere, National/ACT recognizes that New Zealand’s severely unaffordable housing stems from the high land costs associated with urban containment. Guaranteeing plentiful access to developable land will, according to the government, result in “an abundant availability of developable land inside and at the edge of our cities for housing so that land prices are not inflated by artificial planning restrictions.”
There is much to New Zealand’s policies that could assist in alleviating the housing crisis in Canada.
There is a misconception that Canadian households want higher densities, but most do not. A 2019 survey of younger Canadian households by the Mustel Group and Sotheby’s dispelled “myths about young, urban families’ housing preferences.” On average, across the four metropolitan areas, 83 percent of such families preferred detached houses, but only 56 percent could afford them.
This suggests that households moving to Kitchener-Waterloo and Chilliwack want to not only save money but also to get more house and probably a yard. Detached housing predominates in these affordability sanctuaries compared to Vancouver and Toronto CMAs.
Critics whine about urban expansion, but that is how organic urban growth occurs. Toronto and Vancouver show that urban expansion can be tamed but at an unacceptable cost, proven by the inflated house prices (and related higher rents) and reduced standard of living, which drive more people into poverty.
Finally, as should be obvious, every dollar increase in the cost of housing relative to incomes increases inequality, The policies that have driven the cost of housing “through the roof” have also increased poverty, while relegating many to join waiting lists for subsidized housing.
It is time to prioritize the good of households, not of planning doctrine.
Wendell Cox is a Senior Fellow at the Frontier Centre for Public Policy and has been the author or co-author of 19 annual Demographia International Housing Affordability reports.
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