Zoning and Markets

How Private Property Rights Can Fix the Housing Crisis
Part One of a Special Series

Peter Shawn Taylor
March 18, 2022
Starting in the 1920s, municipal zoning laws across the U.S. were used to indirectly enforce racial segregation – keeping blacks and some ethnic minorities out of white areas by regulating the size and cost of housing. The history of zoning in Canada is not so nefarious, but it has had a similarly profound effect, with huge sections of most cities set aside exclusively for single-family homes. As rampant house inflation is currently making home ownership unaffordable for many Canadian families, Peter Shawn Taylor investigates the role played by obstructive municipal zoning and approval rules. In Part One of a special series on solving Canada’s housing crisis, Taylor asks what would happen if we put the property rights of homeowners at the centre of the housing supply equation.
Zoning and Markets

How Private Property Rights Can Fix the Housing Crisis
Part One of a Special Series

Peter Shawn Taylor
March 18, 2022
Starting in the 1920s, municipal zoning laws across the U.S. were used to indirectly enforce racial segregation – keeping blacks and some ethnic minorities out of white areas by regulating the size and cost of housing. The history of zoning in Canada is not so nefarious, but it has had a similarly profound effect, with huge sections of most cities set aside exclusively for single-family homes. As rampant house inflation is currently making home ownership unaffordable for many Canadian families, Peter Shawn Taylor investigates the role played by obstructive municipal zoning and approval rules. In Part One of a special series on solving Canada’s housing crisis, Taylor asks what would happen if we put the property rights of homeowners at the centre of the housing supply equation.
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After spending more than 40 years as an urban planning consultant and land developer, Paul Puopolo knows what works and what doesn’t in the housing business. And lately, says the recently-retired founder of Kitchener, Ont.-based land development firm Polocorp Inc., there’s a lot that doesn’t work.

“When I started in land development in the early 1970s, it was an easy game to get into,” the genial Puopolo recalls. “Land prices were about $50,000 to $60,000 an acre and it might take a year to 18 months to get the necessary local approvals – along with maybe two or three engineering or geo-technical studies. It was a fairly simple process.”

Once an “easy game” to play: Building houses was a lot simpler and faster in the early 1970s, recalls Paul Puopolo, founder of the Kitchener, Ont.-based land development firm Polocorp Inc.

Today, Puopolo says, putting together even a small housing project can take at least five years and more than a dozen studies. “Now you need a noise study, a tree study, a shadow study, a traffic study, a stormwater study, an environmental protection study and so on. You might end up spending $1 million just on studies alone,” he observes. Land costs in southwestern Ontario have also multiplied many times over, with suburban greenfield plots going for about $1 million per acre and urban properties suitable for denser builds costing up to $14 million per acre. “Only large corporations or major developers can afford the time and cost these days,” Puopolo laments. And even then, all the studies, money and patience may not be enough to overcome the biggest obstacle of all to building homes in the 21stcentury: a capricious municipal approvals process. “The problems,” he warns, “are becoming terminal.”

Over the past fifteen years, Polocorp acquired five contiguous lots in downtown Kitchener near a popular trail system with the goal of putting up a 12-storey residential tower and attached townhouse complex. The project fit perfectly with frequent calls by urban planners and activists across North America for greater building density. But the local community association, backed by their city councillor, claimed the tower would “overwhelm the neighbourhood” and sought to stymie Polocorp’s request for a significant zoning change. As Puopolo recalls, “we must have had 20 meetings” with neighbours and city staff since 2019, with no sign of any resolution. “We couldn’t wait another two or three years,” he explains. “So we decided to abandon our original plan and just go with what we could get on an ‘as of right’ basis, with only a minor zone change.”

Last year Polocorp dropped the tower and switched to a townhouse and stacked house plan that was largely immune to objections from neighbours. Shovels are expected to go in the ground this spring. As a result, however, the project has shrunk from 176 units to 102. For the neighbourhood association, this sharp reduction in density was hailed as a major win. For anyone concerned about the spiraling cost of housing in Canada, it was the exact opposite.

What might have been: Polocorp was forced to drop its initial plans for a tower and townhouse complex in downtown Kitchener because the local community association argued the project would “overwhelm the neighborhood.” (Source of image: Polocorp Inc.)

The loss of 74 potential new apartment homes in a desirable and well-serviced downtown district is just one of countless examples from across the country demonstrating the essential dysfunction of Canada’s housing supply system. It is the sclerotic nature of the local approval process that explains why so many Canadians cannot afford to buy a house today.

