We also need to talk about housing. Everybody needs a place to live but tens of thousands of Canadians sleep in parks and on the streets. Hundreds of thousands of us need subsidized housing and millions have to pay more than they can afford, often for sub-standard accommodation.
Conventional wisdom tells us the high cost of housing is due to low interest rates, but that's obviously not so. In 1965 my sister bought my parents' house in North Toronto for its appraised value of $30,000. Ten years later she sold it for $625,000 and a few years after that it was re-sold for $690,000. Because of low interest rates? I don't think so!
But I do have some idea of what did happen because in 1975 I was a reporter in Kamloops, BC. House prices there were skyrocketing at the time, and I was assigned to find out why.
Part of the reason was speculation. I've already told you about the speculator who inflated house prices in Kamloops, when a new copper mine was coming to town.
But speculation was only part of the story. Developer Frank Hewlett told me the increase in house prices was mostly because of a new planning bylaw.
To illustrate this he phoned to check the price of a ten-acre lot that was advertised for sale. The owner wanted $324,000 and if Hewlett would put $100,000 down, the owner would carry the balance at 10%. That was a reasonable price for the land, at that time and place, and 10% was a reasonable rate of interest for a solid developer with good credit.
Hewlett figured he could put 44 houses on the land so, without interest, the lots would cost about $7,300 each -- but that was just the start. The city had recently adopted a new planning bylaw and Hewlett figured it would take about 13 months to get the paperwork sorted out, the services engineered and the project approved by city hall. The paperwork and the interest would cost about $8,800 per lot -- more than the land itself -- and when it was finished Hewlett would have to pay the city another $2,000 per lot for off-site services.
Total price for the land, paperwork, interest, services and the city connections would be $18,100 per lot in a city where, at that time, finished houses were still selling for $15,000.[1] Because of the planning bylaw the cash value of every house in town increased by at least half, and many doubled or tripled.
More than ten years earlier, when the city of Belleville Ontario adopted a planning bylaw, city planner John Beavis told me why many citizens supported it. They already owned houses, he said, and most of those houses were in established areas of the city. They had paved streets, running water, sewers and sidewalks, all installed by the city and paid for by the general tax rate.
The new bylaw made developers of new subdivisions provide paved streets, sewers, water and sidewalks. People who bought houses in those subdivisions would have to pay the full cost of their own services as part of the price of their houses, and they would still have to help pay for services to existing houses in their tax rate. When Belleville adopted a planning bylaw, the value of every house in the built-up part of the city increased by thousands of dollars.
Planning also helps speculators to inflate the price of houses, and it helps to maintain those inflated prices. When I spoke to Frank Hewlett, for example, it took about a year to get approval for a project in Kamloops and, with demand expanding, the shortage helped to drive prices up.
If developers in Kamloops could have started building when plans for the mine were announced they could have had houses on the market in about six months, and could probably have kept ahead of the demand. Because they had to get their plans approved by the city it took at least 18 months to get the first new house on the market, and a shortage developed.
Bureaucracy caused most of the price increase in Kamloops and it is still a factor in the high price of housing. In 2005 Toronto developer and builder Hugh Heron of Heathwood Homes estimated that bureaucracy and paperwork add about $30,000 to the price of a new home. That's for a fairly big builder who can process a lot of applications together. For a small builder, the cost per house would be higher.[2]
Dr. Gary Hall, director of the Program on Values and Ethics in the Marketplace at Duke University, wrote a three-part article about the effect of planning in the United States for Automated Builder magazine.[3]
Dr. Hall says the Empire State Building was built in about a year, but it now takes about six years to build a medium sized hotel in California's Ventura County. In the 1940s it took 60 to 90 days to complete the three steps required for a building permit in Los Angeles County but the process now involves 228 steps and takes about two and a half years. The paperwork provides work for lawyers and civil servants but it increases the cost of a home by up to 50%.
In 1973, Dr. Hall says, about 62% of Americans between 30 and 35 years old owned their own homes and mortgage payments averaged about 21% of the home-owners' annual income. By 1984 mortgages cost home owners an average of 44% of the average owner's total income and in 2003, when he wrote the articles, only 53% of Americans in the 30 to 35 year age group owned their own homes.
Elizabeth Warren is a professor at Harvard Law school, specializing in bankruptcy law. In a book about the financial problems of modern families she notes that, after adjusting for inflation, the average American family now spends 21% less on clothes, 22% less on food and 44% less on major appliances but 69% more on their mortgage than a comparable family in 1970.[4]
City planning may also bar the construction of low-cost homes and apartments as more and more communities specify the type of housing that can be built in each neighborhood. Because everybody wants to live in a 'nice' neighborhood people generally support regulations that zone an area for big and expensive houses -- often bigger and more expensive than the houses already there.
