Juno News - September 17, 2023


Feds’ “decarbonization” policy could further spike home prices (ft. Prof. Ross McKitrick)

Mentioned
Ross McKittrick Andrew Lawton Show Justin Trudeau Wrong Move
Do the Conservatives have a path to victory？ (ft. Melissa Lantsman) The biggest scandal that you've never heard of

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15 minutes

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170.51

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2,629

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135

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1

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Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In the midst of Canada's housing crisis, why are government regulations on energy efficiency making the cost of homes much, much worse? In this episode, we talk to Ross McKittrick, an economics professor at the University of Guelph, about his new study, "Wrong Move at the Wrong Time: Why Government Regulations on Energy Efficiency Are Causing a Housing Crisis."

Transcript

Transcript generated with Whisper (turbo).
Misogyny classifications generated with MilaNLProc/bert-base-uncased-ear-misogyny .
Hosts, guests, and mentioned names generated with spaCy (en_core_web_sm), reconciled against Wikidata.
00:00:00.000 The real substance of the announcement, which I was actually eager to talk to Justin Trudeau
00:00:13.380 and his Liberal members of Parliament about, is housing.
00:00:16.880 And I actually would have raised at this press conference, had I been allowed there,
00:00:20.440 a question based on the report done by Professor Ross McKittrick, who we've had on the show before.
00:00:25.840 He's an economics professor at the University of Guelph and also does great work with the Fraser Institute.
00:00:32.080 He has come out with a new study called Wrong Move at the Wrong Time,
00:00:36.240 talking about in the midst of a housing crisis,
00:00:38.860 why government regulations on energy efficiency are making the cost of homes much, much worse.
00:00:45.820 Ross McKittrick joins me now. Always good to talk to you, Ross. Thanks for coming on today.
00:00:50.300 Hi, Andrew. My pleasure.
00:00:51.180 So let's first off talk about what it is you were setting out to analyze here,
00:00:56.360 because we know that home value is just based on any number of criteria are going up in cost.
00:01:02.780 We know that people, especially young people, are being essentially priced out of the market here.
00:01:07.740 You've touched on an aspect that I don't hear discussed in the housing context as much as it is here.
00:01:12.640 What I'm looking at is a detail that's buried in the federal government's emission reduction plan,
00:01:19.500 which was published last year.
00:01:21.680 I got some attention.
00:01:23.320 The plan got some attention at the time, but a little detail is buried in it,
00:01:27.880 which is a requirement for new homes as of 2025 to be 61 percent more energy efficient and by 2030,
00:01:36.300 65 percent more energy efficient and commercial buildings have to be 59 percent more energy efficient.
00:01:43.160 And I just couldn't believe that that is in the report and that there was no discussion around it.
00:01:50.500 Is it even possible? And this is more energy efficient compared to 2019.
00:01:54.440 So if you looked at houses built in 1919, I don't think we're 65 percent more energy efficient than houses built in 1919,
00:02:03.400 but maybe we could get there.
00:02:05.060 But 2019 houses in Canada are already very energy efficient where they're insulated,
00:02:10.780 double glazed windows, all that stuff.
00:02:12.780 So we're already very energy efficient.
00:02:14.460 And they're now saying basically you have to build houses that don't use any energy
00:02:19.020 and how on earth people are supposed to heat their house and light their house and all the rest of it.
00:02:25.660 So I did some looking into potential cost estimates here.
00:02:30.240 I looked at information from the Canadian Home Builders Association.
00:02:32.940 They put some numbers out and my estimate is, and I think it's probably a bit optimistic,
00:02:38.860 but it'll raise the cost of building a new home in Canada by about 8.3 percent.
00:02:44.700 And so that on a national average basis is over 50,000 per house.
00:02:51.920 And that in turn is going to have some negative economic impacts, reduce GDP,
00:02:56.400 but it'll also really hit the construction industry hard.
