The Urgency of Sustainable Housing Reform in Canada: A Call for Structural Change

 

November 9, 2024

As Canadians we face a staggering housing crisis; it’s become clear that the old solutions are failing. Major cities like Toronto and Vancouver have transformed housing into an investment commodity, pushing prices beyond reach for everyday Canadians. Many are left with no choice but to look to smaller cities, or even other countries, to find homes they can afford. Meanwhile, public housing sits in disrepair, mired in bureaucracy, and the demand for real change has never been greater.

If we want sustainable, long-term solutions, we must look past quick fixes. Housing affordability isn’t just an issue of supply and demand; it’s a deeply rooted problem tied to how we view housing, how our systems are structured, and how our leaders prioritize—often ineffectively—the most basic needs of Canadians.

1. Shift the Mindset: Housing as a Public Good, Not a Commodity

• Action: The government must reframe housing as a basic necessity, not an investment asset. This starts by discouraging speculative buying practices that inflate prices. The speculative approach has created a market that drives up prices, leaving countless Canadians struggling to keep up.
• Goal: Establish regulations that protect homes from being treated as cash-generating assets, especially in major cities where affordable housing is in desperate need.

2. Build High-Density, European-Style Apartments on Public Land

• Action: On government-owned land, develop European-style, spacious apartments—1000-1200 square feet for two- and three-bedroom units. This type of housing is commonplace in Europe: functional, affordable, and perfect for families. By using public land, we remove one of the major cost factors in development—land acquisition.
• Goal: Affordable, spacious housing in high-demand urban areas without middlemen or speculative real estate involvement.

3. Cut Out the Middlemen: Reduce Reliance on Realtors and Financial Institutions

• Action: Design a streamlined public housing model where buyers work directly with housing providers rather than through realtors or mortgage institutions that increase costs and complicate processes.
• Goal: By removing intermediaries, buyers could access housing at lower costs, with fewer bureaucratic hurdles and less price inflation from added fees and commissions.

4. Revitalize Public Housing Through Public-Private Partnerships

• Action: Public housing is in crisis, with conditions often so poor that people hesitate to move in. The government should partner with private developers to revamp public housing units, combining efficient private-sector management with strict public-sector regulations on affordability and quality.
• Goal: Create housing that provides dignity to residents, rather than a last-resort option, while ensuring long-term affordability through public oversight.

5. Reduce Housing Demand by Cutting Business Taxes

• Action: As housing costs have outpaced wage growth, Canadians’ real purchasing power has diminished. Reducing taxes on businesses could make Canadian companies more competitive and allow them to invest more in employees’ wages. A stronger economy could support higher wages, helping Canadians better afford housing without intense market pressure.
• Goal: Shift from a reliance on social support to a system where Canadians have enough purchasing power to sustain themselves in a healthy housing market.

6. Streamline Bureaucratic Processes for Faster Housing Development

• Action: Red tape and bureaucratic delays have stifled housing growth, making projects longer and more costly. Governments should overhaul the approval process for housing developments, streamlining it to prioritize projects with the most community benefit and ensuring accountability throughout.
• Goal: Prevent lengthy, costly delays by implementing a fast-track approval process for housing, as seen in projects like the Honda plant, which avoided endless bureaucratic back-and-forth.

7. Empower Regional Growth: Encourage Canadians to Build Beyond Major Cities

• Action: The intense focus on cities like Toronto and Vancouver has not only strained resources but left smaller towns underutilized. By investing in infrastructure and incentivizing businesses to establish roots in smaller cities, the government could encourage more balanced population growth.
• Goal: Relieve pressure on major cities, reduce costs, and foster development in underutilized areas, spreading out housing demand while creating more affordable options nationwide.

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Can We Count on Political Will?

The real question is: Do we have the political will to enact these changes? Looking at recent large-scale projects, it’s clear there’s a stark difference between private-sector urgency and government timeliness. While the Honda plant managed a rapid construction schedule by bringing in efficient, out-of-town contractors, public projects like Toronto’s Eglinton Crosstown Light Rail have been delayed, mired in local red tape and inefficiency.

This contrast illustrates the urgency of real reform. Canadians need leaders who prioritize sustainable housing solutions with the same efficiency and commitment as they would any major corporate initiative. By streamlining public housing projects, removing speculative interest, and creating a direct pathway for affordable housing, leaders could make these reforms a reality.

The crisis calls for bold, unapologetic action. Canadians need to demand better, holding leaders accountable for inaction. With public pressure and decisive government policy, Canada could set a new standard for housing—a standard that provides for its citizens and paves the way for sustainable, accessible, and affordable homes for future generations.

It’s time for our leaders to turn words into action.

The challenges go well beyond housing, touching on broader economic and bureaucratic issues.

