Local governments in GTA have tools to increase housing supply, affordability

In response to Toronto’s rapidly rising home prices, federal Finance Minister Bill Morneau recently announced the assembly of a working group of experts from all levels of government, aimed at taking a “deep dive” into the housing question.

Housing affordability is being affected by a combination of low interest rates, rising demand locally and abroad, and a tight supply of new homes, and it’s encouraging to see federal policymakers taking this issue seriously. However, the Toronto Real Estate Board is reporting that record housing demand is meeting a shrinking pool of listings. This trend should jolt local governments who hold some of the most important policy levers governing the housing supply.

A new Fraser Institute study examines how basic features of land-use regulation impact the housing supply. Simple indicators, such as the typical length of time it takes to get building permits, go a long way in predicting which cities supply new housing and which cities do not. Indeed, long and uncertain timelines make it more difficult, and less likely, for the housing supply to respond to demand with homebuilding. In addition to driving up prices, this pushes homebuilding to suburban communities where there are often fewer barriers to construction.

This is especially important now, as newcomers continue to move to the Greater Toronto Area in search of economic opportunities and its excellent quality of life. There’s clearly demand to live here, yet in many parts of the city the housing supply has responded with growing prices in place of new homes.

In particular, the data suggest that some desirable neighbourhoods, particularly those in mass transit corridors, would have grown more between the last two census counts if it were easier to get a building permit in Toronto. And some far-flung suburbs, which have less onerous land-use regulations, might have grown less quickly if permission to build were readily available closer to Toronto.

Restricting Greater Toronto’s housing supply in this way has consequences beyond the initial impacts on housing’s availability and affordability—broader economic growth can be damaged as well.

Toronto is among Canada’s economic engines, and incomes are substantially higher than in most other parts of the country. This produces demand for urban housing—a tight supply translates into higher prices—and rising housing costs can make Torontonians’ relatively high incomes a mirage. Left unchecked, housing costs can rise to the point where local employers simply cannot afford to attract, or even retain, talented employees. Even though there are many advantages to working in the centre of Canada’s largest city, urban constraints can eventually push Toronto’s information economy to where housing is cheaper.

And by preventing growth in more desirable central neighbourhoods, more new housing is built at the urban fringe, increasing commutes and exacerbating sprawl. In fact, there’s some evidence that development is already leapfrogging over Ontario’s Greenbelt, following GO Train lines and 400-series highways to places like Brantford and Barrie, and potentially crowding out funding for transit in more central parts of Greater Toronto.

Toronto is a great city, thanks in large part to its many distinct thriving neighbourhoods. Increasing the supply of new homes can have an impact on the character of the city’s many districts, but this cost is far outweighed by the benefits of more housing. Besides, there’s no reason why addressing anti-growth pressures, streamlining approvals, or mitigating uncertainty in residential development must compromise good planning. The additional homebuilding that would follow can provide good jobs and keep housing costs down as the region continues to drive Canada’s economy.

The good news is that all governments—especially municipalities—can implement policies that encourage a healthy housing market. Mr. Morneau’s working group, and local governments across the Greater Toronto Area, should consider ways to make land-use regulations more growth-friendly.