But if there’s reason for optimism, it lies in moves afoot in both Canada and the U.S. to give landowners a much greater say over what they can do with their own property. Expanding on what Puopolo referred to as his “as of right” ability – essentially recognizing his property rights as a landowner, including the right to add value and generate income as he sees fit – may offer the best solution to Canada’s massive housing supply mess. It’s also the only option that relies on market forces to get the job done, rather than depending on costly and meddlesome taxpayer-funded subsidies, tax breaks, special programs and government interventions in mortgage standards or interest rates.

Crisis Intervention

Among the many crises facing Canada, none has had a bigger impact on family finances than the housing price crisis. According to the Canadian Real Estate Association, home prices in Canada rose by 13 percent in 2020 and another 21 percent in 2021 – forcing many young families to give up their dream of homeownership altogether. And it’s not just a Big City phenomenon; last year New Brunswick saw Canada’s highest year-over-year house price increase at 26 percent. A combination of historically low interest rates and an unquenchable demand for bigger and more comfortable homes (partly due to pandemic lockdowns) may be to blame for the recent spike in prices. But economists say the origins of the problem go back much farther: Canada simply hasn’t been building enough homes to keep pace with demand.

Homes head skyward: Canadian residential housing prices soared 21 percent in 2021 and show no sign of slowing down in 2022. (Source of chart: The Canadian Real Estate Association)

According to research by Scotiabank Global Economics, Canada has the lowest level of housing per capita among G-7 countries, at 424 dwellings per 1,000 people; France is the leader at 540. And even within Canada, there’s tremendous variance. While Ontario may be the country’s economic powerhouse, it’s the worst laggard when it comes to building homes. Scotiabank calculates the province needs to add an extra 650,000 homes simply to catch up to the rest of the country’s modest average. “We haven’t had a healthy housing market for years,” observes Richard Lyall, president of the Residential Construction Council of Ontario (RESCON), in an interview. “It is fundamentally dysfunctional.”

“Fundamentally dysfunctional”: Richard Lyall, president of the Residential Construction Council of Ontario, is frustrated by the lethargic nature of the housing approvals process in Ontario; compared to the Canadian average, the province faces an estimated deficit of 650,000 homes.

In response to public outcry over rapidly escalating house costs, last year Ontario Premier Doug Ford’s government set up the Ontario Housing Affordability Task Force to propose solutions. With representatives from the banking, real estate, construction, social housing and academic sectors, the task force’s final report covers ground similar to other recent housing affordability task forces in British Columbia and Nova Scotia. At a mere 33 pages, however, Ontario’s take on the issue is a marvel of concision and focus. Its central recommendation is that the province set for itself the wildly ambitious goal of adding 1.5 million new homes by 2032.

How does a province that’s averaged 70,000 new homes per year over the past five years more than double that output every year for the next decade? Echoing Puopolo’s complaints about endless meetings, studies and delays, the report zeroes in on municipal governments as the single biggest barrier to getting more homes built. “Too much land is tied up by outdated rules,” the report states. “Official plans in most cities in Ontario contain conflicting goals like maintaining ‘prevailing neighbourhood character’ that impede efforts at new density.”

The Status Quo Has to Go

If Ontario is serious about building 1.5 million new homes over the next decade, the Task Force argues it must remove the power of municipalities to act as gatekeepers to the supply of new housing. Doing so requires pulling the plug on city politicians’ ability to set standards on everything from heritage status to lot size to setback rules to neighbourhood consultations. Instead, the report calls on Queen’s Park to establish province-wide urban design and approval standards that all municipalities would be obligated to follow. The report also calls for greater transparency to ensure backroom delays at city hall cannot be used as a de facto veto.

Build, baby, build: Initiated by the government of Ontario Premier Doug Ford (bottom right), last month’s Ontario Housing Affordability Task Force report says the province needs to build a lot more houses, and fast. (Source of top right photo: The Canadian Press/ Geoff Robins)

Removing municipal authority from nearly all aspects of urban design and approval would mark a cataclysmic change in local governance and politics. According to Murtaza Haider, director of the Urban Analytics Institute at Ryerson University in Toronto, such a cataclysm gets straight to the heart of the housing price issue. “It’s local governments that have caused housing prices to rise so significantly,” Haider asserts. “And without change, the status quo will prevail.” He figures the report could actually prompt many cities to voluntarily reform their own archaic procedures ahead of any provincial government mandate.

