Strong Mayors and Housing: Thunder Bay Edition

 

Thunder Bay City Council this week did not support Mayor Ken Boshcoff’s desire to acquire “strong mayor powers” in a quest to meet provincial targets for housing and reap the benefits of associated funding support.  In some respects, this is not a surprise, not so much because members of council are so concerned about local democracy but because it does represent an erosion of their power given that strong powers on offer allow mayors to pass bylaws with the support of just one third of council, as well as veto bylaws passed by council on matters involving provincial priorities. In addition, the mayor will be able to propose the city budget, reorganize city departments and hire or fire the city manager and even some department heads. If anything, this represents a major potential increase in workload for the Office of the Mayor and one suspects there will eventually be some hiring to provide the necessary support.

 

Thunder Bay City Council because of its unique structure of at-large and ward councillors has always had councillors whose electoral mandate pretty much matched that of the mayor given they were elected by city-wide voters.  What the new changes mean in Thunder Bay and indeed in municipalities across the province is that the power structure has been unilaterally changed by the province in an effort to get the provincial housing agenda kick-started.  Indeed, going down the road, what some future mayor might do with such powers is a real concern. Nevertheless, it would appear that the mayor is going to ask for those powers with or without council support because the mayor wants to commit Thunder Bay to a target set by the province of 2,200 new homes by 2031.

 

This target is an interesting one because it means that over the next eight years (2024 to 2031), Thunder Bay needs to build an average of 275 new housing units annually.  The accompanying figure plots the annual number of housing starts from 1972 to 2023 and also plots the annual target set at an average of 275 units per year.  The 2023 estimate is incomplete given that the numbers from Statistics Canada only go to August and the monthly average based on January to August is used to fill in the rest of the year.  Even that total seems an underestimate given the couple of large apartment projects that have emerged that might double the total for 2023.  

 

 

 

Needless to say, the target is an ambitious one given that since 2000, the annual average works out to about 105 units per year.  In other words, going forward, it will be expected that Thunder Bay has to achieve just over 2.5 times the number of starts than it has managed on average over the last two decades. 

 

Can a strong mayor somehow wield the influence and power to more than double the number of housing starts in Thunder Bay?  Given the shortage of building trade workers as well as the fact that for the houses to be built, there has to be a demand for the housing and interest rates have spiked at the moment, it will be a challenge.  Then there is the ability of developers to earn a profit on the new builds whether single detached houses, apartments, or condos, even with whatever financial support the province has in mind.  Again, one suspects this target may be a tough one to reach.  A lot depends on whether or not there really are a lot more people in Thunder Bay than official counts say there are and if those people are actually interested in permanent housing in Thunder Bay and more importantly have the ability to pay for it either as owners or renters.

 

One suspects that in the end, the real influence of strong mayor powers in Thunder Bay will not be so much on the future housing stock but on things like the city budget and even senior staffing.  The mayor’s position is about to get more important and as the adage goes, with great power comes great responsibility.

Immigration and Canada: Some Charts

 I have a piece today in the Globe and Mail outlining the advantages of immigration to Canada but also explaining that it has to be done right.  That is, that we have to keep an eye on productivity and per capita GDP and there needs to be increased investment including infrastructure investment to accommodate the larger population.  In retrospect, one of the things that might have been useful to accompany the piece would have been several charts illustrating some of the statistics quoted.  Using data from Statistics Canada and Historical Statistics of Canada, I have plotted two figures.

Figure 1 plots annual immigration to Canada all the way from 1852 until 2023 (a forecast) and it is indeed a very striking picture showing immigration for 2023 reaching nearly 600,000.  This of course is only immigration and does not include people on temporary work permits, people on student visas, etc...That type of data really cannot be extended back to the 19th century and so this chart tries to make an "apples to apples" comparison.  Nevertheless, there are a lot of people coming into Canada in absolute numbers and indeed the totals are the highest ever and yes it is straining our current infrastructure and capacity to accommodate.  

 

 

However, in relative terms, the current population boom is actually modest if one takes current immigration as a percentage of current population totals and compares it to the past.  It is a legitimate comparison and not some type of statistical "trick." Whereas in 1912 we had approximately 8 million people and were letting in 400,000 immigrants a year, today we are a nation of 40 million people letting in over 500,000 immigrants annually (though one can add to that with temportary residents and visa holders).  Figure 2 presents annual immigration to Canada as a percentage share of annual population and it shows that relatively speaking, the current immigration boom is more modest compared to that of the early twentieth century. 

