The numbers Canada uses to set policy don’t add up

Canada’s biggest policy mistakes come from treating complex systems as simple math

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Here is an old story with a valuable message. In the directed economy of the USSR, it was the government, not markets, that decided what and how much was to be produced.

Take metalware for the kitchen: mugs, mixing bowls, pots, pans, dishpans and washtubs. The government decided how much people needed and ordered the industry to produce that many tons at the lowest possible price.

Quotas were met, the appropriate tonnage was produced and costs were controlled. But no mug, pot or dishpan was to be found. The industry found that the easiest way to meet its cost and quantity requirements was to produce nothing but washtubs.

It is a valuable reminder today for Canada: when policymakers rely on a single number to steer complex systems, they almost always get the wrong results.

There are at least three reasons why we need better analysis in policymaking. The first is that the things inside a total number are not all the same. Mugs and washtubs are not interchangeable.

The second is unintended consequences. How did devoting metal to domestic products affect other metal-using sectors like automobile production? The same pattern appears in modern Canadian policy: shifting one number often disrupts systems we depend on elsewhere.

Third, picking a number to solve a problem is often an easy way to avoid doing a rigorous cost-benefit analysis that would offer a clear indication of the overall effectiveness and impact of any decision. Too often, our debates jump straight to targets instead of evidence.

We like to think that policy decisions in Canada are decided on more than just picking a magic number and waiting for it to solve a problem. That is not always the case. Policies for both the housing market and labour market could benefit from more detailed analysis.

Canada faces a severe housing shortage, not only in the major cities, but also in smaller centres as people move there from metro areas and push up home prices. One-number thinking has led the government to drastically cut back the number of people coming into Canada on a permanent or temporary basis believing that thousands of fewer new arrivals will make available thousands more housing units.

This is not likely, especially when considering temporary workers. Many of these are international students. The number of housing units freed by their absence is significantly lower than the reduction in student visas issued. Many students stay in dorms or other student housing. Others crowd together in apartments or houses to save costs. Not much housing is freed to deal with the shortage.

One serious unintended consequence of cutting back student visas is the negative impact on educational institutions which have been relying on the generous fees that foreign students pay to deal with the constrained fees and limited funding imposed on them by governments.

Cutting back on the number of temporary foreign workers (TFWs) will also have a minimal effect on the supply of housing in the major centres where shortages are most severe. TFWs are most needed in industries like agriculture and in smaller centres where their absence will be sorely felt.

Looking at the labour market, it is unrealistic to expect unemployed Canadians to fill these job gaps. People in major cities rarely move to remote areas to take lower-paying work. Cutting back TFWs will harm the sectors and places that rely on them. Differences in geography, occupations and preferences ensure that workers are not interchangeable.

Homes are not interchangeable either. They have to be in the places where people choose to live, and they have to be affordable. In many places like Vancouver, the actual and potential number of homes is enough to house everyone who needs one, especially if the development permits now being sought result in actual construction. But in cities like Vancouver and Toronto, the benchmark price of a home has risen far faster than wages for more than a decade, making many new units unaffordable even when supply increases.

Builders are now having trouble filling existing units because they did not pay enough attention to affordability. The cost of producing a housing unit is higher than what most Canadians can pay,  even after the size of a home has shrunk below what most Canadians are used to. As a result, builders are lowering prices and rents and offering other inducements to potential residents. Builders are now lowering prices and rents and/or offering other inducements to potential residents.

Let us hope that our educational institutions will be able to produce, and our immigration policies will allow us to admit, qualified people who can develop and implement policies based on more than one number.

Canada needs decisions grounded in reality, not wishful targets.

Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.