Restoring Housing Affordability in Toronto: A Once-in-a-Generation Opportunity

Commentary, Housing Affordability, Wendell Cox

By Wendell Cox                    May 4, 2018                   

Recently, Ontario PC leader Doug Ford’s proposed building single-family homes in a large supply of urban fringe (greenbelt) land to address Toronto’s severe housing affordability. This was a unique proposal, because without competitive development on the urban fringe, Toronto’s housing affordability is likely to continue as an impossible challenge for many middle-income households. Regrettably, Ford was pressured to withdraw the proposal.

The government’s “Places to Grow” policy has been associated with Toronto’s severe housing affordability crisis. “Places to Grow” largely outlawed the mass production of housing on the urban fringe, the phenomenon that had made housing affordable to middle-income households across Canada. No longer were there low-cost starter houses as prices were driven up, rippling across the entire CMA.

The median house price (including all owned properties, and after the foreign buyers tax) virtually doubled relative to median household incomes between 2005 and 2017, according to the Demographia International Housing Affordability Survey. This has imposed a serious burden on households aspiring to own their own homes, especially aspiring younger households, now denied lifestyles enjoyed by their parents.

Things have changed much in the last 15 years. For decades, middle-income housing had been affordable in the Toronto CMA (and the Greater Golden Horseshoe). In the pre- “Places to Grow” environment, there was a progression of land values from a competitive “floor: on the urban fringe to peaks in the urban core and other centres (as in land markets in other metropolitan areas around the world).

At the same time, there is general agreement that restoring housing affordability requires a substantial increase in housing supply. However, suburban opponents propose instead densification of single-family neighborhoods (called the “Yellowbelt,” reflecting their planning map colour) as the solution. According to the Globe and Mail the Yellowbelt is more than 20,000 hectares, and larger than Scarborough and nearly twice as large of Etobicoke or the city of Vancouver.

But, improved housing affordability from Yellowbelt development would be unlikely. Land values in the Yellowbelt are far higher and could not moderate housing costs as like a competitive urban fringe market. Further, as Ryerson University research indicates, improving housing affordability requires increasing the supply of ground-oriented (single-family) housing. Households have differing housing needs and the supply needs to reflect that. Not all houses are the same.

Indeed, higher density Yellowbelt development could make Toronto’s horrific traffic congestion even worse, with additional quality of life compromises. Moreover, there is no point in invoking the mantra of transit — most jobs in the CMA are beyond reasonable commuting time by transit, and no current proposals would change that.

Assuredly, the government’s foreign buyer tax has so far stopped the virtual house price hyper-inflation, among the most desired and speculatively attractive houses. But this has not improved middle-income housing affordability. Monthly price increases among the least costly houses (condominium apartments), per the Toronto Real Estate Board have been double that of Ontario wages.

Unless the competitive market for land is restored on the urban fringe, it is unlikely housing affordability will be materially improved. This does not require the low density development (“sprawl”) of suburban Boston or Atlanta, less than a third the urban density of the “905” suburbs. Indeed, Toronto is the ‘” least sprawling” of any large urban area in Canada (or the United States). The planning policies that preceded “Places to Grow” produced this, by permitting a competitive market for land on the periphery.

According to Paul Cheshire, Max Nathan and Henry Overman of the London School of Economics,

urban policy needs to focus on people, rather than “place.” “Places to Grow” takes insufficient account of people, by largely ignoring the largest element in the household budget, housing costs and living standards for many are lower. And this is before the mortgage payment increases expected with rate hikes by the Bank of Canada. “Places to Grow” has made it more difficult for low-income residents to afford decent housing, and more difficult for governments to fund the housing subsidies demanded by the electorate.

The likely continued deterioration of middle-income housing affordability will make solving the problem even more difficult. This could lead to understandable and substantial support for destructive policies like rent control, as more households are excluded from the housing aspirations that were so readily available to previous generations.

Doug Ford and the PC’s could have a once-in-a-generation opportunity effectively deal with the housing affordability crisis. It is time for a serious rethink on housing policy, with the intention of putting first things first. People are more important than place.

Also published in The Financial Post