 

 

 At its peak, the annual immigration flows into Canada topped five percent of the population while today they are at about 1.5 percent and perhaps over  two percent if you want to start including everybody who has been allowed to enter Canada.  Could we do a better job of accommodating the current immigrant influx? Yes, indeed. Is infrastructure being strained? Yes, indeed.  All of that still does not eliminate the fact that in the past, we let in relatively more people given the population and seemed better able to accommodate them.  Not only did we have a larger annual immigrant to population share than the present circa 1912 as mentioned in the Globe piece, but we also did in the early1880s, the late 1920s, and the late 1950s.  A key question still remains as to why we cannot do better in accommodating and managing the current inflow?

 

 

Thunder Bay's Municipal Budget Woes

 

Well, Thunder Bay’s municipal budget opera season is now in full swing with assorted fiscal choruses and arias being played in lockstep as we move towards finalizing the 2024 budget.  Like many municipalities across Ontario, there is increasing budgetary pressure to raise taxes.  The narrative this budgetary opera season in Thunder Bay is a little more complicated because along with planning for 2024, there is also the matter of dealing with the remnants of the 2023 season.  This task has proven to be a bit more mettlesome than usual but the end result will probably be a fairly large tax increase in 2024.

 

Very often, the proposed budget generally includes a tax levy increase that is higher than what is eventually opted for as opposition mounts.  For example, the 2023 budget originally put forth 6.2 percent levy increase that went to 5.6 percent and then 5 percent but eventually passed at a 4.4 percent levy increase (after growth).  This before and after growth distinction is one that has always been a bit of a diversion because after all, a tax increase is a tax increase whether one factors in growth in the tax base or not.   One is indeed surprised that the recent increase in managerial salaries of 12 percent at the City of Thunder Bay was reported as a nominal increase rather than after growth or after inflation.

 

The last budget was a particularly vexing one mainly because the 2023 budget process was with a new council and they no doubt very much did not want to debut with one of the larger tax increases in recent history.  However, everything comes at a price and the price was taking one million dollars out of the reserve fund and the task of finding several million dollars more in terms of savings.

 

That process has not gone well, and one suspects behind the scenes municipal movers and shakers do not mind because they would be happier with a tax increase than cuts.  The initial round of cuts tended to deal with relatively high profile but small budget items such as cuts to fireworks, movie nights, and Christmas Day transit service as well as items like the sister cities program. As well, there were the controversial cuts to the Neebing Arena as well as outdoor rinks that in a hockey town like Thunder Bay generated more of a backlash.  Yet, the backlash was dealt with by delaying the cuts and taking a “survey” which is really not a survey at all. 

 

The survey site consists of a web page and link asking the question of whether you supported the proposed outdoor rink reduction and was really not a statistical survey but a consultation.  The over 80 percent opposition comes from the fact that there is a certain self-selection bias here in that the survey is voluntary and those opposed to the cut of 31 out of 39 outdoor rinks had a strong incentive to go on and register their opposition which explains the 80 percent opposition rate.  Needless to say, the odds are that after rousing public sympathy for the rinks, the next budget offering will be an orchestrated refrain about how we will have to raise taxes more if you want to keep the rinks open.

 

The reality is that the big money in the City of Thunder Bay budget is not to be found in hockey rinks or fireworks or movie nights but in two key areas: Public Safety and Public Works.  The accompanying figure has been constructed using the City of Thunder Bay’s own data and reveals that the Public Safety Category occupies nearly 40 percent of municipal spending while the Public Works Category is nearly 20 percent.  In other words, with nearly 60 percent of spending in these two categories, looking for cuts in the other 40 percent of spending is going to be difficult as a budget solution.  Even the claim that much of our spending is mandated by the “province” looks a little lame as the legislated programs category accounts for barely one percent of spending though some additional mandated spending is also internalized within some of the other categories.

 

 

 

In the end, the two largest potential sources of savings lie in Public Safety and Public Works, followed by Parks and Recreation, Contributions to Outside Boards and Agencies, Social Services and then Debt Charges. We are in a situation where without any serious attempt to sit down and examine them, the two largest categories are going to increasingly take a larger share of spending.  This will take money from quality-of-life categories such as Parks and Recreation (though oddly enough there is still interest in a new Turf facility on the part of the city administration but I guess that is the capital budget rather than the operating budget at least for now) and then contributions to associated community groups.  Cuts in these other categories will not be sufficient.