00:03:00.560 I think we'll see output and employment falling in the construction sector,
00:03:04.500 which is the opposite of what we need.
00:03:06.560 We need a lot more people working in the home building sector.
00:03:09.700 I think it's important to note for the audience, just to be absolutely clear,
00:03:14.620 we're talking about new houses here.
00:03:16.200 So that is particularly interesting when I look at, you know, in a new house,
00:03:20.460 if you're going to make something even more energy efficient,
00:03:22.820 like are we talking about a different grade of windows?
00:03:25.300 Are we talking about a different grade of insulation?
00:03:28.160 I mean, where is that money going to meet this very aggressive efficiency target?
00:03:33.600 Yeah, and unfortunately, a lot of people who are real advocates for an aggressive energy efficiency agenda,
00:03:40.740 they always assume that no matter how rigid you set these targets,
00:03:45.860 people always benefit from them because you save money on the energy down the road.
00:03:50.200 People already have the option of increasing the energy efficiency of their homes,
00:03:54.860 and people do, but only up to a point.
00:03:57.980 After that, it's not worth it.
00:03:59.800 You don't really get the payoff from it, or you might just rather spend your money on something else.
00:04:05.460 This kind of regulation, it's going to, if it even, again, if it's even possible,
00:04:11.100 and there's nothing in there about how this could even be done,
00:04:13.920 but if it's possible to build new homes that are 65% more energy efficient than they were in 2019,
00:04:20.680 it means you have to throw a lot of money at this one aspect of a house.
00:04:27.560 And people, it's a waste of money for most people.
00:04:30.760 I should add one other thing, and that is right now it's on new houses,
00:04:35.460 but there is discussion in the building codes circle about adding these requirements on existing houses.
00:04:45.020 So anytime you go to do a renovation now, you may be required, if the new rules come in,
00:04:50.880 you may be required to hit even more ambitious targets.
00:04:53.820 So just because you own a house now doesn't necessarily mean you're going to be safe from this crazy agenda.
00:05:00.760 Is that a wood stove I see in the background on yours?
00:05:04.900 Because, I mean, that's very energy efficient, but that raises other issues from the government.
00:05:08.820 I mean, that's the irony here is that if people are using these alternative sources,
00:05:13.140 that makes other problems, the regulators would say.
00:05:16.380 That's a natural gas-powered stove, and, you know, those are in the crosshairs of regulators as well.
00:05:23.460 I think you may have to have a wood stove in your house
00:05:27.740 because I don't know how else you're going to heat it if these rules come through.
00:05:33.520 But in the case, you mentioned that you hadn't heard any discussion of this aspect of the issue,
00:05:38.600 and I agree, this is something, it's there in the report, it's not prominent,
00:05:42.160 but it's such a crazy number, like a 65% improvement in energy efficiency
00:05:47.680 with no guidance about how that's going to happen
00:05:50.000 and no calculation of how much it will cost or whether it's worth it.
00:05:53.680 To put it in perspective, like it doesn't reduce greenhouse gas emissions very much,
00:05:59.260 but per ton of emission reductions, it's 50 times more expensive than the carbon tax.
00:06:05.320 So if you think the carbon tax is taking a chunk out of people's living standards,
00:06:11.180 this kind of regulation is even more expensive.
00:06:13.980 It really accomplishes very little, and it does so at an incredibly high cost.
00:06:20.380 Well, and I would also point out here, and you have a section in the report
00:06:23.880 that talks about deadweight losses, which is, you know, to say when firms are
00:06:27.720 essentially passing on to consumers these increase in construction costs.
00:06:32.160 And the one thing here is that if we're baking this in,
00:06:35.940 it's not even where a lot of consumers have the option to do this.
00:06:40.380 You know, because a lot of the energy efficiency proposals that we've seen in the past,
00:06:44.180 you could make some sort of a business case for it.
00:06:46.600 Admittedly, often those rely on tax credits and subsidies,
00:06:49.420 but, you know, if something's going to save you money, you'll do it.
00:06:51.800 At this point, we're talking about installations in homes
