Bill 198 is, potentially, a very harmful piece of legislation. It will empower municipalities to enact policies that will drive up housing prices, cause rental shortages and hamper economic growth. Worst of all, it could do the greatest harm to the poor.
MPP Cheri DiNovo (NDP) has introduced Bill 198, an amendment to the Planning Act that would allow municipalities to require developers set aside a certain percentage of new housing units for affordable housing (inclusionary housing appears to be the new buzz word), and the government has given their tacit approval. Sure, the province won’t actually enact price controls with this legislation, and zoning laws rightfully belong with municipalities, but the implications of this legislation could be severe.
“Affordable” housing requirements do anything but create affordable housing. The requirement for affordable housing will act as a cost on new development, thus deterring companies from building new housing units.
Price ceilings like “affordable” housing have the same effect as increased taxation. They shift the price of a good away from its equilibrium point. At the artificial price, demand will be higher but suppliers will create less of the good (in this case, housing). The deadweight loss will rob society of wealth and we’ll have fewer housing units available. Further, not all rents will be kept artificially low. With lower development, and, thus, lower supply of housing, we will witness an an upward pressure on rent for all non-affordable housing units. Vacancies will drop precipitously, and fewer people will be in the homes that they would have chosen had the government not intervened. This will be a sub-optimal result for everyone.
This past year has been arguably the worst year, economically, that Ontario has witnessed in quite a long time. We’re worried about economic expansion; we’re worried about people being able to pay rent. This is not the time for the province or any municipality to put in place regulations that will stifle growth, increase the cost of housing and create a net drag on the economy. It doesn’t matter what your motivation is; you’re going to hurt people; you’re going to hurt the poor.
This is pretty basic economics. Surely Premier Dalton McGuinty or the Ontario Housing Minister, Jim Watson, or someone either in the Liberal caucus or advising Liberal MPs knows this. Surely, not every Liberal is blinded by the nice talk of “affordable” housing. The economic illiteracy on display is especially sad considering that Jim Watson was mayor of Ottawa in the late 1990s when such housing policies drove skyrocketing rental prices and led to an estimated 2% vacancy rate for rental units. (The sadness is compounded by the fact that the Premier is also from Ottawa and must have been aware of what was a huge story in the city.)
If we are worried about people being able to afford housing, the last thing we should do is institute policies for “affordable” housing. If we have to help people pay the rent, there is a simple way to do it; give them money. Direct wealth transfers have the least distortionary effect on the economy; do not, directly, stifle economic growth; and would actually allow those receiving them to make choices for themselves.