Oh, Canada
Prime Minister Mark Carney's plan to create a federal housing developer is a terrible idea.
Happy Tuesday and welcome to another edition of Rent Free.
This week's newsletter takes a look at Canadian Prime Minister Mark Carney's plans to create a federal homebuilder and all the ways that it's a terrible idea.
A Nationalized Developer Is Not the Answer to Canada's High Housing Costs
Yesterday, Carney unveiled a new campaign-trail plan to boost home construction through the creation of a federal development agency.
The prime minister's proposed Build Canada Homes (BCH) entity would double annual Canadian housing production by providing grants and loans to affordable housing projects and placing bulk orders for modular homes.
"My new Liberal government is flipping the script on housing with a new approach to build faster, build smarter and to build more affordably," said Carney at a campaign stop, per the CBC.
By the prime minister's own description, this would be a massive expansion of the Canadian government's role in housing production.
It would be accompanied by a federal effort to slash local and provincial fees, building restrictions, and permitting processes.
The deregulatory aspects of Carney's plan are encouraging. It is evidence of a cross-ideological consensus that governments have overregulated homebuilding. It's an improvement from his predecessor's eagerness to scapegoat foreign homebuyers as the cause of Canada's high home prices.
If the prime minister realizes that restrictions on private development are holding back home production, one wonders why he's so eager to expand the government's role in creating new units.
There's plenty of evidence that when the market is allowed to build the homes people want, and are willing to pay for, housing becomes broadly affordable.
Deregulation would accomplish the government's aims without requiring the creation of a new bureaucracy and the spending of billions of tax dollars.
Supporters of a massive government homebuilding program might argue, "Why not both?" The Canadian government could liberate private homebuilders and invest lots of tax dollars into building new affordable housing.
Studies of U.S. development have shown that new affordable housing construction raises the cost of nearby housing.
Affordable housing advocates point to this as a positive development: Affordable housing is built to high design standards and therefore acts as an amenity that improves the quality of a neighborhood.
An alternative explanation is that affordable housing is consuming land that would have otherwise been used for market-rate development. Absent new market-rate construction, market-rate buyers and renters end up bidding up the costs of nearby homes.
Lower prices for some mean higher prices for others.
That's under the best-case scenario where a government developer is placing homes where people most want to live. There's good reason to think a state-led building effort wouldn't be so accurate.
A government that can finance its building projects with tax dollars and doesn't have to earn a profit on the new homes it builds would theoretically be less resource-constrained and more able to build lots of homes.
But it would also lack the information that private financing costs and profit incentives would give it to know how much housing to build, what kind of housing to build, and where to build it.
Planning would have to substitute for price signals. And there's plenty of history to suggest that planning is an inferior substitute for price signals.
Grim Soviet apartment blocks on the edge of cities and dilapidated public housing in the U.S. are two examples of planning gone awry. While everyone likes to praise Vienna's social housing model, that too has many drawbacks and failures.
A government homebuilding effort's need to rely on planning would also undercut the additional choice and freedom that zoning reform offers.
Critics of zoning rightly argue that the government shouldn't be in the business of deciding where people should live, or the kinds of homes they should live in.
If the government is building a significant share of new homes, it would be making all the same decisions it does under zoning about the location, density, and design of new housing.
The main difference then is that the government would also be paying for new housing construction with taxes. The use of tax dollars would also likely create more NIMBYism, not less.
Taxpayers could reasonably say, "It's my money being used to fund new housing. I should get more of a say, not less, about what gets built."
Already in Canada, there's transpartisan opposition to foreign citizens buying homes in the country. How much stiffer would that opposition be if foreigners were competing for government-built units?
Perhaps a federal developer would have the political might to overcome that opposition all on its own. Perhaps, in order to overcome that opposition, it'll fall into the "everything bagel" trap whereby government housing projects become a vehicle for rewarding special interest groups.
To counter the NIMBYs, the government promises that new housing will be union-built to the highest environmental and design standards and offered at ever-steeper subsidized rates to homebuyers and renters.
That would all raise per-unit construction costs. The country would end up spending more money on less housing.
Liberal readers might well dismiss these concerns as trite libertarian gripes. I think they're pretty likely problems that will track any significant government homebuilding effort.
The government doesn't need to be a major developer in order for housing to be broadly affordable. And if it doesn't need to act as a developer, then it shouldn't.
Quick Links
- A handful of New York City councilmembers are suing to overturn a suite of zoning reforms passed last year. Plaintiffs are predictably alleging that the city did not conduct a thorough enough environmental review of allowing new accessory dwelling units and apartments in the country's largest city.
- Boston's mayoral candidates offer competing, flawed rent control plans.
- Eric Kober writes in City Journal about the legacy of Robert Moses.
- Cambridge, Massachusetts' abolition of single-family-only zoning is already inviting developers' interest in redeveloping single-family homes.
- A federal judge has halted the Trump administration's termination of grants to fair housing groups.