00:06:55.600 that go well above what you could ever hope to gain from these efficiencies, supposedly.
00:07:01.700 Yeah, there's a large literature in the economics field
00:07:04.840 looking at these kinds of energy efficiency regulations.
00:07:08.420 And in economics, people have tended to be fairly pessimistic that these are worth it,
00:07:15.260 that governments typically way overestimate the value of these energy efficiency mandates.
00:07:21.860 But when people have gone afterwards and looked at,
00:07:25.340 okay, how much did this house actually save from having to redo all its windows?
00:07:29.780 The answer is it's a negative rate of return.
00:07:33.420 Oftentimes, people never recover the upfront investment,
00:07:36.620 which means the homeowners were justified in not doing it voluntarily.
00:07:41.300 So then if you force them to do it, you haven't made them better off,
00:07:44.620 you make them worse off.
00:07:45.520 And in this case, I think we can guarantee 100% this kind of regulation
00:07:50.280 will make people much worse off.
00:07:53.000 And in the title of the report, wrong move, but it's also at the wrong time.
00:07:57.620 I mean, of all the terrible times to add 8% to the cost of building a home,
00:08:06.080 now when we already have a crisis of affordability in housing,
00:08:09.680 it's absolutely baffling to me.
00:08:11.200 Now, looking at the regional breakdown here,
00:08:15.940 you say it's a national average of just shy of 55,000.
00:08:19.720 In BC, 78,000 is the average cost increase.
00:08:23.740 In Ontario, where you and I are, 71,800.
00:08:27.520 On the low end, you've got New Brunswick, 22,000.
00:08:31.160 Newfoundland, 22,000.
00:08:33.400 Is that disparity just because of kind of the general average costs of homes,
00:08:38.820 or are there other regional specific factors that are making things a little bit less aggressive
00:08:44.140 in the prairies in Atlantic Canada here and more in BC and Ontario?
00:08:48.740 So that particular calculation is just based on the regional variation in the cost of building homes,
00:08:55.040 the estimated cost of building homes.
00:08:57.420 There are also regional disparities in terms of the macroeconomic impact.
00:09:02.960 But in the case of Ontario and BC, just because of the way the market's gone,
00:09:09.200 this is the most expensive place to build new homes.
00:09:12.800 And so that's why, since it's a cost percentage estimate,
00:09:17.820 that's why that number comes out over 70,000 here.
00:09:20.880 And in other places, it's under 25,000.
00:09:23.200 What we hear, I mean, even about, oh, I don't know, when was it, 30 minutes ago,
00:09:27.680 Justin Trudeau in London, Ontario, speaking about housing, uses the line,
00:09:31.200 which is not entirely inaccurate, which is that there is not just one lever that government can pull
00:09:37.180 that's going to solve the housing crisis. 0.72
00:09:39.500 But I'm struck by what you pointed out about how wildly disproportionate this increase in cost is
00:09:46.560 compared to even the carbon tax alone.
00:09:48.420 If you were to pull one, this would be a pretty good one to pull.
00:09:51.640 Well, I think if they were serious about wanting to get the cost of housing down,
00:09:59.820 what they should do is say, forget that part of the emission reduction plan.
00:10:05.000 Like, just scratch it out.
00:10:06.320 We're not going to go ahead with it.
00:10:07.720 And the other rumored changes to building codes on the energy efficiency front,
00:10:14.320 they're all on pause.
00:10:16.300 That's easy.
00:10:17.400 It's no cost to them.
00:10:18.980 It doesn't really have any emission consequences.
00:10:21.640 But it does mean that those cost increases won't happen.
00:10:26.040 The fact that this government is not able to walk away from any of its climate policies,
00:10:34.000 because that's their top priority, I think gives you an idea more generally of whether they're going
00:10:40.020 to be successful in addressing the housing crisis.
00:10:42.760 Generally, it's I just don't think it's it's yet a priority for them.
00:10:47.800 When you mentioned in the report as well as sort of a hint at perhaps some future research you might do on this or something that might be taken up elsewhere,
00:10:55.520 that it furthers that disparity in generation as well, because, you know, the older generation, they already have their homes.
00:11:03.040 They've not required necessarily a new home.
00:11:05.840 And that's not to say they won't buy a new home.
