The Looming Neo-Feudalism—and How We Can Avoid It
The rising costs of living have nearly defeated an entire generation. We have barely begun to feel the consequences of bifurcating our society into wealthy, property-inheriting classes and a permanent tenant class.
- Eric Lombardi
- Mar 4, 2023
Illustration by Bjoern Arthurs
CANADIANS ARE OBSESSED with housing—and why shouldn’t we be? Since 2010, our fundamental economic assumptions have changed entirely. In cities like Toronto and Vancouver, housing costs have nearly tripled, while family incomes have only risen by 10 to 15%. In these regions, it now takes an annual household income over $220,000—well into the top 3%—to afford a single-family home and well into the top 10% to afford anything at all. Over the course of a generation, we’ve entered a world where only those with family wealth or very high incomes can afford to build their lives in our most productive metropolitan areas. This new reality has rapidly led to an inhuman level of displacement as more people are pushed into inadequate housing and far too many onto the street. Worse still, rents are accelerating at the same time, making it even harder for those without family wealth to live, let alone save for home ownership. Those on the wrong side of the boom have had their expectations for the future change drastically in a very short period of time, especially young people and new immigrants. The most educated are doing what they’ve always been able to do and are moving to the United States. With higher salaries relative to housing costs, it’s a fairer deal. But not everyone can just pick up and move. Many have family obligations, networks of friends, and love for their communities that keep them here despite these challenges. The rising costs of living have nearly defeated an entire generation, whose labour and dreams are nothing but a source of wealth for the new landed gerontocracy to extract in rents and home prices. How can young people hope to have the families and number of children that they want, at a reasonable time in life, when the space to accommodate growing families is a luxury accessible only to the wealthiest? How can immigrants make good on their huge potential contributions to our country when many are valued as just another dollar in the piggy bank for landlords to monetize through rents and increasing property values? We have created a culture that preys on its future. We have barely begun to feel the consequences of bifurcating our society into wealthy, property-inheriting classes with political influence and a permanent tenant class for whom homeownership and economic participation are increasingly impossible. The wealth created for those on the “right side” of the housing crisis masks a painful reality: Canada is experiencing socioeconomic decline and a decrease in living standards. Our leaders cannot and will not admit this because they don’t feel it. This crisis is for the young, the new, the poor, and the unlucky. In a short period, Canadian pride in our relatively low levels of inequality compared to the United States has been destroyed. We are not the country we once thought we were. Cheap paper wealth has replaced real values, and our new nihilism is propagating the decline of our institutions alongside a torn-up social contract. HOW WILL CANADA build a sustainable and prosperous economy when all new wealth finds its way into the hands of landlords and property values? We cannot nurture the next generation of world-leading and productivity-enhancing businesses when our brightest young people are too afraid of leaving stable jobs to take entrepreneurial risks. Innovators cannot find markets for new goods and services when so much income is spent on rents and mortgages. How will our largest cities function when none of the people they depend on can afford to live in them? Our nurses, teachers, bus drivers, tradespeople, and all the other workers that our society needs to function are now being forced to choose between long commutes—often to live in places that even then they can barely afford—or to remain underhoused, living in quarters that are too cramped or poorly maintained to support their changing families. How will we respond to the urgency of climate change, which requires us to move people and heat our buildings far more efficiently than we do today? Upwards of 90% of emissions in cities come from these activities, and we must realize that we can’t separate our housing goals from a better climate future. How will we be able to maintain our liberal democracy if tenants, through no fault of their own, have become second-class residents beholden to a new gentry? We will be increasingly unable to solve important collective-action problems when our citizens are desperately competitive for satisfactory shelter. Without the promise and possibility of economic mobility, our social contract will evaporate and the culture that made our country a great place to live will die along with it. The housing crisis has become an existential crisis for our culture. We must avert, with all urgency, this neo-feudal future from wreaking havoc on Canada’s social contract, our economy, our environment, and our liberal democracy. We have to fix it. It’s time to end the crisis.
Who's to Blame?
