August 22, 2022
Published in the Toronto Star August 25, 2022
A defining feature of discussions around housing in the Greater Toronto Area over the past few years has been the notion of an affordability ‘crisis,’ as housing prices rose dramatically. Spillover effects from an overheated Toronto market reached as far as Atlantic Canada.
We are now witnessing a dramatic slowing of the housing market and the cooling of prices in the Toronto region. A key factor in the market shift seems to be the Bank of Canada’s July interest rate increases. These have made the heavily leveraged mortgages that supported the rise in prices unattractive or even impossible to sustain.
The result has been deeply distressing to housing buyers caught at the wrong point in the market shift, having bought at the peak, but now having to sell their existing housing in a low. But the restructuring of the market has provided important insights into the nature of the housing ‘crisis.’
Narratives that the rapid increases in GTA housing prices have been a function of a lack of supply have been widely accepted, including by the province itself. The sudden shift in the market in response to the interest rate increase indicates that these supply-based explanations greatly oversimplified a much more complex situation.
Rather what has occurred in the GTA market over the past two years has been a period of sector-specific hyperinflation, principally driven by an extended period of exceptionally low-interest rates. The dramatic rise in housing prices was, in effect, inflationary collateral damage arising from the efforts of governments and central banks to counteract the economic impact of the COVID-19 pandemic through very low-interest rates.
In the case of the GTA other factors have been at work as well. These have included record-high federal immigration targets, with a large portion of the new arrivals expected to settle in the Toronto region. The combination of near-zero interest rates and anticipation of increased housing demand reinforced the ‘financialization’ of housing as an investment vehicle, as opposed to simply providing places for people to live. In fact, multiple property-owning ‘investors,’ not individual households, had emerged as the largest group of home buyers in the region.
To this situation the Ford government added an accelerant of its own in the form of a profoundly developer-friendly approach to planning and development. That encouraged further speculation and ‘investment’ in anticipation of the easy rezoning of properties for intensive development or re-development.
The overall result was a combination of soaring housing prices and, in the words of noted Toronto planner Ken Greenberg, development patterns of “tall and sprawl” – hyper-intensive high-rise residential (principally condominium) development around certain urban transit nodes, like midtown Toronto, and sprawling low-density development, onto high value agricultural and natural heritage lands, at the urban edge. Neither result addressed affordability issues, particularly for families at the lower end of the income scale. And serious questions have been raised about the functionality and liveability of the resulting developments in the existing urban areas in terms of infrastructures, services and public spaces.
All of this suggests a need to take the opportunity offered by ‘reset’ to stabilize the region’s housing market and development pathway. Further measures, particularly through the federal and provincial tax systems, will be needed to keep speculators and ‘investors’ from returning to the market and driving prices upwards again.
At the same time, the province needs to recognize that no amount of ‘red tape’ cutting will get private developers to build for low-income households. Rather, that will require significant investments in cooperative and non-profit housing. Stronger rent controls and other measures are needed as well, to contain ‘renovictions’ and other consequences of the financialization of the rental sector.
Even if the 1.5. million homes in 10 years target set by Mr. Ford is seen as realistic or necessary, granting the development industry its wish list, as contained in the February 2022 provincial housing task force report, seems more likely to reproduce the previous crisis be encouraging further speculation than deliver affordability, liveability, or sustainability.
Real affordability will require the strengthening of planning rules, not their elimination. The same is required to produce functional communities where people will actually want to live. Rules are needed to ensure that the necessary infrastructures of all kinds are in place as development happens, that attention is paid to the mix of land uses to reduce road transportation needs, and that proper consideration is given to design, public spaces and urban form. The process needs to listen to the voices of residents and municipalities, not further marginalize and disregard their input as ‘red tape’ – as the government’s ‘strong mayor’ legislation seems designed to do.
The market correction provides an opportunity to re-think the province’s approach to housing. Whether the Ford government takes up the opportunity or continues to double down on a failing pathway, remains to be seen.