Other observers, not surprisingly, are aghast at the potential loss of local control. Dawn Parker is a professor in the School of Planning at the University of Waterloo, and an active participant in regional planning efforts. She disputes claims that municipal oversight is a barrier to getting more homes built. From her perspective, local standards such as heritage designations, buffer zones and tree canopy rules are not the cause of higher prices, but necessary guarantees of a livable city. “We need urban design regulations to protect the public good,” Parker stresses. “We know good urban design rules have an impact on residents’ psychological, environmental and mental well-being. They should not be thrown out.”

A cataclysmic change: Murtaza Haider (left), director of the Urban Analytics Institute at Toronto’s Ryerson University, supports the Task Force’s plan to eliminate numerous municipal housing regulations as a way to control spiraling home prices, while Dawn Parker (right) of the University of Waterloo’s School of Planning argues such rules are necessary to protect the public good.

As lively as the debate over local control of urban design may be, however, it pales next to the Task Force’s other major recommendation – an even more dramatic change in how the land underneath most homes in the province should be controlled. It’s here that the “as of right” concept takes centre stage.

The “As of Right” Revolution

Beyond municipal obstructionism in the urban design and approvals process, Haider explains that the prospect of boosting Ontario’s housing supply is complicated by the question of where to put all these new dwellings. Pre-pandemic polling data repeatedly showed that most young families in Canada prefer to live in spacious single-family homes in the suburbs. Unfortunately, relentless anti-sprawl activism pushed that option off the table for all but the wealthiest of buyers, even before the recent price spike. “We have a lot of greenfield land that cannot be developed,” Haider notes. It is also the case that high-rise construction is expensive and slow; plus, not everyone wants to live in a skyscraper. All of which means the best option for locating a lot of new housing is land that already has homes built on it.

Housing monoculture: Exclusionary zoning laws covering huge swaths of most major Canadian cities facilitate NIMBYism; eliminating these rules would allow homeowners greater scope to innovate with their own property. (Source of photo: Shutterstock)

In Toronto, an estimated 70 percent of the city is covered by one- and two-storey, single-family detached and semi-detached houses. The same holds true for most other major urban centres across the country. This is the result of exclusionary zoning laws dating back nearly a century that have imposed a housing monoculture across vast swaths of Canada’s urban landscape. It’s a tradition that facilitates the NIMBYism of local community groups and is enforced by city councils dependent on those groups for re-election.

To break up this obstructionist clique, the Task Force proposes cutting city councillors out of the housing equation altogether. Rather than allowing municipalities to set zoning rules in residential areas, it would give homeowners themselves the ability to decide how best to use their properties – up to a point. The report calls for “binding provincial action” that would “allow ‘as of right’ residential housing up to four units and up to four storeys on a single residential lot.”

Under such rules, anyone who owns a single-detached house anywhere in the province would be instantly freed from almost all local zoning restrictions. Want to install a separate basement suite or build a coach house or granny flat in your backyard? Go ahead. Owners would similarly be able to split their house into a duplex. They could even tear it down and put up something bigger. Up to four units in total. Up to four storeys high. All without reference to any problematic zoning code.

Aside from rendering local politicians powerless, busybody community groups concerned about the “character of their neighbourhood” would also be permanently sidelined. Neighbourhoods would evolve on a lot-by-lot basis based on the decisions of each individual owner. Over time, this would likely result in a wide and welcome variety of housing options, densities and heights throughout once-uniform neighbourhoods.  

“This is huge,” says RESCON’s Lyall. “All of a sudden, if you own a piece of land with a single-family home on it, you have the ability to put up a fourplex.” If implemented by the Ontario government, Haider observes that such a process would set off a “chain reaction that starts at one end of the housing market and goes all the way to the other.” Even if the new infill homes created by these rules are priced at the high-end of the market, a filtering effect will still cause cheaper properties to become vacant as new homebuyers move up the ladder and into the new supply – improving affordability across the board.

