The Ontario government says its new housing legislation will help bring down the cost of homes by injecting another 1.5 million units into the supply by 2031. And there’s more involved than simple supply and demand economics, says the government.
The dozens of actions prescribed in the Build More Housing Faster Act, tabled at Queen’s Park on Tuesday, will also cut the significant costs that developers say they directly pass along to consumers.
What’s not clear, however, is if it will all be enough to put home ownership or rental — the prices are linked — within the means of ordinary Ontarians and whether they will come in time to help people who feel shut out of the housing market now.
Ontario’s construction targets are ambitious say industry sources. But a June report from Canada Mortgage and Housing Corp. suggested it would take 1.85 million more homes to reach a point where 40 per cent of the average household’s disposable income would pay for the average home.
It’s too late for the current generation of would-be purchasers, said University of British Columbia Prof. Paul Kershaw, a founder of Generation Squeeze, which advocates for generational equity in the housing market.
“We have betrayed the Canadian dream that a good home should be in reach for what hard work can earn. This is especially true in Ontario, where over the first two years of the pandemic, Ontario experienced the greatest erosion of housing affordability and the greatest increase in housing wealth inequality of any province at any time in the last half century,” he told the Star in an email.
On its website, Generation Squeeze lauds Ontario’s attempts to address housing supply and crack down on speculation and vacant homes. But that, along with more supply, is not a silver bullet that will restore affordability.
A young Ontarian needs to work 22 years to save for the down payment on an average home, says Generation Squeeze. Home values would need to fall $530,000, or 60 per cent on average, or earnings would need to increase 150 per cent to $137,000 a year “to close this chasm,” it says.
Robert Kavcic, senior economist with BMO Capital Markets, agrees that moving the dial on affordability is unlikely in the near term. He thinks construction could actually slow down over the next 18 months given the economic climate and labour shortages that builders are already grappling with.
“A lot of the supply side ambition here is spread out over 10 years and what we’re dealing with right now is very, very high prices through the pandemic and a very sudden increase in interest rates. That’s not going to help that today or tomorrow,” he said.
But efficiencies in the housing supply pipeline do hold promise, said Kavcic.
“Hopefully if the market is more responsive, you have less prolonged imbalances where you have undersupplied market, and supply is able to respond to demand faster. So you have over a longer term — maybe — a more properly balanced market.”
Kavcic said there’s a tremendous demand for housing thanks to younger household formation and newcomers that want detached homes.
“If supply can respond faster to those changes and it puts less stress on prices, that in theory is how that would work. It just takes a lot of time to bring units to the market right now,” he said.
But Royal LePage CEO Phil Soper thinks it could take less time for a perceptible change in availability and affordability. He says real economic movement often happens around the margins.
“Say we’re short half a million homes in Ontario, adding 15 per cent of that might seem you’re not getting anywhere. But those properties, if they’re brought on a steady basis are going to have an incremental marginal effect to the price of housing and it’s going to moderate house price inflation,” he said.
A material increase in the number of homes in 2023 and 2024 would have an almost immediate impact on home prices, assuming the current housing correction is at the point where there’s no upward pressure on cost, he said.
Despite recent interest rate hikes and inflation, Soper says consumers are saving 6 to 7 per cent of disposable income — two or three times as much as the long-term norm.
“People are sitting on cash, they’re working, there’s upward pressure on their incomes so they’re able to afford mortgages,” he said. But, Soper acknowledged, they may not decide to buy because they’re concerned about the overall economy.
He also believes builders are adept at reading the market and will crank up the supply as soon as they sense a growing appetite for homes.
Cherise Burda, executive director of city building research and innovation at Toronto Metropolitan University, says it’s a huge assumption that if you boost supply and “flood the market — it will trickle down into affordability.”
“We’ve had the biggest condo boom in history and the condos that have been built over the last decade haven’t been affordable,” she said.
She also thinks some aspects of the bill suggest affordability isn’t a priority, including a 5 per cent cap on the number of inclusionary zoning units that developers must allocate at undermarket rents or prices.
While he admits a home isn’t built overnight, Ontario Real Estate Association CEO Tim Hudak said once the act becomes law it will immediately bring costs down for homebuilders — in particular not-for-profits and lower cost homes.
It’s difficult to stand up against international economic fluctuations, but the policy is promising, he added.
“This will mean that some projects that may not have started until the economy improves and interest rates come down, it may actually get them the green light a lot earlier, which would bring more homes in the market for first time buyers or young families looking for a move up home when the kids come along.”
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