Given growth rates, rapidly growing taxes – including the likes of development charges – and the ineffectiveness of local policies on markets, the housing affordability crisis will not be addressed in any meaningful way by municipal governments.

A case in point is the ineffectiveness of tax policy on controlling housing prices, which have eased slightly due to rising interest rates – definitely not a local initiative – but which remain well out of the affordability range.

New research by University of Waterloo professor Olaf Weber shows tax policies such as the Ontario Non-Resident Speculation Tax have done little to curb prices.

The report specifically looks at market behaviour of the nine largest Ontario population centres between 2011 and 2021, a time of significant price increases across the province.

 “Every city in Ontario hopes to regulate its own housing market as part of its duty to its citizens,” said Olaf Weber, a researcher in Waterloo’s School of Environment, Enterprise, and Development.

“We didn’t find any evidence that the measures had any impact.”

Looked at pricing data, researchers found no correlation between such measures and price changes. There are conditions under which such taxes might work, says Weber, but certainly not in the kind of market we’ve seen of late. Paying such taxes were simply the cost of doing business.

“The common opinion – the usual economic approach – is that increasing the price should decrease demand, lowering prices,” he said, but that didn’t happen.

International investors aren’t necessarily looking for the largest return, per se. In the case of Chinese investors, for instance, there’s a desire to get the money out of the country.

“In that case, those taxes aren’t a big factor.”

Foreign speculation is not the only problem – and not the biggest one – when it comes to the lack of affordable housing, notes Weber.

The real impact on housing affordability are beyond local control. Interest rates, immigration numbers and investment targets are among such matters.

“We found that quite often such policies are ineffective partially due to factors out of their control.”

The impact of market pressures, including speculative investment in real estate, was first seen in Toronto and Vancouver, where out-of-reach pricing became evident earlier on. There, too, there were moves to counter non-resident speculation whereby buyers, often foreign, bought up condo units in advance, helping not only to drive up prices but to reduce rental vacancy rates as the units often stay empty.

According to Weber’s study, changes to other tax-related measures such as land-transfer taxes and property taxes have also proven to be largely ineffective in curbing prices, as any improvements can be wiped out by an interest rate change at the federal level or a policy change provincially.

“Municipalities are frustrated,” says Weber. “I am not sure what they can do when so many factors are playing against each other. Empirically, the only thing that has worked to create affordable housing is when cities buy, build, or manage properties themselves and set the price.”

Government efforts to provide affordable rental housing do little to help. While small amounts of new housing can be of benefit to the most-vulnerable residents – those with special needs, the homeless or a segment of the seniors population, for instance – such projects have no impact on the market rates paid by the vast majority of Canadians.

The numbers are simply too small. Building affordable housing on a scale large enough to impact the private sector would require resources well beyond the conceivable.

At current growth rates, we simply can’t build our way out of the lack of housing, where demand outstrips supply and drives up prices. That’s true of the market as a whole, public and private.

Suggestions from developers that increased supply – the result of cutting red tape and planning restrictions, for instance – would ease rising prices are clearly unrealistic. There’s simply no capacity to match population growth, particularly in the Greater Golden Horseshoe. Still, there are some in government willing to listen, as we’ve seen at Queen’s Park.

The federal government has attempted at times to alter policy – reducing amortization periods and tightening mortgage stress tests – to little avail. In that vein, however, Ottawa could impose restrictions on the lending practices of banks, tying loans to income to limit mortgage sizes rather than on the inflated carrying capacity brought on by record-low interest rates.

Rising rates right now are already having a cooling effect. Much larger increases would be more effective, but would be only a short-term solution.

Even government attempts to provide new social housing are doomed to failure, as growth ensures that the number of people seeking such housing will grow much, much faster than supply ever could.

“You can’t just build some housing and then stop. You have to keep spending money,” says Weber of that very dilemma.

With demand growing beyond supply across the whole market, upward pressure on prices will likely continue. That was true in the pandemic, despite a brief dip, and probably through any recession-drive downturn. There’s too much money chasing too few options. Speculative buying from offshore or from corporate interests only makes matters worse.

A speculation tax might apply to all home purchases, ensuring that a buyer holds onto a property for, say, five years rather than looking to quickly flip it. Or it might apply to any property beyond the principal residence, a move to both counter speculation and reverse a longstanding trend to put property ownership in fewer hands. The tax might even increase with each successive purchase, either as a capital gains tax or an annual levy to make such ownership less profitable, thus freeing up units as owner-occupied homes rather than capital investments.

Such tweaking aside, there’s a gap between increasing housing prices and stagnating wages at the heart of affordability crisis. That’s not going to be solved by tinkering at the edges or pushing for alternatives to the postwar housing market that echoes the housing situation from that other gilded age where inequality soared a century ago.

Short of tackling the problem at its roots, the window dressing will continue.