If the last two decades of incompetent land supply management by Calgary City Hall wasn’t reason enough to fire the whole bunch, then the recent recommendations of the Housing and Affordability Task Force (HATF) should be a tipping point..Why therefore, has Danielle Smith’s government been silent?.If you must subject yourself to reading the HATF report you can view it online. However, if you can make sense of all the gobbledygook then you will have bested me and I have been looking at this stuff in detail for years..It is small wonder that the sensible city councillors (Sonya Sharp, Jennifer Wyness, Sean Chu, Richard Pootmans, Terry Wong, Andre Chabot, Dan McLean and Peter Demong) rejected the recommendations outright..Unfortunately, they rejected it for the wrong reasons..The current housing situation did not just suddenly become untenable but it is shocking nonetheless..The benchmark single-family home is now worth $700K, an increase of 37% since 2020. It also now takes an annual income of $84K, just to live ‘affordably’ in an ‘average’ apartment as rents have also increased by 40% since 2020..What has been wrong with the city council’s housing policy for nearly twenty years, is also what has been brought to a head in the current crisis: the emphasis on intensification, over expansion..Intensification can be defined as encouraging new housing to be built on the existing city footprint, rather than expanding new housing into greenfield areas. To put it in less technical terms; if your sole housing strategy is to discourage urban sprawl (expansion) then the cost to you will be higher housing prices. Basic economics — restrict supply and prices go up..If you ask an Economics 101 student what happens if a market experiences an increase in demand, they will say prices increase and the quantity provided also increases..If you ask the same student what the factors of production are to build a commodity (e.g. housing) they will say land (developers), labour (construction workers) and capital (banks and other lenders)..One final question to our intrepid students: if demand increases but the quantity supplied does not increase, what went wrong? Their answer is; the market is not operating properly, perhaps due to monopoly forces..What is the average first year economics student missing that Calgary’s City Council and Administration have embraced? That urban sprawl is evil and must be eradicated at all costs..This has been the ideological foundation of Calgary’s housing policy for more than twenty years. And it looks like it will continue with this most recent policy exercise..While the objective of Calgary’s policy has been to slow or stop the city’s expansion, have these policies been effective?.Not even by half. While the City can restrict greenfield development within its boundaries, it has no jurisdiction on what happens outside those boundaries..So, other intrepid municipalities — Cochrane, Airdrie, Chestermere, Okotoks and even Strathmore — moved in to provide what Calgary would not..And it worked. Airdrie has been one of the fastest growing cities for years and the five year (2016-2021) growth rate for Cochrane is an astounding 24% compared to 5.5% in Calgary. Admittedly, the base is smaller but the numbers are impressive nonetheless..So sprawl continued. It just meant that Calgarians couldn’t take advantage of it..What is worse for Calgary is that up to one-third of the residents of these ‘bedroom communities’ work in Calgary. This means they are using Calgary’s infrastructure for free by not paying Calgary any property taxes. [Perhaps it is time for a toll gate for non-residents coming into Calgary to pay for their use of our infrastructure?].But the bad news doesn’t end there. What is truly amazing about the current situation is that in this time of extremely high prices, housing starts in Calgary have actually declined..How is that possible? The first-year economics student repeats, “There is something wrong with that market.”.We need to look into the effects of the anti-expansion policies to understand what is happening..Greenfield housing development in Calgary is a complicated affair. Land developers purchase agricultural land and stockpile it into a contiguous area that can be marketed as a ‘community’. The lands are designed into streets and parks, schools and commercial areas etc. according to the city guidelines..The developers then submit their plans to City Hall for approval to commence development. The anti-sprawl ideology restricts the number of these plans that get approved. The ones that do get approval are adjacent to existing residential communities because the city wants an orderly development plan for the build-out of the city..Once the developer gets approval they have a virtual monopoly on the supply of land in that area..For example, if you want to buy a serviced lot for speculation purposes they will not sell it to you. If you decide you want to build your own home by becoming a general contractor, they will not sell you a lot. If you are one of their approved home builders and wish to build on the outskirts of their community or in a more advantageous location you cannot, and will be told those lots have not yet been released..But the worst part of this is what happens to the price of a lot during a period of excess demand..When the price of the benchmark home in Calgary increases by $200K to $700K, it is the value of the land that increases..The replacement construction costs of the house remain largely unchanged. What this means is that the developer must increase the prices of the lots currently for sale. To not do so would be foolish..And this is why housing starts are declining. Again your first-year economics student will tell you that if a higher price is imposed on a market, the result is a drop in the quantity demanded..So what is the solution? The status quo as represented by the recommendations of the HATF means the housing crisis will be extended perpetually. The provincial government needs to step in and save an incompetent City Hall from itself..Two options are available to Smith, extreme regulation and extreme deregulation..Extreme regulation means serviced lots are deemed to be critical infrastructure and so the provision of them will be regulated as a public utility. This means new rules governing the development and supply of lots to the market..It also likely means a legislated rate of return on the funds invested on raw lands meaning no more windfall profits. The province may also establish its own Crown corporation to engage in land development..Land developers would scream and philosophically this is not an approach that a Smith government would likely embrace..Which leads to extreme deregulation..First, increase the size of Calgary by annexing additional lands. Invite developers to submit plans according to relaxed guidelines (likely using the ones developed by Cochrane.) All plans meeting the guidelines will be approved for immediate development..What this does is introduce a high level of competition into the land development industry..It will also provide a large inventory for the home building industry to start building new homes at competitive lot prices. With this supply response housing prices and rental rates will fall..In four years at re-election time Smith can rightly claim to have solved the housing crisis..Sounds like a winning policy to me..William D. Marriott is a retired economist who specialized in public policy analysis of the oil and gas industry.
