Yukonomist: Yukon housing, labour and Adam Smith’s invisible hand

‘Despite living in an area the size of France with just 40,000 people, we have somehow engineered a land shortage for ourselves.’

Adam Smith’s “invisible hand” is giving Yukoners a painful supply-and-demand tutorial on housing and labour. It illustrates how price signals powerfully steer many of our most fundamental decisions, such as where to live and work.

But this is not just a free market phenomenon. On the supply side, housing is one of the most government-controlled parts of our economy. If you fly over Whitehorse in a plane, one of our four levels of government controls most of the land you see. Governments set building codes, define zoning rules, and choose how many lots to develop and how much to charge for them.

The current housing system is not working well. The papers have been running stories about our housing shortage for years. Scarce and expensive housing also contributes to our labour shortage. Many housing stories include a quote from an entrepreneur struggling to find workers, or an employee talking about how you need a government job to afford rent these days.

Housing is indeed scarce and expensive. According to the latest Yukon Statistics Bureau data, the median rent in buildings with three or more units in October was $980 a month. Their chart shows it rising steadily since 2014. The vacancy rate is low, at just three per cent. Buying a house is also expensive. The average residential house price is recently down a bit from a high blip in the fourth quarter of 2018, but has been on a steady upward trend. The figure for the average house was under $400,000 at the beginning of 2015, and is now $477,000.

The labour shortage is also very real. The Yukon’s unemployment rate is only four per cent, a rate considered very low by economists and the lowest in Canada. We’ve been in this range for several years. Seventy-six per cent of the population has a job, the highest rate in Canada. At a macro level, there is no large pool of untapped labour in the Yukon.

On the government front, there has been a surge of hiring in the last two years. As I wrote in March, between January 2017 and January of this year, the number of private sector workers was down 400 in the Yukon. The number of government workers was up 1,000.

The fundamental trends are clear. The Yukon government is using our rising transfer payment to hire more government employees, many of which are Outside hires since unemployment is so low here. Then, despite living in an area the size of France with just 40,000 people, we have somehow engineered a land shortage for ourselves. On top of all that, the way we build lots and houses has changed, making both more expensive.

New building codes make houses safer and more energy efficient but, as anyone who has recently built or renovated can tell you, also more expensive. Lots are also more expensive.

The most expensive lot in Granger Phase 1 back in 1988 was $59,460 in today’s money. The latest batch of Whistle Bend lots went from $120,000 to more than $200,000

The “invisible hand” concept is that price signals, rather than government or corporate planners, guide the decisions we all make about what to buy, where to live and what to do for a living.

So what is the invisible hand telling us?

First, housing is more expensive than lots of places in southern Canada. This signals people not to live in the Yukon, unless they have a very good job or strong personal reasons. I’ve heard people talking loudly about this several times on the plane to Vancouver.

Second, labour is expensive, which signals employers to invest in automation and labour-saving technology. Expect to order more restaurant meals from a screen rather than a human, and to check out more of your own products at the shops. Construction will continue to use more pre-fabricated modules and labour-saving tools. Accounting platforms will replace more bookkeepers. And so on.

This puts local business in a bind because it implies your business needs more cash up-front to invest in systems and technology. Take restaurants, for example. The big chains can roll out labour-saving smartphone ordering apps, in-store kiosks and factory-made frozen meals the local kitchen just has to heat and serve. That’s difficult if you’re a family restaurant. But if you need to keep as many humans on the payroll as today, you’ll probably need to raise your prices. Your customers won’t be happy about $30 grilled cheese sandwiches, so you’ll have to go up-market on service and food quality.

Future mines will have a tough time finding local labour. They’ll have to import most of it. Since we have a housing shortage, many of them will be fly-in-fly-out.

So what should we do about this?

Talk to almost any politician or senior official, and they’ll tell you they’ve been working on housing. However, all that work hasn’t cracked the problem yet. A more effective government strategy would involve more focused leadership, elevating housing into a major priority.

I don’t mean “priority” in the way that governments have lists of dozens of things they identify as a priority. I mean a top priority, with clearly and publicly defined leadership, accountability, deliverables and timelines.

It also means focusing on the fundamentals: more lots, cheaper lots and a sweep of zoning and building codes to cut out things that add significant building cost but not much benefit in terms of safety or environmental impact. I’d worry less about lower-impact ideas like subsidizing a few condo complexes or banning AirBnB.

In the meantime, while the government works on that, what should businesses and workers do?

Businesses should pressure test their business models for how profitable they are if labour costs keep going up. You may have to boost wages further or, like some local businesses, help employees with housing costs. What is your plan to develop new products or raise prices to adapt? Or is the invisible hand steering you into a different line of business?

As for workers, Economics 101 would tell you that a labour shortage is a good time to ask for a raise. If you’re struggling to pay rent, now might be an excellent time to upgrade your skills. The Yukoners currently training to be electricians or web designers will have employers scrambling to hire them at a high salary as soon as they graduate.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.

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