Consider a hypothetical example for how “as of right” zoning could boost supply, benefit owners, lower overall housing costs and offer more options for renters and home buyers. Say an individual owns a 2,000 sq. ft three-bedroom single-family home in a mid-sized Ontario city valued at approximately $900,000. The original dwelling is torn down and in its place the owner builds a duplex with two two-bedroom units, each with a separate one-bedroom basement suite. Each half of the duplex is 1,400 sq feet in total. Demolition and rebuilding costs are approximately $590,000 (with the owner doing some of the work) and the duplex units sell for $850,000 a piece. The homeowner realizes a net gain of $210,000. Total housing supply increases from one unit to four. And the average house price drops slightly. The theory behind such a surge in supply is undoubtedly sound, but can it work in the real world?

Unleash the Swarm

Edward Pinto is executive director of the American Enterprise Institute’s Housing Center, a free-market think-tank based in Washington D.C. He expresses all the same complaints about municipalities as are heard about the Canadian real estate market. “Local jurisdictions are constantly coming up with new ways to frustrate the homebuilding process,” he observes.

“A revolution in the making”: Edward Pinto, executive director of the American Enterprise Institute’s Housing Center, lauds the recent shift in “as of right” zoning rules for homeowners in key progressive states such as California and Oregon. (Source of photo: Jay Westcott)

Yet Pinto feels hopeful that a solution to housing supply sclerosis is finally at hand. This is because “as of right” lawmaking is much more advanced in the U.S. than in Canada. In January, for example, California enacted legislation nearly identical to what the Ontario task force is proposing; municipalities in the Golden State are now required to allow homeowners to build up to four units in most areas currently zoned for single-family houses. Oregon did the same thing in 2019. Last year New Zealand made international headlines with a similar law for the entire country. “It is a revolution in the making,” Pinto says.

As for potential pushback from municipal politicians, planners and neighbours who may decry the loss of local control over zoning rules, Pinto bristles. “This is not about a loss of local control,” he snaps. “It is about giving back local control to the property owners themselves, where it belongs.” Reforms that provide “as of right” abilities to owners represent a push-back against the assumption that land-use decisions are a community right to be decided collectively – or, worse, in secret by bureaucrats and municipal politicians – rather than an individual right to be exercised by the land or building owner.

And rather than relying on a few major corporations or land developers to deliver the bulk of new housing supply, “as of right” rules encourage individual homeowners to jump into the development game themselves, as our hypothetical example above demonstrates. This is a crucial benefit, says Pinto. “You could see thousands of homeowners and hundreds of small contractors participating in this,” he enthuses. “It is a way for many more people to get into the housing market as either developers or landlords.” Such a radical democratization of housing supply would mark a return to the spirit of early 1970s when, as Puopolo recalls, anyone could get into the land development game. Pinto calls this, “unleashing the swarm.”

The New Jersey Ideal

With the California law just a few months old and Oregon still working out details with local governments, Pinto points to Palisades Park, New Jersey, as proof of the swarm’s long-term effectiveness. Palisades Park and six other nearby boroughs close by the George Washington Bridge to Manhattan serve as bedroom communities for New York City and have been densely settled since the 1950s. Unlike its neighbours, however, Palisades Park has always allowed homeowners to split their properties into duplexes without need for local approval.

Seeing double: Palisades Park, New Jersey has enjoyed a recent boom in low-density construction due to relaxed zoning rules that allow owners to put duplexes on any single-family home lot. (Source of photos: New Jersey MLS)

Between 2000 and 2019, Palisades Park’s low-density housing stock grew by a stunning 24 percent; elsewhere in the region, growth in this category was almost non-existent due to restrictive zoning rules and a lack of greenfield space. And because all these new duplexes in Palisades Park were infill, the cost to the municipal government was modest since the water, sewer and transit infrastructure was already in place. Thus, in addition to the strongest population growth and healthiest commercial sector in its environs, Palisades Park boasts the lowest municipal tax rates because there are now more housing units to tax. Home prices are middle of the pack.

Crucially, Palisades Park demonstrates how “as of right” rules can create a coalition of homeowners powerful enough to push back against the relentless forces of NIMBYism, advises Pinto. This is because the ability to tear down your existing house and put up a duplex has become a desirable feature unavailable to owners in neighbouring boroughs. “Property rights become something homeowners value,” says Pinto. “And they don’t want to see them taken away.” Renters, who stand to benefit from an increase in available rental units, are also candidates to join an anti-NIMBY voting alliance in support of “as of right” legislation. The swarm’s focus on small entrepreneurs, as opposed to big developers, further improves the political calculus, Pinto observes. Premier Ford take note.