 

We are heading for a scenario where there will be higher taxes and fewer services.  It will be interesting to watch City Council and Administration sell that one.

Politicians, Federalism and Central Banking

 

Part of the immeasurable majesty of Canada is its federal form of government which on a good day should be about the provision of public goods in a decentralized fashion that tailors them to local preferences but in a cooperative and coordinated fashion.  On a bad day, Canadian federalism is about tiers of government going their merry way enacting measures and policies that impact other levels while jealously guarding their jurisdictions and finger pointing as problems come home to roost.  The housing portfolio is a particularly good example of the latter.

 

For the most part, a federal system is an institutional arrangement that allows regional diversity in an environment whose rules foster both cooperation and competition.  Part of that institutional environment is ongoing political negotiations and discussions as well as lobbying as municipalities interact with provincial/territorial and federal governments, provinces/territories interact with municipalities and the federal government as well as each other and of course the federal government interacts with everyone with an eye to overarching interests.  Along with regional diversity tailored to local preferences, there are also needs to be some national rules or standards that help create a common economic space that affords everyone a larger economic space and the economic benefits thereof.

 

Which brings us to monetary policy and the current trend for politicians to speak their minds and essentially “lobby” the central bank on the eve of a rate announcement.  As most first year economic students eventually learn, the role of the central bank is to promote the economic and financial welfare of Canada via the conduct of monetary policy designed to keep inflation low and stable.  This role includes using the levers of monetary policy, safeguarding the integrity of the financial system, and issuing and managing our currency.  This is a technical process and run by highly trained specialists in economic theory and monetary policy.  When push comes to shove, the federal government of the day ultimately is in charge of our central bank, but it must use that policy sparingly because the stability and effectiveness of our financial system depends on day-to-day operations of the bank being insulated from political flavors of the day.

 

Pity then the current governor of the Bank of Canada who came into the job during the pandemic and has had to unwind oodles of quantitative easing, steer the financial system through the Scylla and Charybdis of first deflation and then inflation, and engineer a soft landing as interest rates rose to deal with inflation – interest rates that when compared to much of nineteenth and twentieth century economic history were ridiculously low and fostered a war on savers by loaning their money out to fund a housing asset surge. Indeed, taking money from savers at rates approaching zero and giving it to people to finance their spending could be considered a form of theft. Rising interest rates are having their intended effect on inflation but they are indeed creating financial pressure on households. 

 

It is not unreasonable for informed business and economic commentators to discuss and critique monetary policy and offer policy advice as media performances in the face of a slowing economy have recently illustrated. However, it is less reasonable when politicians begin to weigh in on what the Bank of Canada should do in interventions that are essentially public lobbying efforts for input into monetary policy engineered for political optics.

 

In recent days, we have seen the premier of British Columbia call of the Bank of Canada in a public letter to halt “further increases” because people are hurting. The Ontario premier has also gotten in on the act with a letter released yesterday calling on the Governor of the Bank of Canada to stop raising interest rates. In their last meeting, the premiers collectively opined that they are not in favour of these rate increases because of the harm they are causing as people renew their mortgages.  And at the federal level, the prime minister himself is trying to assuage monetary pain by stating that these rate increases are bad news for Canadians and shifting some of the blame for high housing costs on the central bank. And who can forget the leader of the opposition who in Herod-like fashion wants to deliver the governor’s head on a political platter.

 

In going after key institutions with attacks motivated by short-term political gain, politicians are essentially undermining important institutions.  They are all bright enough to realize that recent interest rates were abnormally low and that they should not be fueling fantasies that somehow, we are going to revert to 1 percent interest rates.  As a former bank governor recently remarked, though interest rates will eventually come down, it is unlikely we are returning to pre-pandemic interest rates.  Yet, federal, and provincial politicians have become like snakes in the garden of federalism with their calculated crocodile tears of concern for the average Canadians and whispers of consolation while pursuing actions or lack of action that makes problems worse - again, housing comes to mind.  After all, what they are really after is short term political credit if the Bank of Canada holds the line on interest rates and the rocket  fuel of righteous indignation if they don’t.  They are not at all concerned about the long-term consequence of undermining key institutions.

 

After all, if the average Canadian politician were concerned about long-term economic welfare, we would not have half the problems we currently have.