Conflicting Values, Policies and Politics: Housing Affordability and Residential Land Use Regulation in Calgary

The lack of affordable housing has been a persistent problem for Canada’s major urban centres. Unlike Toronto and Vancouver however, housing costs in Calgary are reasonably affordable. This is due primarily to the fact that Calgarians have enjoyed some of the highest incomes in the country for more than a decade.

Still, a significant number of Calgarians are burdened by both low income and high housing costs. Nearly 20% of households in Calgary spend over 30% of their before tax income on housing - the threshold for affordability. The 2015 recession and Covid-19 related layoffs have made the situation worse for this segment of the population.

Affordable market housing plays a key role in determining a city’s long-term socio-economic sustainability. If workers cannot find affordable housing, they will move to where they can. Without an educated workforce, the city will not be able to attract new business investment.

Furthermore, households that overspend on housing have little income to spend on other goods and services, including education and health care. They often live in overcrowded conditions that contributed to the spread of Covid-19 and, in extreme cases, they can experience temporary and recurring homelessness.

Housing prices are largely determined by market forces such as oil prices, interest rates, incomes, immigration levels, household characteristics, buyer preferences, the availability and proximity of amenities and construction and land costs. Housing policies and programs at all levels of government also impact the price of housing.

While housing clearly falls within provincial jurisdiction, it is the federal government that plays the bigger role in setting housing policy. At the federal level, homeowners are able to take advantage of numerous federal programs and tax policies that incentivize home ownership over renting. These programs make it easier to finance the purchase of a house thereby stimulating demand. This drives up the cost of market housing beyond the reach of lower-income Canadians.

Reducing these federal supports to make housing more affordable would not be politically expedient. The housing system is a major economic driver and generator of family wealth. It is also supported by well organized real estate, builder and financial interest groups.

In Alberta, much of the responsibility over housing has been delegated to the municipalities. Prior to 2009, most of Calgary’s neighbourhoods were restricted to single-family dwellings (“SFD”). The City kept housing affordable through the annexation and development of new subdivisions at the city’s periphery as needed. As higher-income households moved to new market-rate housing in the suburbs, the market naturally provided affordable housing through a process in which older and cheaper housing stock was “filtered down” to lower income households as their previous owners move on to new housing.

Concerned with the negative impacts of urban sprawl, the City started calling for greater densification in the 1990s. In 2009 the City’s Municipal Development Plan (“MDP”) adopted new growth strategies and regulations aimed at increasing densities and the mix of housing types in the city.

The MDP aims to (a) limit the outward expansion of new subdivisions (“urban curtailment”), (b) encourage a greater mix of housing in new areas of the city, and (c) liberalize zoning rules that restrict residential development to SFDs in existing communities,  The expectation is that the loss of housing resulting from urban curtailment would be offset by higher densities in established neighbourhoods.

The City’s urban curtailment policies plus its inability to implement policies that would result in higher densities in established neighbourhoods are the main supply side contributors to two very different housing affordability problems for the City.

The first problem is that urban curtailment and changing the mix of housing in new subdivisions have reduced the supply of single-family lots needed to meet the high demand for that type of housing. This drives up land costs.

Calgarians have a strong preference for SFDs. Fifty-six percent of all housing units in Calgary are SFDs. This is 20% higher than the national average. With fewer single-family lots available in new subdivisions, buyers have turned to existing neighbourhoods to buy teardowns and build new SFDs. While this has resulted in the rejuvenation of many inner-city neighbourhoods, it has also contributed to gentrification and high prices in those communities. The market’s ability to provide affordable used housing through filtering is impeded.

The second problem is that the City’s efforts to increase densification in established neighbourhoods have for the most part been successfully thwarted by a strong and well-funded opposition. Even modest efforts at densification have become extremely difficult and expensive as opponents take advantage of the City’s lengthy “project by project” land-use redesignation and permitting process to stop increased densification. This has had a “chilling effect” on developers. 

