Frank Clayton is a senior research fellow at Ryerson University’s Centre for Urban Research and Land Development. His new commentary on housing supply in Ontario is available at www.on360.ca.
Recent reports are that the Greater Toronto Area’s housing market has stabilized and even slowed. But it would be wrong for provincial and municipal policy makers to declare “mission accomplished.” The region’s underlying fundamentals – including migration-generated population growth, the aging of millennials and robust job creation – are unlikely to change. Ontario needs a long-term, evidence-based strategy to expand its housing supply and in turn address its housing-affordability challenges.
Housing prices in the Greater Golden Horseshoe remain elevated even after several policy interventions by the federal, provincial and municipal governments. Recent data that show a short-term softening should not obscure these overall trends. Remember, housing affordability hit its worst levels in 27 years in 2017. Housing costs still consume an overwhelming share of the average household’s income across much of the region.
Why does this matter? These elevated costs have various economic and social implications – including high household debt, long commutes, wealth transfers, labour-market distortions and so on. High housing prices thus affect individuals, families and communities. Policy reforms are needed.
Many observers, including politicians, media and the general public, blame demand factors for this deterioration in overall affordability. There’s no question that rising demand has been an important contributor to rising housing prices and rents.
But relief won’t come from the demand side. The demographic and economic forces will continue to favour a robust demand for housing in the coming years. The aging of millennials and the rising influx of migrants are expected to tilt demand to ground-related homes and to low-rise apartments such as stacked townhouses.
The relief will have to come from the supply side of the housing market – namely, the construction of more new housing units. Recent research published by Canada Mortgage and Housing Corp. finds that the response of new housing supply to a given rise in housing prices is much weaker in Toronto and Vancouver than in other large urban regions examined, especially Edmonton and Montreal. If the supply responsiveness in the Toronto region rose to the level of those cities, we’d be building 3,000 to 5,000 more units every year.
The main cause of this supply gap is the land-use planning system that governs the supply of serviced sites for new housing, whether on greenfield lands in the 905 area-code region or on redevelopment sites in built-up areas such as Toronto.
The provincial government is the architect of the regional planning system, which municipalities are required to implement. The current system pays little attention to the necessity to have an ample supply of “shovel ready” sites in inventory to accommodate the demand for new housing for a range of housing types and locations. Builders cannot construct new housing without zoned sites serviced with sewer and water infrastructure – an inadequate supply of new housing by unit type means higher prices.
Environmental objectives and other policy issues contribute to these housing-supply challenges. For example, one of the system’s perversities is the unrealistic premise that a housing unit is a housing unit whether it’s a single-detached house or a 600-square-foot suite in a high-rise condominium building. Current policies deem single-detached houses as villainous, but fail to supply passable alternatives such as townhouses in sufficient quantities to accommodate the demand for ground-related housing.
A recent commentary published by Ontario 360, a project at the University of Toronto’s school of public policy and governance, sets out some concrete steps that policy makers can take to make progress on these issues.
In the short term, the focus should be to increase the supply of shovel-ready sites. Requiring municipalities to have a continuous five-year supply (from the current three-year provision) to accommodate expected short-term housing demand is key. Encouraging the City of Toronto to convert large tracts of obsolete industrial lands into new ground-related housing communities – as it has done with the Warden Woods community, spanning north and south of the Warden subway station – is also important.
In the longer term, the Ontario government should launch a New Zealand-type inquiry to examine ways that the land-use planning system in the Toronto region is affecting housing costs and look at ways to reform the system to counter price pressures by making the system more flexible and receptive to market demands.
Ontario’s housing-affordability challenges may have temporarily abated, but they’re not going away. It’s up to policy makers to put forward an evidence-based strategy to increase housing supply.