Municipal councils go along with this because they favor big houses on which they can levy high taxes, and they don't want low-cost houses for people who may some-day need welfare assistance.
In some areas building codes specify construction methods and materials and even styles and, while a house builder can apply for a 'variance,' an application costs money and takes time. One result of this is that, in most areas, new houses are built with the techniques and materials that are allowed rather than with new techniques and materials that might be better.
Big landlords benefit from bureaucracy and complex regulations because while paperwork is a big factor in the cost of a single house or a 10-unit rental development, it is no problem if you build 1,000 units at a time.
Slum landlords also benefit because if no low-priced houses and apartments are built, the rent for existing buildings can be raised. If slums are the only affordable housing available, landlords don't need to maintain their properties.
Author Jane Jacobs explains why blocks of buildings in some large American cities were abandoned and left to become an urban jungle. After city planners designated an area for 'redevelopment,' she says, owners of buildings in the area were unable to get loans for repairs or improvements. Eventually, when the buildings were no longer legally fit for habitation and the owners could not get loans to repair them, they were abandoned.[5]
Conventional wisdom tells us that zoning bylaws protect our investment and bar the construction of homes in unsuitable locations, but that may not be true. In 2004 a group of people who had bought new homes beside the Toronto stockyards made very public complaints about the smell and the noise.
The stockyards had been there for about 100 years and it's not as though people could not see, hear and smell them before they bought the houses, but the houses were cheap because the location was questionable. Now the buyers want the city to dispossess a business that we all need, to improve their location.
If the stockyards were moved packing plants and other businesses that depend on the stockyards would also have to move, and the total cost would be far more than the cash value of the subdivision.
If the people who bought those houses had thought about the location, they might have realized that the neighborhood of a stockyard usually has typical smells and noises. If they inspected the houses before they bought them, they might have noticed that there was a stockyard in the neighbourhood. Personally, I wonder if the realtors who sold those houses suggested to purchasers that they would be able to gang up on the stockyard and close it down.
If city planners had been thinking, rather than following rules, they would not have approved the development. Planners tell us that planning improves cities but Jacobs argues that many attempts to plan cities have produced instant slums, poverty, stagnation and unemployment.[6]
Whether a city is planned or not, we need affordable housing. In Canada in the 1940s and 50s some newly-married couples built basements to live in. They would buy a lot and dig a hole and hire masons to make the basement walls, then hire a carpenter to roof it over so they could live in it. A few years later, when they had more money, they would finish the house.
A lot of the houses our parents lived in were too small to pass modern building codes but they were cheap and they gave people a start in life. Now young couples can't buy a small house or rent a cheap basement apartment and, rather than save money for themselves, they have to rent more space than they need or pay interest to banks for mortgages on houses they can not afford.
Even in my day, we could afford houses. In 1967, when I worked as a reporter for the Peterborough Examiner, I bought a three-bedroom house with more than 120 feet of river frontage, within the city, with city water and sewer services, for slightly less than one year's salary. The house was more than 100 years old and it was not in good shape but it was still solid and I could -- and did -- fix it up myself.
The river was clean enough to swim in, or to drink for that matter. Because of a dam downstream it was about a quarter-mile wide behind my house and in summer, one friend kept a canoe and another kept a sailboat at my back door. It was a nice place to live, but few young couples today can hope to do as well.
Much of our housing problem is caused by bureaucracy, not the lack of housing. I don't suggest that we could eliminate all bureaucracy, but we could reduce it. Many third-world cities are surrounded by communities of squatters, and maybe Canadian municipalities need to reserve free zones in which people could build whatever they want.
These free zones would be policed like any other part of the city and sensible health and fire regulations would apply but, within the needs of safety, people would be allowed to build and live in whatever they want.
Some people in Toronto now live in tiny rooms in very old buildings, and some live in ravines and under bridges. Would it be worse for them to live in small rooms in new buildings?
Free zones would not only help to alleviate housing problems, they would also serve as laboratories in which new building techniques and styles could be developed and tested.
If the free zones attract more new housing than planned sections of towns and cities, perhaps municipal councils should consider that a message. In a free country people should have a choice, and that choice should not be subject to the approval of bureaucrats and politicians who may have their own axes to grind.
Town planning is a municipal concern but towns and cities are subject to provincial and federal governments and, if they can not be controlled, they can be influenced. A responsible government would not ban city and town planning but it would look for a solution to this problem.
We can't create affordable housing with subsidies because the cost of bureaucracy is so great that we can't afford the subsidies. We could provide areas in which people could build their own affordable housing, not subject to planning regulations or ironclad building codes. A few years ago Toronto had the start of a shacktown on Cherry St, but the land was private and the owner had the squatters evicted.
We can argue that the poor deserve better than a shacktown but if we can't provide better, we owe it to the poor to allow them what they can afford.