Moreover, it has been 11 years since the MDP was passed and there is still no formal redevelopment plan for established areas of the city. This past September, the City introduced the “Guidebook for Great Communities”. It is the City’s latest attempt to significantly change the way future development is carried out in Calgary’s established communities. The Guidebook did not change the by-laws that determine zoning. Nevertheless, it is a controversial document as it set out the process by which residents can allow higher-density development in their communities through the creation of local area plans that would, in large part, replace the current ad hoc system. The Guidebook was renamed the  “Guide for Local Area Planning” after significant amendments were made to the original document in response to strong opposition.

The combined effect of these two problems is that there are few affordable housing options for lower-income households in established areas of the city. This has resulted in the displacement of lower-income households to less expensive suburban communities where any advantage gained from living in a more affordable neighbourhood in the suburbs is offset by higher transportation costs incurred to get to work or other amenities.

The MDP set an interim target that 33% of all population growth between 2009 and 2039 should happen in established communities. Since the passage of the MDP, only 9.7% of cumulative population growth has occurred in those communities. At this rate, the City is at risk of missing its interim target.

Renters are also negatively affected. As house prices rise, renters are prevented from “filtering up” from rental accommodation into ownership. This results in the bidding up of rents at the same time as the market is responding by building more housing for sale and less for rental. Consequently, rents have steadily risen while supply has fallen. Again, the consequences of this scenario are primarily borne by lower-income households.

Municipalities must balance the goal of providing affordable housing with the equally important goals of reducing urban sprawl and greenhouse gas emissions, controlling infrastructure spending and other important economic and social objectives related to housing and urban planning in general. In many cases, this balancing act has driven up the cost of developing residential properties. The City of Calgary’s growth strategies and land-use regulations are factors that have contributed to the City’s housing affordability issues,

Abandoning the urban curtailment policies in the MDP would be the simplest way to increase the supply of single-family lots. This will restore a more traditional pattern of filtering and allow the market to provide more affordable units for moderate and lower-income households in older communities. This approach though would require the City to sacrifice its growth, traffic and environmental targets in favour of affordable housing. It would also result in increased infrastructure costs to service new subdivisions and ultimately higher property taxes.

Solutions to the city’s housing affordability issues are ultimately beyond the City’s ability to act unilaterally. Housing is a classic “wicked” problem. It is unrealistic to believe that any municipality acting alone can impact housing affordability. Economic factors, conflicting consumer and stakeholder objectives, institutional and jurisdictional constraints and the infrastructure investments required, all necessitate a high level of cooperation between all levels of government.

From the City’s perspective, the burden of increasing supply through the relaxation of land-use regulations should not be foisted onto the City without some contribution from other levels of government. This may mean making changes to land-use regulations contingent on increased provincial and federal funding for infrastructure, transportation and social housing. The budgets of all levels of government for such purposes though will be strained for years to come due to the large financial response to the Covid-19 pandemic. This will put considerable pressure on all levels of government to invest public funds prudently.

Whatever funding arrangements are agreed to must recognize that housing affordability issues have unique local characteristics. New provincial and national policies and programs must have a significant degree of flexibility built into them so that the implementation of policies and delivery of programs can be tailored to address local housing market conditions.

Finally, it will take the housing market decades to respond to any meaningful changes made to the City’s land-use regulations. Decisions made in the short term by all levels of government will have long-term implications for the success of Canada’s major urban centres. Policymakers therefore must have the political will to take risks today and lead multiple stakeholders through the various short-term conflicts in order to generate the many long-term benefits that can be achieved through innovative land-use rules.

About the author:  Andrea Riccio is a recent graduate of the Master of Public Policy program. He also holds a Bachelor of Laws degree from the University of Alberta and a Bachelor of Commerce degree (with distinction) from the University of Calgary. He has over thirty years’ experience as a real estate lawyer in both Toronto and Calgary representing builders, developers and investors. He also represents non-profit organizations on a pro bono basis. Andrea is passionate about housing, income inequality and democratic institutions.

The author can be reached at: www.linkedin.com/in/andrea-riccio-2442058