The Dirt Gap

“Why is it that we rejoice at a birth and grieve at a funeral? It’s usually because we are not the person involved!” ~ Mark Twain

In a recent Wall Street Journal article, Jonathan Last laments America’s
Baby Bust … “the nations falling fertility rate is the root cause of many of our problems and its only getting worse.” Last says forget the “Fiscal Cliff, the Entitlement Cliff” what America really faces is the “Demographic Cliff.”

The World’s fertility rates have been declining dramatically since the 1970’s. The replacement rate is 2.1 children per household … if we have more kids than that, then our population grows. If you have less children than that, eventually the elderly over power the youth and your population begins to contract.

The economic consequences are significant … even severe. Last’s premise is that growing populations lead to innovation and conservation. “Low fertility societies don’t innovate because their incentives for consumption tilt toward health care….capital shifts toward preserving and extending life…social security can’t be sustained, there are not enough workers to pay the retirees…… they lack money for defense spending and don’t have the man power for military service…. Sound familiar?

Japan is the classic example of an economy rocked by an aging labour force and now declining population. The word ‘Stagflation’ entered our lexicon in reference to Japan… whose annual GDP has been less than 1% for a decade.

“Last year for the first time the Japanese bought more adult diapers than diapers for babies!” At the current fertility rate Japan’s population will be less than half what it is now by the year 2100.

Canada’s fertility rate is at 1.6, the U.S. at 2.1, the UK at 1.83

The bonus for the U.S. is its Hispanic population with a fertility rate of 2.35. Take that away and the U.S. is at 1.5. In Canada only Nunavut exceeds the target replacement fertility rate at 3.0…. its a mighty dark, cold and long winter…. not surprising ! Ontario at 1.53 is in the danger zone … economic growth is eventually stalled by such low growth.

So the answer to many has been immigration. This is the primary source of population growth for Canada. At 250,000 per year this takes our annual population growth rate to just below the replacement level. The GTA has been the great beneficiary of this annual parade with close to 100,000 or 40% choosing to reside in Toronto. Can this be relied on? Not Necessarily!

2011 shows net immigration into the GTA sliding below 80,000 with the reason being the economic pull of Western Canada .

Last points out the “countries with a fertility rate below replacement level start to face their own labour shortages and tend to send fewer people abroad. 97% of the world’s population now lives in countries where fertility rates are falling.” So even immigration can’t be counted on for Toronto’s growth forever.

The answers lie in improving our own fertility rate. Much of this may be solved by tax policy. “Reduce the tax burden for those people who take on the costs of raising new tax payers!” (otherwise known as children), says Last.

But Last’s most interesting solution revolves around reducing the DIRT GAP!

“A big factor in family formation is the cost of land. It determines not just housing expenses but also the cost of transportation, entertainment, babysitting, school and pretty much everything else.”

Affordable Housing Produces More Kids!!

Cities in North America which have encouraged, in fact, enforced intensification such as New York, Chicago, Vancouver, Toronto have the highest cost of land.

In 2004-05, McGuinty introduced to the GTA the Growth Plan which legislated intensification while at the same time removed some 2 million acres from potential development.

In 2004 the value of a serviced 40 foot single family lot in Richmond Hill was $2,500 per front foot or $100,000. In 2012 that same serviced lot, if you could find one, was $10,000 per front foot or $400,000. In a short eight years, government regulation, not market demand, increased the underlying raw material of affordable housing by 300 percent!

In turn, as planning decree forced greater intensification (more high rise development) government revenues from traditional lower density housing (singles, semis, townhomes) declined dramatically… forcing Municipal Development Charges to rise on that same 40 foot lot from $11,600 in 2004 to $54,500 today… an increase of 370%. Making housing even less affordable!

But you might insist all that high density housing bridged the affordability gap… do you honestly believe that the 700 square foot condos are kid friendly environments?

Frankly it compounds the issue and causes greater pressure on the long term fertility rates. You might start a family in a 37 storey high rise but you won’t stay there to raise two or three children in 700 square feet. So where will our future families with children (taxpayers) live?

The Dirt Gap will only be overcome with major investment in highway and transit infrastructure to create improved access to lower cost land areas. And the way to lower land cost is increase supply!

Furthermore, communities must be allowed to expand and produce greater affordable housing… boosting the commitment to family formation and eventually higher fertility rates.
A new Baby Boom is required. Tax policy is one answer, infrastructure investment is another but Greater Land Supply is the long term cornerstone solution!


Live Positive!
Andrew Brethour

Source: “What to Expect when No One’s Expecting: America’s Coming Demographic Disaster” John V. Last, Statistics Canada, and PMA Brethour.