Options and ideas for the housing supply crisis in Ontario

By Chris Markovic
July 29, 2021

The issue of housing supply has been discussed by many, but this topic is truly not getting enough attention – and even more importantly, the action that is required to resolve it. I cannot recall a time since 1980, when our firm began keeping records, that the supply of new housing in the GTA has been so critically low.

At last report, according to Altus Group, just 1,856 lowrise units were available for sale (with the majority located in the 905 area). That’s less than one month’s supply. At the same time, we reported 10,715 highrise units (with the majority located in the 416) – equal to just a three-month supply. The highrise market has recovered dramatically from last fall, after experiencing a minor correction due to the impacts of COVID. The surge in lowrise prices quickly gave support to the more affordable alternative available in highrise product. By the spring of 2021, new highrise launches were setting sales records once again.

Here are some quick facts which outline the current situation:
• The Greater Toronto Area has the dubious distinction of being the fifth least affordable city in the world. That’s right, not just in North America, but globally.
• Today, the current GTA average aggregate resale price is now nearly $1.1 million, and reflects an approximate 28-per-cent increase from the same period last year. Half of the growth occurred in the first quarter of 2021. As housing demand soared during COVID, supply continued to diminish, hence the price escalation was quite predictable.
• Long-term structural issues of supply and demand remain, driven largely by immigration and low interest rates. In fact, the federal government is calling for 1.2 million new immigrants to enter Canada over the next three years – a record which will only exacerbate the demand.
• Today, for the first time in our region’s history, the outer suburban rings of Peel, Halton, and York all have higher average prices than the 416, and Durham Region is close behind.

Scotiabank economist Jean-Francois Perrault recently pointed out that Canada is continuing to fall behind the G7 countries in housing supply. In fact, we are the lowest in the G7, in number of housing units per 1,000 population, and have been steadily underperforming since 2016.

Broad range of product options

The story of supply and affordability is actually less about the provision of high-density in 416, and more about providing a broad range of product options in the 905. The story of affordability is at the heart of the issues in suburban 905. Well before the first lockdown, we started to hear the expression “drive till you qualify,” which rings true, and COVID only accelerated it. The psychology of real estate, or as the governor of the Bank of Canada so aptly described as “extrapolative expectations,” pushed the consumer to review the state of their current living environment, which for many prompted a move to a different location. With significant savings and a sense of self-preservation, that said, “I want bigger, smaller, different housing options targeted more to my lifestyle choices.” Demand only surged.

If new suburban land supply was increased dramatically and quickly, it would take the pressure off the traditional resale market, thus stabilizing the surge in price and eventually increase the overall housing stock. Interestingly, as we came out of the first lockdown, supply of resale product surged upward, topping 18,000 units by September 2020. This was in part driven by highrise product, occupied by renters and owned by investors.

A resale market in balance must have a supply of about 25,000 to 28,000 listed units or a three- to four-month supply. By the second lockdown initiated in December 2020/January 2021, the available listings had declined to only 7,400 units, less than a one-month supply. Now, resale of existing product is 95 per cent of the housing stock at any moment in time. More resale homes are sold annually than new homes at a ratio of about 3:1, but if there is no new housing supply, a demand surge will distort the resale market.

Much needed housing supply

In the short-term here are suggestions of four key areas (in no particular order), which can be addressed immediately, that can help alleviate demand by adding much needed housing supply in Ontario.

1. Allow access to government surplus lands: Down the street from my home is a school that was closed in 1993, and one street over is another school building that was closed more than 10 years ago. They remain empty, boarded up and an eyesore to the community and a threat to public safety. By conducting a review to release to the market surplus lands held by different levels of government, we would open up opportunities across the province and the GTA. This would involve stakeholders from all levels of government, the private and non-profit sectors to come together as partners to find ways to repurpose these properties and provide supply solutions.
2. Adjust employment lands: Similar to accessing surplus government lands, a review of lands designated by official plans as Employment Areas on the edge of residential areas can be identified for rezoning to residential usage.
3. Institute a Minister’s Zoning Order (MZO) for shopping centres. Across the city, there are hectares of land in prime areas (where people would like to live) located in parking lots connected to shopping centres, where infrastructure is already in place. These parking lots should be allowed to be converted to multi-use development, with an emphasis on residential development.
4. Investigate revisions to the Planning Act: Back in 2005, the province removed from the Planning Act the provision to allow a developer to apply to bring their lands into an Official Plan if they paid for all the upfront infrastructure costs. What this did was halt supply and slow development. If reinstated, it would allow the private sector to move forward and bring greater supply immediately.

The housing issue is truly not complex – at its core, it’s an issue of supply. Working with all levels of government, the real estate industry must develop innovative solutions to increase the supply and delivery of new housing options for all Ontarians. We must revaluate our current planning and development processes to be optimised for both current and future growth in demand. Based on all estimates, the demand is not going to subside.

Time is of the essence. The time to act is now.

About Chris Markovic

Christopher Markovic is CEO, PMA Brethour Realty Group, with 25 years of development project sales and marketing experience with some of Canada’s leading organizations. He is directly involved with the positioning, marketing and sales of PMA pre-construction projects, consulting with clients from concept and planning stage to managing the sales and customer experience. pmabrethour.com

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