Anyone who covers or comments on real estate in the GTA has spent some time in the last few months writing about land supply, and how the lack thereof affects housing prices. Many, myself included, think the problem lies less in the actual land available than in the antiquated planning that hinders development.
Recent legislation, which took aim at speculators and foreign investors and mandated stress testing for mortgages, hasn’t had much effect. Housing prices continue to outpace income growth, preventing lower- and middle-income earners from buying the kinds of properties “their counterparts in previous generations were able to afford without paying excessive portions of their incomes,” according to a new report. We just keep piling on more debt.
The report comes from Ontario 360, housed at the University of Toronto’s School of Public Policy and Governance and self-described as a “purpose-built initiative to scan Ontario’s challenges and opportunities and develop evidence-based public policy ideas for dissemination in advance of the Ontario election and during the post-election transition.”
The paper’s author is PhD Frank Clayton, a senior research fellow at the Centre for Urban Research and Land Development at Ryerson University and a former economic advisor to the GTA’s Building Industry and Land Development Association (BILD).
While demand is certainly a factor, the report asserts that “housing affordability relief will not be coming from the demand side.” The construction of more new housing units is where the relief “will have to come from.”
The report cites recent research by the Canada Mortgage and Housing Corporation (CMHC) that says the “response of new housing supply to a given rise in housing prices is much lower in the Toronto and Vancouver regions than in other large urban regions examined especially Edmonton and Montreal.” If our response were to increase to the levels of Edmonton and Montreal, we’d be seeing 3,000 to 5,000 more units built every year. So what’s the problem?
Overshadowing the goal of providing sites serviced by sewer and water infrastructure in the province’s Growth Plan for the Greater Golden Horseshoe 2006 are the plan’s environmental goals. Current planning treats housing units equally, whether they’re for condos or townhomes or detached homes, regardless of demand; it also focuses too much on long-term goals rather than pressing need. Who’d have thought political long-sightedness would be contributing to a problem?
Now required by the 2014 Provincial Policy Statement to maintain a three-year supply of land to accommodate short-term demand by submarket, the report suggests amending it to five years, and encourages the city to convert large tracts of obsolete and lower priority industrial lands into new communities a la Warden Woods.
Long-term, it advocates examining how the planning system affects housing costs with an eye on reforming the system to make it more flexible to market demands, and to introduce more funding for water and sewer infrastructure both in built-up areas and on greenfield lands.
The Royal Bank’s affordability index says the proportion of median pre-tax income required to service the cost of owning an average home is now about 75% in Toronto; conventional wisdom tells us that the number should be closer to 30%.
I’m no economist, but that has to have a significant effect on spending. If people are sinking three-quarters of their incomes into housing, they’re not spending it on other investments, not to mention cars, restaurants, clothes, vacations, and all the other things that are stimulants.
Paper increase in net worth sure doesn’t stimulate business in the neighbourhood or the city. It doesn’t keep people employed. It doesn’t improve the larger quality of life for anyone around them. This problem is becoming increasingly concerning and far-reaching and it’s going to take more than some well-intentioned legislation to change it. At the same time, it’s fraught. Most of us don’t want to bring property values down, but many of us see some benefit in their stabilization. That’s a fine line to walk.
Now that we’re in pre-election mode, it’s time to put some pressure on the candidates to address the issue in a different way. More taxes aren’t always the answer.