IN THE AFTERMATH of this drastic economic development, activists, elites, and politicians are busy trying to identify a culprit. A near-decade-long debate has focused on picking fights and pointing fingers. We are told, in turn, that prices are being driven up by foreign speculators just looking to make a buck, by developers just looking to make a buck, by immigrants who need new homes, by the boomer generation monopolizing homes, by high interest rates, by low supply, by inflation, by red tape, and by taxes on new construction. The debates have become a battle of clichés, to the detriment of better outcomes for everyone. The reality is that there is some truth in most of these arguments. Therefore, the best course of action is to move aggressively to address as many of them as possible. Unfortunately, our era of deep partisanship makes consensus difficult, even as leaders across the spectrum tap into anger about the housing crisis to propel their careers. Progressives reflexively cast doubt on the benefits of market-oriented reforms—which include looser zoning laws, faster application processes, and reduced development charges—suggesting that the effects are so paltry that the measures are not even worth trying, all while demonizing developers for seeking profit in a crisis. This cynicism leads progressives to advocate, counterproductively, for policies that place additional burdens on builders—who ultimately pass these costs on to new buyers or cancel non-viable projects entirely, worsening the crisis. We can see the effect of this attitude clearly in Toronto, where, within a single year, city council raised development charges on new housing by 46% and implemented inclusionary-zoning requirements without any accompanying policies to lower per-unit costs. Where these combined changes apply, these new costs may add up to over $100,000 per two-bedroom unit for new buyers. On the other side of the aisle, leaders who favour market-oriented approaches to creating lower-cost housing too often discount the need to provide dignified housing for the working class, the poor, the disabled, and groups in critical housing need. The cost of shelter has gotten so out of step with incomes that the only way we can prevent our cities from becoming policy-gated communities is to deliberately build mixed-income housing. We must do so, because shelter is a human right worthy of investment alongside health care, education, and mobility—all significant areas of public spending. Furthermore, conservative approaches to the housing crisis too often discount the impacts of bad speculation and cynical landlordism. Policies like rent control and tenant protections need to be appreciated for their real purpose, which is to prevent abuse and the displacement of existing residents. These policies are not designed to maximize market affordability but they serve other crucial ends; governments need to ensure these protections while minimizing their impact on supply. The politics of housing is riddled with bad-faith interest groups, unrepentant builders, and leaders at every level of government who are more than happy to pander to anti-housing NIMBYs. Canadians will have to embrace change if we, as a society, want to aspire to a better future. We have to grow up. We have to accept that ending the housing crisis means building more housing near people and, sometimes, on new land. Building is the mark of prosperous places and should be a fact of life in this country. Housing dignity and a sense of ownership for all current and future Canadians has to become a political imperative. We have to prioritize strong communities, businesses, families, and sustainability. Fixing the housing crisis is a choice—and it’s one we can make.
Stop Arguing and Do Everything
THERE IS NO SILVER BULLET that will end the housing crisis. Short of a major, economy-busting crash, achieving housing sanity could take a decade or longer, even if key reforms are secured today. It requires a deep commitment to change and demands deliberate action to morph attitudes toward investment in housing. It requires us to understand not just the effects of various policy options but how long they take to have an effect. Many observers expect that increases in interest rates will take the wind out of frothy housing markets in the short term; we are seeing this effect already. However, all levels of government should become more comfortable using policies that curb demand and reduce speculation going forward. Moves to temporarily limit foreign ownership, for example, are insufficient on their own to make a serious impact on prices due to the relatively small market share these buyers represent. Governments should also introduce taxes that prevent house flipping and crack down on money laundering. Policies such as a tax on tertiary (and up) residential properties owned by an individual or business, such as the 20% tax proposed by the Green Party of Ontario, also have the potential to take wind out of speculators’ sails. Governments could explicitly exempt investments in new housing and purpose-built rental units to limit the impact on construction in that sector. If it wanted to get really serious, the federal government could raise down payment requirements for secondary properties—from 20% to 40%, for example—or limit the use of home-equity-backed mortgages to prevent casual landlords from accessing highly leveraged capital from banks. It could also introduce more scrutiny into mortgage lending and raise the mortgage stress-test requirement. It should end the capital-gains exemption on primary residences and instead implement an annualized accumulating capital-gains exemption tied to growth in the economy. (Effectively, the idea would be to replace the capital-gains exemption on housing with a lifetime capital-gains exemption that is inclusive of all asset types and can be applied as individuals see fit.) By making all asset classes subject to the capital-gains tax, we could reduce the bias against renters in housing-tax policy. These changes would signal to all current and prospective owners that governments will not allow the cost of housing to outrun economic fundamentals in the long term. None of these demand-side actions are sufficient on their own and, if implemented, would only temporarily pause an unsustainable trajectory in housing costs. That’s because we are simply not building enough of any kind of housing. We need more rental housing, we need more affordable housing, and we need more market housing for purchase. In a climate of housing scarcity such as the one we’re in now, the wealthy simply bid up the price of housing that was once attainable to the middle class, who then outbid the working class, who then outbid the poor. It’s this phenomenon—not the construction of new homes—that is