THE ANALYST : The answer to affordable housing: Supply, supply, supply

By Andrew Brethour
PMA Brethour

The Growth Plan was introduced in 2005 and its objective was to intensify housing development thereby containing sprawl and create infrastructure efficiencies through greater development concentration.

The missing review at the time of its introduction was an Economic Impact Statement; What would be the impact of intensification on the underlying price of housing? Incredibly this was never undertaken.

I believe that the financial gurus of the Dalton McGuinty and Kathleen Wynne provincial governments felt that increased concentration of higher density housing would produce lower priced products (highrise vs. lowrise) and therefore greater affordability. The unintended consequence of the Growth Plan was to artificially restrict lower density development. In fact, lower density approvals were withheld unless intensification proceeded. The result was a dramatically diminished supply of lower density developments.

As a result, supply contracted prices soared. In 2005, a 40-foot serviced lot in Richmond Hill traded for $2,500 per front foot or $100,000, whereas in 2017 that same lot, if available, traded for $20,000 per front foot or $800,000, 700 per cent increase in 12 years. That’s 58 per cent per year!

An increase, not caused by land development costs, but completely distorted by over regulation. The approval process for low-density lands ground to a halt. It’s not unusual in the GTA for the process from land purchase to delivery of a home to take up to 10 years.

As low-density prices soared, it was reflected in high-density prices. So, the target of “more affordable higher-density housing” was also abandoned as condos doubled in price in the last five years.

How to get supply back on track
There is a marvelous study just released by the C.D. Howe Institute titled “Through the Roof: The High Cost of Barriers to Building New Housing in Canadian Municipalities.” It’s a must read! It addresses in great detail the added cost of governmental policies — in the GTA over $100,000 per house.

I won’t reiterate the content of the study, but I would like to suggest two additional ideas.

Bring back the Development Ombudsman
In the mid 1990s, during a particularly challenging time with an NDP government, the land approvals process become severely confrontational. Nothing was moving forward. A Development Ombudsman was appointed to provide resolution of particularly challenging files.

The various levels of government were also confronted with industry representatives and through negotiation the constraint dam burst. The process became unclogged and supply increased. Bring back the Development Ombudsman, particularly with the added complexity of the elimination of the OMB.

Release Employment Lands
Currently, employment lands cannot be converted to residential. Yet the very nature of employment lands has changed. The manufacturing sector today is less than 12 per cent of industrial employment and growth in this sector has been less than 1 per cent in the last five years. Furthermore, the design of employment lands product and the level of employment (robotics has reduced direct employment dramatically) has changed significantly.

According to planning firm Malone Givens Parsons, only 34 per cent of the white belt employment lands have been developed as compared to 57 per cent of residential lands.

Supply can be dramatically increased by allowing the conversion of potential strategic employment lands to multi-use residential. Existing employment lands were historically developed at very low densities. Intensification of these lands next to existing residential makes eminent sense. This would immediately change supply.

Time is of the essence
Increasing lower-density supply is like trying to turn around a giant cruise ship in a small harbor — it takes time. It cannot be done overnight but regulatory change can be initiated that will stabilize pricing and maintain a balanced supply. It is balance that we need.

In 2017, low-density housing absorption hit less than 7000 units, the lowest level since 1992 and during a major recession. The GTA should be producing and absorbing nearly 25,000 lowrise units per year to achieve balance with demand. The land approval process must be accelerated!

There is one other study that should be mandatory reading. Just released by the Centre for Urban Research at Ryerson University, it is called “Millennials in the GTHA: A Generation Stuck in Apartments?” The study points out that the desires of nearly 700,000 millennials are little different than that of the boomer generation before them. That is, they want the same thing their parents did as they have children, to move up the income ladder and to have single-family low-density housing, be it detached, townhome, or semi-detached. They want a backyard.

Millennial homeownership rates will rise from 40 per cent in 2016 to 60 per cent in 2026. If we don’t address the supply issue now the future pressure from millennials will continue to drive prices upward.

So, the answer is not simple but the message is: Supply, Supply, Supply! With the right balanced approach, the supply dilemma can be solved.

Andrew Brethour is president of PMA Brethour Realty Group. http://www.pmabrethour.com/