1. Population and Demand

• Insight: Higher population density in urban centers and the commodification of housing are indeed big drivers of high prices. In cities like Toronto and Vancouver, property has shifted from being a basic necessity to a high-value asset.
• Thought: While reversing population trends isn’t feasible, adapting to these trends is possible. Governments could promote the development of smaller cities by improving infrastructure and incentives to attract people away from congested, expensive urban cores.

2. Relocation as an Interim Solution

• Insight: People moving to more affordable cities or countries is a reality. However, relocating is not an ideal or sustainable solution for everyone, and it reflects a shortcoming in making housing affordable within Canada.
• Thought: There’s potential to explore policies that encourage balanced regional development across the country. A more distributed population could relieve pressure on housing markets in overpopulated areas while boosting the economies of smaller cities.

3. Cutting Out Middlemen

• Insight: Reducing the reliance on realtors, mortgage institutions, and bureaucratic red tape could indeed lower costs. Middlemen can inflate housing prices and complicate access for ordinary buyers.
• Thought: Government-backed, middleman-free models for housing could be explored, where publicly owned land is developed for residential purposes directly by local agencies or cooperatives. This could limit speculation and lower prices while focusing on providing homes rather than investments.

4. European-style apartments on Public Land

• Insight: High-density, European-style housing—affordable, spacious, and functional—is a practical model. Building on government-owned land would reduce land costs, a major factor in high housing prices.
• Thought: Allocating public land for residential developments, and building spacious units as you mentioned, could be effective if managed with strict pricing regulations to prevent turning it into another speculative market.

5. Reducing Business Taxes to Cut Demand

• Insight: Lowering business taxes to make Canadian companies more competitive would have indirect benefits for housing by relieving cost-of-living pressures. As companies grow, they could afford to increase wages, potentially balancing housing demand with residents’ buying power.
• Thought: A stronger economy can support a more sustainable housing market, as wage growth can catch up with housing costs. However, if done poorly, it could inadvertently shift demand elsewhere rather than lowering housing costs directly.

6. Government Efficacy and Delays

• Insight: Governments at all levels have a mixed track record on housing and infrastructure projects, often due to bureaucratic delays and political inertia. The example of the Honda plant highlights how effective out-of-town contractors and streamlined approaches can be in completing projects on time.
• Thought: To tackle the housing crisis seriously, leaders would need to adopt a similar urgency to large-scale public housing. Streamlining approvals, prioritizing partnerships with developers and unions that prioritize efficiency, and creating clear accountability structures could help.

Feasibility of Change

• Political commitment is often lacking. A sustainable solution requires not just policy change but also a fundamental shift in mindset about housing—treating it as a public good rather than solely as a market asset. Public buy-in and electoral pressure might be the only ways to push governments toward this kind of reform.

Closing Thoughts

While it may seem unlikely under the current system, the pressure for action is mounting. With high levels of frustration from citizens, there could be a growing demand for real, structural changes—especially if political leaders start seeing housing as a national priority with long-term economic and social benefits.

Time To Amend and Update USA Federal Reserve Act and the Federal Open Market Committee (FOMC)

 November 9, 2024

It was under President Barack Obama in 2012, that the Fed through FOMC formally stated its 2% inflation target as a clear goal for price stability.

Federal Reserve Act does not specifically mandate a 2% inflation rate, the FOMC independently set this 2% inflation target as part of its monetary policy to achieve price stability, which is one of the components of its dual mandate.

The Federal Open Market Committee (FOMC) is a part of the Federal Reserve System, and its activities are ultimately accountable to Congress. Thus, congress did not adhere to the non-delegation doctrine that prevents it from delegating its legislative powers to other branches of government or to administrative agencies. This doctrine is rooted in the separation of powers, which is a core principle in the Constitution.

Congress: Can pass laws to implement the policy for the Federal Reserve and Federal Open Market Committee (FOMC). It does NOT have the legal authority to delegate its legislative powers to the FOMC or The Federal Reserve as per the nondelegation doctrine, in my view.

Oversight: Congress has the authority to amend the Federal Reserve Act, which defines the role and powers of the Federal Reserve, including the FOMC. Therefore, Congress has oversight over the FOMC but cannot directly intervene in its day-to-day operations.

Accountability: The FOMC, like the Federal Reserve System, operates independently within the framework established by Congress. It reports to Congress regularly, especially in terms of its policy decisions and economic outlook.

Annual Reports: The Chair of the Federal Reserve (who also chairs the FOMC) is required to testify before Congress twice a year (typically before the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee) to provide updates on monetary policy and answer questions from lawmakers.

The President: The FOMC also submits an Annual Report, and the President of the United States appoints the members of the Board of Governors of the Federal Reserve, including the Chairperson and Vice Chairperson.

The FOMC: Is composed of seven members of the Board of Governors and five regional Federal Reserve Bank presidents. While the President can influence the selection of Board members, once appointed, Board members (including the FOMC members) have a 14-year term, which is designed to insulate them from short-term political pressures. The Chairperson serves a 4-year term but can be reappointed.