the primary cause of gentrification and socioeconomic displacement in our cities. WE SIMPLY HAVE to allow more housing to be built in our highest-demand places. It’s time to end the artificial land monopoly dedicated to single-family neighbourhoods in our biggest metropolitan regions. This means more townhouses, triplexes, fourplexes, and walk-up apartments in existing communities. It means more mid-rise and high-rise housing along transit routes. It means redeveloping existing commercial spaces into mixed-use communities that can serve as the new walkable hearts of existing neighbourhoods. It means legalizing the development of new main streets. Solutions to boost supply—such as ending exclusionary zoning, reducing approval timelines, and creating a public builder—will take longer to implement than demand-side reforms but ultimately will have significant impact. Many of the politicians who are finally coming to understand the harms of exclusionary zoning and overly restrictive planning still risk going too slowly on reform; legalizing multi-family housing isn’t enough. By doing too little too slowly, our leaders will perpetuate the current crisis. We have to be bold. The government can play a bigger role in creating new supply, both directly and indirectly. First, it can create new housing itself by investing in a public builder tasked with building mixed-income housing and, where it makes sense, mixed-purpose housing and retail on public land. Through existing land ownership and advantageous access to longer-term debt, the government can build housing that pays for itself over time while subsidizing the construction of fully accessible homes and housing for those in need. (This model is already being used by not-for-profit builders such as Kindred Works, through which the United Church of Canada is building rental housing for 34,000 people with a target of 30% affordable units.) Maintaining a transparent pipeline of such projects creates clarity for market-based builders and gives public builders the flexibility to ramp up projects during recessions, when private developers scale back and require fewer workers. This will maintain skills in construction labour forces and act as a productive form of stimulus when needed. Becoming a public builder would allow the government to take responsibility for creating the kinds of housing it has irresponsibly left to private builders, paid for by cost-burdened buyers. We need to start paying for social goods that benefit entire communities, instead of burdening first-time homebuyers with these costs. Governments also need to reform taxation, regulation, and planning processes to reduce the soft costs (including taxes, administration, and design work) and hard costs (labour and materials) associated with construction. Our goal should be to lower the break-even price of new homes. While some staunch progressives believe the outcome would simply be higher profits for private developers, reducing the barriers to entry in housing construction would bring in more players to build more housing. It would also allow housing to be built at lower costs and increase competition among sellers while improving housing quality. Policy changes that lower costs may, in the short term, make private construction more profitable, but they will reduce the purchase prices of new homes in the long term. In Toronto, development charges, inclusionary-zoning policies, taxes, and fees (such as parkland dedication) now amount to more than $100,000 in costs for most multi-family homes with multiple bedrooms—exceeding the cost of infrastructure required to service them. Builders of new housing now have to absorb the costs of paying for new neighbourhood amenities that benefit existing residents (like parkland and libraries), along with funding social goals (like building subsidized housing), without any accompanying policies to reduce costs. This model is based on the faulty assumption that new residents are a burden on neighbourhoods. It’s time for our policy to recognize that new residents benefit their communities: new housing generates property tax revenues that help pay for local infrastructure while costing less to service than older, less-efficient homes. It’s time for cities to be accountable for paying for public goods that benefit everyone and to base taxes and fees for new housing on the real infrastructure costs associated with allowing growth. There are innovative opportunities to reduce soft costs associated with housing as well. Simplifying approval processes and shortening timeline approvals would help, as would zoning reform to allow more as-of-right growth. Legalizing the use of standardized designs in multi-family homes, and increasing opportunities for prefabricated assembly, could help lower the costs associated with that type of construction. Regulations and policies also have the potential to shift how we build away from higher-cost projects built with expensive materials, like concrete and steel, to lower-cost projects, such as those built with wood. In the past few years, many skeptics have argued that bottlenecks in labour capacity and the increasing cost of materials limit the potential impact of policy reforms. These are valid concerns, but businesses and entrepreneurs cannot invest in additional capacity if they’re not confident about the long-term demand for materials, goods, services, or labour that they might provide. Reforms that reflect a commitment to ongoing growth in new home construction would allow individuals and supportive industries to make decisions about the future with more confidence and to create the incentive to invest in long-term capacity, generating good jobs along the way. Finally, the government can address the shortage of construction and trade labour in several key ways. In Canada, labour productivity in construction has barely budged since the 1970s. Firstly, the government can pursue policies that enable existing labour to be more productive. This means eliminating prescriptive rules about building design and methods (except where safety is concerned), which would allow for more innovation in private construction. Secondly, governments can better fund education in the skilled trades and make it easier for graduates to secure apprenticeship opportunities. This would create a domestic pipeline of labour to combat the upcoming retirement cliff in our aging skilled-trades workforce. While some of these changes will be upsetting to unions, they are absolutely required. Thirdly, new immigration pathways could allow workers with in-demand skills to validate credentials obtained elsewhere and join our labour market. The goal should be to build a larger, more productive workforce, lowering the labour costs associated with building more housing while raising incomes.