It is worth noting that Vancouver has had “as of right” zoning for duplexes throughout most of the city since 2018, but with disappointingly modest results. This is largely because duplex builders are still constrained by numerous and picayune municipal design and approval rules regarding such things as heritage status, floor space, tree cover, roof pitch, parking, and neighbourhood input, all of which work to suffocate any potential swarm that might be unleashed by a reduction in zoning restrictions. This outcome may actually be deliberate, given that “as of right” rules remain a controversial topic for the many local proponents of continued and stifling regulation in that city. What makes the Ontario task force’s take on the issue far more appealing from a homeowner’s point of view is that in addition to removing most zoning requirements, it also pushes municipal design and approval standards up to the provincial level, where they can’t be used to frustrate innovation.

Give the man a hand: Eighteenth-century Scottish economist Adam Smith’s famous concept of an “invisible hand” is on full display with “as of right” housing reform; the self-interest of homeowners in putting their property to its highest and most-profitable use also benefits the public good by increasing the stock of housing and lowering prices.

Beyond its political implications, shifting the housing supply decision nexus away from municipal administrators and onto individual homeowners also has an important philosophical significance. This is because it can be seen as validation for Adam Smith’s famous premise of the “invisible hand.” The 18th century Scottish economist argued in his essay “The Theory of Moral Sentiments” that through the single-minded pursuit of ones’ own best interest in a free and open market, individuals end up contributing to an outcome that “promote[s] the public interest” and provides benefits to all.  

Updating Smith’s concept to the 21st century, Haider notes the same observation applies to “as of right” zoning. “Anyone who wants to maximize the value of their land by splitting a single property into a duplex is obviously acting out of self-interest,” he says. “But at the same time, those interests are aligned with that of homebuyers who have been priced out of the market.” Homeowners, buyers and renters all have the same goal in an “as of right” world: to create more supply. Allowing a piece of land to be directed to its best and most profitable use by removing arbitrary zoning laws permits property owners to put additional housing on their land, which can be sold or rented out. And this new supply immediately benefits potential homebuyers and renters by providing more and cheaper options. Supply up. Price down. Smiles all around.

A Solution Both the Left and Right Can Love

While talk of Smith and his invisible hand is generally considered the domain of the political right, Pinto eagerly points out that the first states to implement “as of right” rules to fix their housing supply crises are California and Oregon, two of the most liberal jurisdictions in the U.S. He has also been tracking a similar shift in opinion at progressive think-tanks, with many dropping their longstanding demands for ever-more regulation of the housing market and urging instead private sector solutions. “We are seeing this growing understanding that the policies we’ve followed for decades aren’t working, and that it’s time to take a market-based view of the problem,” Pinto states with a hint of triumph in his voice.

A winning scenario: Unleashing a swarm of homeowners, renovators and small builders on the housing crisis can deliver much-needed supply in established areas – driving down prices and boosting choice; it’s a solution that attracts support from both the political left and right.

The University of Waterloo’s Parker is clearly no fan of laissez-faire economics. “We know markets left to their own devices wreak havoc,” she declares. Yet Parker does support the prospect of unleashing Pinto’s swarm on the housing crisis. Little platoons of home renovators and builders beavering away in established neighbourhoods putting up laneway houses, basement suites, duplexes and fourplexes is attractive to her because it holds the prospect of greatly enhancing urban density while making better use of existing infrastructure. She also likes the fact that four-storey structures fit neatly beneath existing tree canopies and allow for a small yard at the back.

“This is what people really want,” Parker says. “Green space, walking distance to schools and stores and an affordable price.” As for the fact such a scenario requires acknowledging the central role played by private property rights, “This sort of smaller, decentralized land development that empowers the homeowner – as long as it is appropriately regulated – can be a win for the right and the left,” she says. “And you don’t get wins like that very often.”

Giving homeowners the autonomy to do with their property as they see fit – live in it, renovate it, expand it or tear it down and put up something four times the size – offers the surest and fastest way out of Canada’s housing crisis. Transforming many thousands of individual property owners and small contractors into instant developers is probably the only way for Ontario to double its annual rate of housing construction virtually overnight, and sustain that pace for a decade. That this approach satisfies a broad coalition of homeowners, buyers and renters, as well as advocates from across the political spectrum, is further evidence of its timeliness.

Let a thousand fourplexes bloom. Better yet, make it a million.

Peter Shawn Taylor is senior features editor at C2C Journal. He lives in Waterloo, Ontario.

Source of main image: Shutterstock.


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