Successful Home Builders Are Essential To Nova Scotia’s Growth Goal
Posted May 27, 2022
When top tier investment bank Lehman Brothers collapsed in 2008, it was unable to fulfill thousands of securities trades. The other big banks stopped accepting transactions from each other. The whole system froze up.
The root of the problem was an overheated housing market fueled by an epidemic of irresponsible mortgage loans. That drove house prices well beyond their replacement costs. When the inevitable crash occurred, homes in the tens of thousands became worth less than their outstanding loans and were abandoned.
Today we have a very different kind of housing crisis. Prices rose sharply in most parts of Canada. We have seen unprecedented increases in Nova Scotia, especially in Halifax.
This is not driven by irresponsible lending. It is driven by three other factors.
Population has grown rapidly, a mix of international migrants and net inflows from other Canadian provinces, especially Ontario.
Secondly, supply is constrained. Planning approvals were taking too long, materials are expensive and often slow to arrive. The invasion of Ukraine and resulting sanctions on the Russian economy have made it worse.
As well, Ottawa put a lot of money in the pockets of consumers. The Bank of Canada lowered interest rates and provided liquidity.
They and the other central banks waited too long to react to evidence of inflation, which has spiked well above the 2% target. The prolonged battle to right the ship will increase borrowing costs in the near term.
Premier Houston’s ambitious goal of doubling our population by 2060 requires a growth rate of about 1.7%, meaning an addition of 17,000 people this year.
New housing is being built at a record pace but it is not fast enough. The province’s heavy-handed intrusion into the planning process was regrettable but probably necessary, at least temporarily.
Getting approvals is only the beginning. Builders still must deal with labour shortages and supply bottlenecks.
Governments like to please voters by providing services and programs that will be popular. The one restraint is the extra tax dollars needed to pay for them. What governments really like are programs where the cost does not appear in the governments’ accounts.
Take electricity for example. Nova Scotia Power (NSPI) is the monopoly supplier for almost all Nova Scotians.
Darrel Dexter’s NDP government created a special rate to be paid for power from small scale wind turbine projects. These are much less cost effective than the big installations, so ratepayers must pay the much higher cost, which shows up in our electricity bills.
The Liberals created a program where homeowners can install small scale solar to provide some of their electricity. In addition, they can feed any excess into the grid and be paid the same rate that they are charged. When NSPI proposed that the cost of creating connections to solar installations should be charged to the homeowners Premier Houston vetoed it.
The average taxpayer would wrongly infer that the cost would be borne by NSPI. Instead it is just spread over all ratepayers. NSPI’s profits are untouched by the government’s directive.
The experimental tidal installations in the Bay of Fundy likewise receive much higher-than-normal rates for the power they produce. At least for these there is value in the potential development of a viable technology for tidal power.
Hidden subsidies such as these, plus the badly negotiated contract for Muskrat Falls power, contribute heavily to the proposed 10% increase in electricity rates. Making NSPI shut down coal plants prematurely will make rates go up even more.
In the same vein, Canada has a monopoly dairy system. We are quite rightly criticized by our trading partners for violating our commitments under trade agreements.
The Americans won a ruling against Canada for not fulfilling its NAFTA promises. It is not just they who object. New Zealand has complained that Canada has not provided access to a share of its market as promised under the Comprehensive and Progressive Trans-Pacific Partnership agreement.
The result of that non-compliance is that Nova Scotians subsidize dairy farmers by paying 40% more than Bostonians for a liter of milk.
Closer to home, we have provincial intervention in the relationships between landlords and tenants. The Residential Tenancies Act provides balanced obligations for the parties.
Periodically, governments feel pressure to tilt the scales. In late 2020 landlords wanting to terminate tenancies to improve their properties were prevented from doing so under any circumstance, and rent increases were limited to 2%.
This was annoying but bearable when inflation was around 2%, but is now much more painful. It may be manageable for large landlords with enough annual turnover in tenants, but is seriously onerous for owners of a handful of units with long-time tenants.
The two most basic needs for humanity are nutrition and shelter. Fishers and farmers are celebrated for providing the food we eat. The entrepreneurs who build and maintain housing deserve neither to receive nor to pay for subsidies.
They should be celebrated for providing much needed homes.
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