Building the Land of Dreams
CANADA HAS LONG BEEN a north star to the world’s free-minded people. Our highly open culture has created one of the most accepting countries on earth for immigrants, for refugees, and for the persecuted. For generations, people have come here to escape atrocity and find opportunities—to build lives, families, and strong communities. For Canada, this has meant an enriched cultural life with influences from around the world, demonstrating that it’s possible for all people to live in harmony if they wish to. We also have an outsized influence in the world relative to the small size of our population. Immigration has been foundational to our national identity: the perseverance and the success of previous generations of immigrants are the foundation of our prosperity. Too often, our conversations about housing undermine this foundation and limit the progress we could be making toward an even better future. The affordability crisis is not the only challenge—nor the only opportunity—for the housing sector. What kind of society do we want to live in? How do we improve everyone’s standard of living and quality of life? How do we meet our obligations to a planet increasingly burdened with climate change and its associated disasters? Globally, we are transitioning to an era in which efforts to prevent climate change will not be enough: we are entering the period of adaptation and mitigation. As with housing, three decades of low-achieving Western leaders kicking the can down the road have only made the problems more difficult. We have only begun to see the effects of extreme weather events and global warming on the global poor, who are disproportionately impacted by climate change. Canada, as a wealthy country that benefited from few environmental restrictions to growth during its industrialization, has an obligation to be a leader in emission reductions. We have bountiful natural resources—the building blocks of a sustainable future—along with nearly 20% of the world’s freshwater. As the climate warms, our growing season is lengthening. Winters are becoming milder, and the Great Lakes region is increasingly being recognized for its potential to become a global climate change haven. We owe it to the world to learn how to grow sustainably and faster than we are today. In cities like Toronto, an estimated 90% of carbon emissions come from heating and cooling buildings, construction, and transportation. By ending artificial land monopolies governments have erroneously created through exclusionary regulations, we have the potential to use natural advantages toward a better climate and housing future. By legalizing the greater use of renewable wood in construction, we can sink carbon into our urban built form. We can increase the density of existing neighbourhoods, making it easier to serve them with electrified public and active transit infrastructure and lowering per capita emissions. We can invest in heating and cooling technologies that become viable at this scale, like ground-source heat pumps, to eliminate additional emissions. In ending our housing crisis, we can tackle our obligation to mitigate climate change and drive investments into adaptation at the same time. WE CAN CREATE the businesses, supply chains, and talent to lead the world in creating economically viable, beautiful, sustainable, livable architecture. By legalizing prefabricated, sustainable, multi-family housing, we can create an industry that can be exported globally. We can use the demand for new housing to fuel innovation in sustainable building, city retrofitting, and growth. In doing so, we will create hundreds of thousands of high-quality jobs, generating opportunities for existing and new residents at the same time. In a housing-rich future, fewer citizens will be burdened with extraordinary costs of living, leaving them with more income and more time to spend on everything else. More Canadians will be able to take the leap into entrepreneurship, creating new industries, wealth, employment, and opportunities that will benefit us all. Our denser cities will have the financial scale to invest in better services, new parks, and other beautiful public spaces. Concentrating our population in urban centres will help us preserve our farmland—some of the most productive in the world. And in building a revitalized, sustainable social contract, a generous citizenry will find it easier to reach consensus and solve other challenging collective-action problems. In ending its housing crisis, Canada can double down on its reputation for freedom, openness, and opportunity. In a troubled world, we can continue to be the north star, a beacon of hope, and a place for fresh starts. We can be a country where people feel they are in control of their own lives. A place where the most vulnerable are aided and empowered by institutions instead of forgotten. A place where love for our communities is visible through the respect we show in caring for them. We can be a world leader in city building, architecture, technology, and ecological sustainability. Together, we can build a land of dreams, a country with nearly unrivalled prosperity and security, with clean air, fresh water, bountiful food, and a home for everyone.
Eric Lombardi is a housing advocate and founder of More Neighbours Toronto, a volunteer not-for-profit seeking policy changes to end the housing crisis.