We might reduce the price of housing by relaxing controls on development but, as I mentioned earlier, we are already short of farmland and we need to protect what we have left. That will upset a lot of land-owners and I sympathize with them but I am not sure that the fact that their grandfather bought a farm a hundred years ago gives anyone an absolute right to retire as a multi-millionaire today.
For the sake of survival we need to protect farmland and aquifers and to stop the spread of suburbia. There is no question that this will make some types of housing more expensive, but that's one price we have to accept if we want to keep eating and keep a supply of clean water.
To protect farmland we should encourage more urbanized cities. For a start, we need to limit the construction of commuter roads which encourage sprawl. We could argue that society has no right to tell an individual where he or she can live but, on the other hand, we don't have to subsidize anyone to live on land we can't afford to spare. If people choose to commute long distances to work, getting there should be their problem.
Building cities and subdivisions on land that can not be farmed is another option, and one that we should consider. Most of our cities were established on farmland because that made sense in a day when we thought we would never run out of land. Now we know better and it makes more sense to build cities on land that is not good for farming. We have lots of that, in the huge mass of rock that we call the Canadian Shield.
That may not sound like the best place to build a city but we have some mining and vacation cities on the Shield, and they work well enough.
A rational government would provide excellent road and rail connections to new cities on land that can not be farmed, and would offer incentives for industry to locate in them. If industry moves people will move with it, and commercial development will follow.
And at the same time we might demand a punitive tax on any project that renders farmland unfit for farming. This would create lots of opportunity for speculation but, because speculation harms us all, a government would be justified in punitive taxation of the profits of deliberate speculation.
This smacks of central control and that bothers me because -- probably more than most people -- I value my personal freedom, but I don't see a viable alternative.
It would be nice if we could let everyone do their own thing but the world is too crowded for that and if we don't establish some form of control, millions of people will die or be forced to live in misery.
BANKS AND MORTGAGES
The banks' ability to create money from thin air is also a factor in the price of housing. If I have $X for a down payment and the bank will give me $Y for a mortgage the most I can pay for a house is $X+Y. If the price goes higher I can't buy, so the price of houses is limited by the amount that banks are willing to "lend".
But in fact they don't lend money, they create it, and it costs them nothing. If my bank lends me twice what the house is worth that means more profit for the bank, because I have to pay interest on a bigger loan. If prices fall and I default, the bank will still hold me responsible for the full amount of the mortgage.
That's not fair. Banks are supposed to know the value of the properties they lend money on, and if the value of a property drops to less than the value of the mortgage and the owner defaults, foreclosure on the property should settle the debt regardless of the amount outstanding.
Elizabeth Warren, a professor at Harvard University law school, says some American banks and mortgage companies make loans that they know the borrower can't repay. They expect to foreclose and, when they do, they claim the property and keep the purchasers' down payments and all the payments they have made, and they can still hound the borrower for the rest of the money.[7]
FIRE REGULATIONS
Fire regulations are another factor in the cost of housing. Conventional wisdom tells us they are for our protection, but sometimes we have to wonder.
I live in a cooperative apartment building in downtown Toronto and, as an apartment building, we have to have what the fire department calls a 'fire plan.' In theory this is prepared by an expert who inspects the building and works out the best way for residents to react in case of fire but in fact it's a boiler-plate document that can be sold for several thousand dollars.
Several years ago I looked at the fire plan for the building I live in. Although it had been approved and supposedly checked by the city fire marshal it had not been checked carefully because, among other things, it advised residents to use towels to block the central air conditioning outlets in case of fire. That was not good advice because our building has no central air conditioning, or outlets.
The plan was useless but when it became obvious that it was not valid we had to get a new one. It cost us several thousand dollars to hire a former fireman to print a boiler-plate copy of the same fire plan, with reference to the non-existent ducts deleted.
We had to hire a former fireman to do the job because, our consultants told us, the fire marshal has a set standard for fire plans. If we buy it from a former fireman, it will be approved. If we don't, it won't. The mistake in the first plan suggests that it doesn't matter much to the fire marshal whether the plan is a good one or not.
A few years ago the Toronto Fire Department accepted money to endorse one particular make of carbon monoxide detector. Unfortunately, the brand that paid for the endorsement did not work well.
Fire departments tell us to buy carbon monoxide detectors, but in all their warnings they never tell people how to recognize the symptoms of carbon monoxide poisoning.
These are easy to spot because in the first stages of carbon monoxide poisoning your eyesight will start to shimmer, as though you were looking through a heat haze. I would not argue that it is safe to depend on this alone, but if there is any danger of carbon monoxide poisoning you should know it -- especially if you are in an area 'protected' by one of the carbon monoxide alarms that were endorsed by the Toronto Fire Department but which, unfortunately, are not dependable.
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