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Niagara Falls
Tuesday, May 21, 2024
Arch-i-text: With high costs, we’re not seeing ‘more homes built faster’
Brian Marshall says we need to address the carbon tax and cost of building before we can hope to solve the housing crisis. MIDJOURNEY

This week I’d like start off by borrowing a page from my colleague, Ross Robinson’s playbook, and do a little “rambling” about things which arguably challenge folks who own their own home and those who would like to become property owners.

Both groups are struggling with affordability — the former with the home ownership carrying costs and the latter with the high threshold to enter the market while paying record high rents.  

So, let’s begin with RBC Economics’ recently released report “the Great Rebuild” wherein they quantified ownership costs as a percentage of household income at 60 per cent and predicted that this may fall to 56.4 per cent if interest rates declined — as expected — to 3 per cent in 2025.

Since it is unclear to this columnist whether RBC was referring to pre- or post-tax household income, one is forced — by common practice in these type of calculations — to assume it is 60 per cent of gross income.

Understanding that, one wonders how folks can afford to put food on their table with the pittance left over from their net income?

Certainly the most generous estimate of average annual household income in the Niagara Region is reported at $90,200 (in 2020). So, the net of that amount after federal and provincial income tax levies is $63,761.

And, 60 per cent of $90,200 equals $54,120. That’s right folks, from a net income of $63,761, some of your neighbours need to fund feeding themselves, their kids, pay for any additional “discretionary” purchases — like clothes and stuff — and etcetera, on a mere $803.42 per month.

Is it any wonder that families living in their own home are struggling to make ends meet and many in the younger generations have given up on ever owning a home?

Speaking of costs, last month a group of Canadian economists published an open letter regarding our federal government’s carbon pricing policy. In this letter they stated “Canadian carbon pricing has a negligible impact on overall inflation.”

They went on with, “According to the Bank of Canada, carbon pricing has caused less than 1/20th of Canada’s inflation in the past two years.”

Now, I am no economist — lord knows, I had a brief fling with calculus about 50 years ago and it was apparent we were not suited to one another — but I am forced to question both the letter writers and the Bank of Canada’s position.

Let’s consider, on a simplified level, one of the residential building industry’s primary materials — the lowly spruce 2×4 and 2×6 board.

Used for everything from framing to roof trusses, the raw material is harvested according to IBISWorld’s report “Logging in Canada — Market Size, Industry Analysis, Trends and Forecasts” by small (0 to 5 employees) localized companies which operate within a 322-kilometre radius of a sawmill.

Nearly all of the equipment used in commercial logging is petroleum-fuelled. These operators are too small to enjoy any form of government relief on the carbon tax, so, this cost is passed on in higher prices paid by the sawmills.

The felled logs are loaded onto trucks — also petroleum fuelled — and transported over roads to the individual sawmills. Roughly one-third of all transport trucks on the road in Canada are owner/operators and the majority of transport companies are relatively small. However, whether small or large, when the price of fuel goes up, so too does the cost of freight.

Thus, the sawmill pays more for their incoming raw materials. Since the majority of softwood lumber is processed through major facilities owned by large corporations which pay carbon tax on an “output-based” system calculated on the last 10 to 20 per cent of their emissions, and operate primarily on electricity, we will assume only a small additional impact on their price-of-goods-sold.

However, since their margins are calculated on a percentage mark-up, even this small impact, when added to increased input costs, has a compounding effect on prices.

The finished goods go back onto a transport truck for delivery to distribution centres and/or major retailers. We have already visited the increased cost of freight, but again, these additional costs have a compounding effect on the price of goods sold to the end-user — it is just not a straight-line calculation.

Just to put this transportation add into perspective, according to Canadian Trucking Industry Statistics reported through Gitnux, the industry in Canada consumes 2.1 billion gallons (9.6 billion litres) of diesel fuel annually. The carbon tax at, say 14 cents per litre, adds an additional cost of $1.34 Billion dollars to the price of goods shipped to a retailer … Not an insignificant amount for most of us — particularly when compounded through the supply chain.

Returning to our simple 2×4 which, at the beginning of 2020 could be purchased for $2.99, is now priced at $3.98. If we apply and compound the annual inflation percentages (2020 to 2023) to this product, it should now be available at $3.16. So, where is the source and justification of the additional 25 per cent in the retail pricing of this completely “made in Canada” product?

Certainly, since we have followed down the flawed rabbit hole of economic globalization, we must accept an international normalization of our economic inflation, but, even using the global inflationary numbers, we can only shave the 25 per cent to about 23 per cent. 

So, we must ask ourselves, what is the justification for this gross country-specific up-charging on a domestic product come from?

I can only speculate it is due to the prevailing policies of our governments.   

And, we could trace this through every industry sector.

Think about the farmer, a primary producer, who must bear the burden (and pass it on) of the additional fuel cost to operate their machinery and suffer the increased cost of necessary inputs (like fertilizers) — which is a whole and complicated consideration in and of itself.

What does our compounding cost consideration do when goods arrive on the grocery shelf?

I will leave it to you, my educated readers, to extrapolate this across your ever-rising monthly bills.  

To round out this week’s observations, it really should be noted that in 2022 and 2023 housing starts in Canada fell by 11 per cent (31,000 units). Here in Ontario, a similar trend has occurred. In 2021, Ontario saw 92,284 starts, which dropped to 91,885 in 2022 and dropped another 7 per cent further to 85,770 in 2023.

Between the higher interest rate and rising cost of living, it appears that real estate developers decided to play it safe in an uncertain market.

While our politicians take every opportunity to do photo ops trumpeting programs underwritten by deficit spending to address this country’s severe — and growing worse — housing shortage, their policies appear to be ineffectual.

This, I suspect, is a result of their other policies cutting the legs out from under the consumers and their commercial “partners.”

One thing for sure, we aren’t seeing “more houses built faster!” 

Brian Marshall is a NOTL realtor, author and expert consultant on architectural design, restoration and heritage.

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