00:11:07.640 But younger people that are entering the housing market that have to wait for new homes to be built to enter and to have a house.
00:11:13.640 They're the ones that bear this burden.
00:11:15.400 So it really furthers what has already been a pretty significant and I'd say very relevant gap in just I don't like using the word equity because of the political implications of it.
00:11:25.140 But basically in in the access to the housing market, I'll say.
00:11:28.240 Yeah, there there are some disturbing distributional aspects to this kind of policy, because you're right.
00:11:36.000 I mean, someone like me on my home and so I'm not really affected by this unless I I hope to sell this and buy a new build.
00:11:46.740 But this this just adds to the burden of of the younger generation and also to the families who are trying to support them in that first home purchase.
00:11:59.600 And it also negatively affects people working in the construction sector.
00:12:04.620 But I do think there's a distributional aspect to this, which is really disturbing, just that it's people at the lower end of their income earning stage
00:12:15.600 and people who are currently out of the housing market that want to get in.
00:12:19.820 And they're the ones that will be most negatively affected.
00:12:23.560 The one thing about the carbon tax is you can sort of draw a line and say where that money is going and who benefits from it.
00:12:29.880 And I'm curious with this, who's benefiting from from this?
00:12:33.420 I mean, all this money that's being spent on these houses, is it people that are in the green energy sector that are making the money off this?
00:12:41.000 Yep. It's the people that have home energy efficiency gadgets for sale because they're in a position now where they sell lots of stuff,
00:12:54.720 but they don't sell everything they like to sell because customers look at it and say, well, that costs way too much and I'm not interested in buying it.
00:13:02.420 I'd rather spend my money on something else. Thank you very much.
00:13:04.980 And now the government's going to say you have to buy it. So people in that sector will benefit because all of a sudden they have a captive market and people have no choice.
00:13:18.260 They have to spend the money on on whether it's insulation or heat pumps or window systems, lighting systems.
00:13:27.900 You have to buy certain types now that you might have preferred not to buy. So that group benefits. Everybody else loses.
00:13:36.980 I've never built a new house before, but, you know, I've done renovations and fix things and there's nothing more infuriating than needing to spend money on something that you don't want, but you need that will derive value.
00:13:49.280 It's like, you know, replacing a deck or replacing a concrete slab because it's like, you know, the money you're going to invest in your house.
00:13:55.320 I'd love to invest in expanding the kitchen, building an addition, putting in something that I like.
00:14:00.040 And that's the problem here is that these are either going to completely price people out of having a new home altogether or, you know,
00:14:07.640 that $50,000 national average that they have to spend on these energy things is going to come at the expense of square footage,
00:14:14.780 say that they might've wanted or needed. Sure. Yeah. It might be an extra bedroom that you needed that you can't have,
00:14:21.400 or it can be an upgrade to the kitchen. Again, it's, it's the issue is people have their own preferences of what they want to spend their money on.
00:14:31.400 And some of that includes energy efficiency and the comfort of having a home that's not drafty and that sort of thing.
00:14:37.460 So they already spend money on that, but everybody's got a certain point where they say, okay, that's, that's enough of that.
00:14:43.080 But I also want to pool in the backyard. And this is taking away all those options that it's forcing people to spend a great deal of money on one particular thing that is way past the point of marginal benefit for people.
00:14:58.860 Professor Ross McKittrick, the report is called Wrong Move at the Wrong Time, Economic Impacts of the New Federal Building Energy Efficiency Mandates.
00:15:06.940 That came out this week from the Fraser Institute. Ross, always a pleasure. Thanks for coming on.
00:15:11.520 Thanks, Andrew. My pleasure.
00:15:13.080 Thanks for listening to The Andrew Lawton Show. Support the program by donating to True North at www.tnc.news.
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