Your kitchen reno is causing the housing crisis

Renovations are sucking labour and investment away from new homes

Most readers will know that Nova Scotia’s population is growing very rapidly, and also that we are not building enough homes to meet that growth.

With house prices and rents very high, that raises the question - why aren’t we building more? Why isn’t the “market” adjusting to such strong excess demand?

The favourite common-sense explanation, alongside higher interest rates, is that a labour shortage prevents any more construction.

Politicians especially love this explanation, because it is hard to quantify and appears out of their control. But I think this is a puzzle - is it really true that our economy is under-geared toward real estate?

Well, if you look under the hood, it turns out much of our real estate investment is not about building new homes. Over the past year, building* investment across Halifax has totaled $2.25 billion. *But 45% of that investment has gone to renos.

Even more striking, there is more money going into single family home renos than new apartment construction.

Unlike new home construction - renos are inherently one-off, and require lots of manual labour and little choices (it’s low productivity - requiring lots of labour). Our labour shortage is being exacerbated because many of our “builders” are busy doing custom home renos.

This could be waved away as logical - we have many more single family homes than apartments and, especially in an old city like Halifax, many single family homes are old and in desperate need of major renos.

But you would be missing the point! The point is - why is anyone spending hundreds of thousands doing major renovations (gut-jobs) for 1 unit, instead of building homes for many?

Let’s take an example.

This Halifax home has recently sold for a touch under a million dollars. The home has been completely redone, and looked like shit before.

Why didn’t the owners decide to build a new build? Well, currently, the house is zoned as ER-2. Meaning you can only build a duplex (+basement suite). That is despite it being smack-dab in the middle of Halifax, 100 meters from Robie street and the QEII hospital. Effectively, given current zoning, its most profitable to completely reno the house and sell it to a doctor.

Halifax’s Single family & duplex zoning (basement suites allowed)

With the (proposed) Housing Accelerator Fund (HAF) reforms, the owner of this property would have been able to build 4 units, and potentially up to 8 units depending on lot size.

I am willing to bet 2 nurses cannot outbid 1 doctor. But maybe 4 can. And I think surely 8 nurses can outbid 1 doctor. That is the key part of the importance of our zoning regime. It prevents the natural upsizing of cities, and then funnels resources into unproductive renovations because that’s the most profitable choice available under the constraints.

In my view, the construction labour shortage is reflection of choice to make new construction illegal (in existing residential neighborhoods), and rely on big condos that take lots of skilled operators to build. If we change the options available - owners and builders will respond.

The ecosystem of small builders we need to go through our neighborhoods replacing bungalows with multiplexes already exist - but they are doing luxury renovations in those same places today. We could even play hardball here - charge an $50,000 for a major renovation permit (which we do for new housing¹), and you’ll see many renovations plans new multi-unit housing instead.

This is especially important in Halifax, because we still have many (relatively) cheap, god-awful 1940s homes with no heritage value on big lots that are ripe for a multi-plex. That is why council needs to approve their HAF reforms and let renovators become builders. If you allow it, the builders will come.

1. Halifax’s new home permit fees aren’t that high