June 19, 2024
Version published in the Globe and Mail, June 26, 2024
The Ford government’s interventions in municipal land use planning over the past five years set in motion an enormous, unplanned experiment in what happens when the development industry is given almost everything it wants in a region subject to intense urban growth pressures.
The results of that experiment are now becoming apparent, and they are not good.
The market for high-rise condominiums in Toronto, a key focus of development activity, has suffered a severe downturn. Sales of existing units are attracting little interest, and in the pre-construction market sales down nearly seventy-five per cent relative to the average over the past decade. The breakdown in the market is seen as a function of its oversaturation with towers filled with small units of limited use to growing families, and reduced interest from investors, who had come to dominate the condominium market, looking to buy and then resell or rent their units, in an environment of increased interest rates.
The defining feature of the Ford government’s approach to planning urban development has been to engage in a root and branch re-writing of the rules to suit development interests.
The province has justified its approach as a response to a crisis of housing affordability. The government has focussed on increasing the gross supply of housing units. It accepted at face value the development industry’s assertions that the cause of the ‘crisis’ was ‘red tape’ in the form of planning rules and requirements for public transparency and accountability.
In reality the housing affordability crisis has been the a product of a complex convergence of factors: an extended period of historically low interest rates; the weakening of rent controls and protections of existing affordable rental housing; and unexpectedly rapid population growth driven by increases in immigration targets and an unanticipated influx of temporary foreign workers and international students. These factors combined to drive inflationary speculation and the financialization of housing into an investment vehicle.
Handing control of the planning process to the development industry, as Ontario effectively did, exacerbated these dynamics. Left to its own devices, the development sector focussed not on the types of housing that were actually needed, but on where it thought it could make the fastest profit and return on investment. In existing urban areas that turned out to be high rise condominium projects with ever-shrinking units, not oriented to towards buyers looking for permanent housing for themselves or their families, but rather investors looking to exploit low interest rates to buy and then flip or rent-out their units.
The free-for-all created by the province has led to a cascade of further problems. Developers, particularly around urban infill or redevelopment projects, focus on their own individual projects. They pay little or no attention to the cumulative effects of multiple projects in terms of infrastructure needs of all types, the mixes of uses and housing forms, and the overall design of urban spaces in terms of functionality, livability, affordability or sustainability.
The need to address these kinds of inherent market failures in urban development were part of the reason why planning processes and rules emerged, and local governments given the authority to manage the development process. Absent any planning framework, infrastructure planning of all types (sewer, water, hydro, transportation, schools, parks) becomes almost impossible given the uncoordinated nature of the development that occurs. That problem has come to be symbolized in areas like midtown Toronto by the signs from school boards on virtually every new project announcing that there is no capacity in local schools to accommodate the children of new residents.
These problems have been reinforced by provincial constraints, again imposed at the behest of the development industry, on the ability of municipalities to apply development charges to pay for the infrastructure need to support new developments.
In the end, Ontario’s experiment with an urban development process almost entirely oriented towards the interests of private capital has ended in a predictable failure.
The capacity of municipalities to plan for and manage development, and ensure the functionality, affordability, and sustainability of urban spaces needs to be reestablished. Effective protections for existing affordable, especially rental, housing must be instituted.
Incentives for unproductive speculative behaviour in the development process need to be removed. An important step would be to impose time limits on development approvals, so that they lapse if not acted on. This would discourage purely speculative applications intended to bid up land values, with inflationary effects on the overall land market.
Ontario’s housing market has fallen into a deep pathway of dysfunction. The province needs to stop reinforcing that breakdown through its own interventions. Recognizing that the self-interest of the development industry might not be the best guide to policy would be a good place to start on a more constructive path.