A lagging housing supply drives Ontario’s affordability woes

A new government in Queen’s Park means it’s time for new ideas to tackle Ontario’s top challenges including housing affordability, which has declined significantly in recent years, especially in the Greater Golden Horseshoe.

At the heart of Ontario’s affordability woes is a lagging housing supply. A growing population, combined with rising incomes and relatively low interest rates (despite recent mortgage stress tests), all translate into higher demand for homes. Without the construction of new homes to match this demand, prices go up—this is exactly what has happened in the most expensive parts of Ontario.

The Wynne government approached this issue by almost exclusively targeting housing demand. In its “Fair Housing Plan” announced last year, taxes were levied on non-resident buyers and rent controls were implemented. These policies were layered on top of existing constraints on supply, such as the Greenbelt and Growth Plan for the Greater Golden Horseshoe—both of which restrict urban growth.

Needless to say, none of these policies did much to make housing more affordable for most Ontarians.

So what can the new government do to tackle this persistent issue? To start, it can acknowledge that supply matters. By ignoring half of the housing equation, the last government was never able to address the chronic shortage of new homes underpinning high prices.

Thankfully, examples of supply-minded policies are increasingly common. In California, for instance, the Senate recently considered Bill 827, which would radically relax zoning restrictions near rapid transit stations, allowing for substantial increases in new homes where they are most desired. In a similar vein, the state government in Massachusetts recently introduced legislation forbidding municipalities from using zoning bylaws to restrict flexible housing including basement suites in existing homes.

These policies, which focus on zoning, remind us that municipalities, which ultimately issue the building permits necessary for a growing housing supply, can play an important role. A Ford government can learn from the Oregon state government’s efforts to streamline local government building permit approvals, notably by prohibiting the reduction of allowed density (known as “downzoning”) and barring denial of permits that comply with objective standards.

Of course, Ontario doesn’t necessarily need to copy any of these policies to the letter, but all three of these examples share the broad goal of allowing the number of homes entering the market to grow, in line with the number of people moving to (or intending to move to) urban centres for jobs, education, amenities, etc.

A change of government provides an opportunity for new approaches, and new approaches are direly needed to tackle declining housing affordability and availability in Ontario. If it chooses to acknowledge the supply side of the housing equation, Doug Ford’s government will take a critical first step towards a more affordable province.