If the last two decades of incompetent land supply management by Calgary City Hall wasn’t reason enough to fire the whole bunch, then the recent recommendations of the Housing and Affordability Task Force (HATF) should be a tipping point..Why therefore, has Danielle Smith’s government been silent?.If you must subject yourself to reading the HATF report you can view it online. However, if you can make sense of all the gobbledygook then you will have bested me and I have been looking at this stuff in detail for years..It is small wonder that the sensible city councillors (Sonya Sharp, Jennifer Wyness, Sean Chu, Richard Pootmans, Terry Wong, Andre Chabot, Dan McLean and Peter Demong) rejected the recommendations outright..Unfortunately, they rejected it for the wrong reasons..The current housing situation did not just suddenly become untenable but it is shocking nonetheless..The benchmark single-family home is now worth $700K, an increase of 37% since 2020. It also now takes an annual income of $84K, just to live ‘affordably’ in an ‘average’ apartment as rents have also increased by 40% since 2020..What has been wrong with the city council’s housing policy for nearly twenty years, is also what has been brought to a head in the current crisis: the emphasis on intensification, over expansion..Intensification can be defined as encouraging new housing to be built on the existing city footprint, rather than expanding new housing into greenfield areas. To put it in less technical terms; if your sole housing strategy is to discourage urban sprawl (expansion) then the cost to you will be higher housing prices. Basic economics — restrict supply and prices go up..If you ask an Economics 101 student what happens if a market experiences an increase in demand, they will say prices increase and the quantity provided also increases..If you ask the same student what the factors of production are to build a commodity (e.g. housing) they will say land (developers), labour (construction workers) and capital (banks and other lenders)..One final question to our intrepid students: if demand increases but the quantity supplied does not increase, what went wrong? Their answer is; the market is not operating properly, perhaps due to monopoly forces..What is the average first year economics student missing that Calgary’s City Council and Administration have embraced? That urban sprawl is evil and must be eradicated at all costs..This has been the ideological foundation of Calgary’s housing policy for more than twenty years. And it looks like it will continue with this most recent policy exercise..While the objective of Calgary’s policy has been to slow or stop the city’s expansion, have these policies been effective?.Not even by half. While the City can restrict greenfield development within its boundaries, it has no jurisdiction on what happens outside those boundaries..So, other intrepid municipalities — Cochrane, Airdrie, Chestermere, Okotoks and even Strathmore — moved in to provide what Calgary would not..And it worked. Airdrie has been one of the fastest growing cities for years and the five year (2016-2021) growth rate for Cochrane is an astounding 24% compared to 5.5% in Calgary. Admittedly, the base is smaller but the numbers are impressive nonetheless..So sprawl continued. It just meant that Calgarians couldn’t take advantage of it..What is worse for Calgary is that up to one-third of the residents of these ‘bedroom communities’ work in Calgary. This means they are using Calgary’s infrastructure for free by not paying Calgary any property taxes. [Perhaps it is time for a toll gate for non-residents coming into Calgary to pay for their use of our infrastructure?].But the bad news doesn’t end there. What is truly amazing about the current situation is that in this time of extremely high prices, housing starts in Calgary have actually declined..How is that possible? The first-year economics student repeats, “There is something wrong with that market.”.We need to look into the effects of the anti-expansion policies to understand what is happening..Greenfield housing development in Calgary is a complicated affair. Land developers purchase agricultural land and stockpile it into a contiguous area that can be marketed as a ‘community’. The lands are designed into streets and parks, schools and commercial areas etc. according to the city guidelines..The developers then submit their plans to City Hall for approval to commence development. The anti-sprawl ideology restricts the number of these plans that get approved. The ones that do get approval are adjacent to existing residential communities because the city wants an orderly development plan for the build-out of the city..Once the developer gets approval they have a virtual monopoly on the supply of land in that area..For example, if you want to buy a serviced lot for speculation purposes they will not sell it to you. If you decide you want to build your own home by becoming a general contractor, they will not sell you a lot. If you are one of their approved home builders and wish to build on the outskirts of their community or in a more advantageous location you cannot, and will be told those lots have not yet been released..But the worst part of this is what happens to the price of a lot during a period of excess demand..When the price of the benchmark home in Calgary increases by $200K to $700K, it is the value of the land that increases..The replacement construction costs of the house remain largely unchanged. What this means is that the developer must increase the prices of the lots currently for sale. To not do so would be foolish..And this is why housing starts are declining. Again your first-year economics student will tell you that if a higher price is imposed on a market, the result is a drop in the quantity demanded..So what is the solution? The status quo as represented by the recommendations of the HATF means the housing crisis will be extended perpetually. The provincial government needs to step in and save an incompetent City Hall from itself..Two options are available to Smith, extreme regulation and extreme deregulation..Extreme regulation means serviced lots are deemed to be critical infrastructure and so the provision of them will be regulated as a public utility. This means new rules governing the development and supply of lots to the market..It also likely means a legislated rate of return on the funds invested on raw lands meaning no more windfall profits. The province may also establish its own Crown corporation to engage in land development..Land developers would scream and philosophically this is not an approach that a Smith government would likely embrace..Which leads to extreme deregulation..First, increase the size of Calgary by annexing additional lands. Invite developers to submit plans according to relaxed guidelines (likely using the ones developed by Cochrane.) All plans meeting the guidelines will be approved for immediate development..What this does is introduce a high level of competition into the land development industry..It will also provide a large inventory for the home building industry to start building new homes at competitive lot prices. With this supply response housing prices and rental rates will fall..In four years at re-election time Smith can rightly claim to have solved the housing crisis..Sounds like a winning policy to me..William D. Marriott is a retired economist who specialized in public policy analysis of the oil and gas industry.