Federal Reserve's policies: Particularly in terms of keeping interest rates high and aiming for 2% inflation—generates significant revenue for the Federal Reserve itself, which is sometimes returned to the U.S. Treasury. However, there are multiple factors and consequences to consider in this scenario, as the relationship between monetary policy, the Federal Reserve’s earnings, and its effects on taxpayers (both individuals and corporations) is complex.

Breakdown of how this works:

1. Revenue Generation from High Interest Rates:

• Interest on Government Securities: The Federal Reserve generates revenue from the interest it earns on the U.S. Treasury bonds and other government securities it holds. When the Federal Reserve raises interest rates, the government must pay higher interest on its debt, which increases the interest income that the Fed receives from these securities.
• Increased Earnings: As interest rates rise, the Federal Reserve's income from interest payments increases, which leads to higher profits for the Federal Reserve. Some of this profit is then transferred back to the U.S. Treasury. In that sense, the higher interest rates increase revenue for the government (in the form of Fed transfers), but it also means that the cost of servicing government debt is more expensive for taxpayers.

2. Inflation Targeting and Its Impact:

• Inflation Control: The Federal Reserve’s goal of maintaining 2% inflation is part of its dual mandate to promote price stability and maximum employment. By targeting a low and stable inflation rate, or preferably a ZERO inflation rate, the Fed aims to prevent the negative economic effects of both high inflation and deflation, which can harm the economy.
• Corporate Impact: While a 2% inflation policy might stabilize the economy, it may have short-term and long-term negative effects for individuals and corporations. High interest rates, for example, increase the cost of borrowing for businesses, consumers, and even the government, which slows down economic growth and hurts business profitability.
• Higher Corporate Taxes: If businesses face higher interest costs, this reduces their profits, potentially affecting corporate tax revenues. On the flip side, if the Federal Reserve's actions might help maintain a stable economy, it might encourage long-term investment and growth.

3. Impact on Taxpayers:

• Individual Taxpayers: High interest rates make consumer loans, mortgages, and credit cards more expensive for individuals, which means they may have less disposable income. This affects their spending behaviour and overall economic activity, conceivably leading to reduced tax revenues from consumer spending and income.
• Government Debt: The government also faces higher borrowing costs when interest rates rise. The U.S. Treasury must pay more to service the national debt, which increases the tax burden on future generations due to higher interest payments. So, even though the Fed may make higher profits, the public debt grows, and taxpayers ultimately pay the price through increased government spending on interest.

4. Corporate Taxpayers and Borrowing Costs:

• Corporations that rely on debt financing face higher costs when interest rates are high. As borrowing becomes more expensive, companies might reduce investment or pass these costs onto consumers, which could have a ripple effect on the broader economy. This could impact corporate profits and tax revenues.
• Corporate Profitability: High interest rates also reduce corporate profitability in the short term, which leads to lower corporate tax revenues as businesses face higher borrowing costs and may delay expansion or hiring.

5. The Fed's Role in Economic Stability:

• Despite these impacts, the Federal Reserve’s primary role is to ensure economic stability, even if that comes with short-term costs. Zero inflation and low interest rates help fuel growth, but controlling inflation and managing interest rates politically are seen as tools to prevent runaway inflation or economic collapse.
• While higher interest rates generate more revenue for the Fed, the long-term goal is to keep the economy healthy and stable. Without a predictable and controlled economic environment, the risks of volatility, financial crises, and economic downturns become much higher.

Conclusion:

1.      Congress should pass laws to implement the policy proposals for a Zero Inflation Target: Maintaining a stable price level ensures that the purchasing power of money remains constant over time. Money Supply Growth Cap: Limiting money supply growth to 2% above zero inflation provides liquidity without inducing inflation. Interest Rate Cap: Capping interest rates at a maximum of 4% keeps borrowing costs affordable and predictable.

2.      Congress must amend the Federal Reserve Act to reduce the term of FOMC members from the current 14-year term to a 4-year term with the possibility of renewal for a further 4 years only. Maximum term of 8 years in total.

3. Federal Reserve members (including the Board of Governors and FOMC members) and other employees are paid by taxpayer funds as the Federal Reserve is a public institution.

4. The Federal Reserve's policies—particularly in terms of keeping interest rates high and aiming for 2% inflation—generate significant revenue for the Federal Reserve itself.

5. High interest rates and a 2% inflation target result in higher revenue for the Federal Reserve, as it earns more interest on its securities holdings.

6. Fed's policies generate more revenue for itself and the Treasury, the trade-offs involve higher costs for ALL taxpayers due to the increased cost of borrowing and servicing national debt.

7. High interest rates with a 2% inflation target result in higher revenue for the Federal Reserve, as it earns more interest on its securities holdings. However, this comes at the expense of taxpayers, as higher interest payments on government debt and higher borrowing costs for individuals and businesses reduce disposable income and increase the national debt.