Ontario seeks to reform zoning rules that slow construction and increase costs

Last week Doug Ford’s Ontario government introduced legislation that will seek to rapidly increase homebuilding in the province, primarily by peeling back exclusionary zoning. Premier Ford’s bill will allow for up to three units to be built on a single residential lot without any bylaw amendments or municipal permissions. This allows for the building of basement apartments, garden suites, duplexes, and triplexes on a single residential lot. In addition to allowing these units to be built, the legislation also exempts these units from development charges and parkland dedication fees, which significantly increase the cost of building and are ultimately passed on to buyers.  In a city like Toronto, this could be a game-changer for calming the housing crisis.

Upwards of 70 per cent of Toronto is zoned exclusively for single-family homes, a restriction that significantly limits building options, which in turn constrains the housing supply. The impact of these zoning rules can’t be overstated. A family in Toronto needs an annual income of $280,000 to purchase a detached home, $214,000 for an attached home, $167,000 for a townhome and $148,000 for a condo. But the median income for a couple in Toronto is only $97,700.

Why zoning reform is needed is simple: artificial limits on what can be built keep the housing stock low, which in turn prevents supply from keeping pace with demand, thus putting upwards pressure on home prices and rents. Because of these zoning rules, Ontario has a terrible record for building new homes. Among G7 countries, Canada ranks dead last in population-adjusted housing units per 1,000 people with 424. Ontario, which has only 398 units per 1,000 people, is a major cause of the problem.

Increasing the housing stock would put downward pressure on prices and foster economic growth. Research on zoning rules in the U.S. has shown that, by freezing workers out of high-rent areas like New York and San Jose where their productivity would be higher, local zoning rules lowered U.S. economic growth by fully 36 per cent between 1964 and 2009. There is no reason to assume similarly exclusionary zoning laws aren’t having the same negative impact in Ontario and across Canada.

The benefits of zoning reform aren’t just theoretical. Reform has made housing more affordable in both the United States and Japan. Minneapolis, which abolished exclusionary zoning before the pandemic, now appears to be bucking the trend of rising U.S. rental prices. Rents for one- and two-bedroom units are actually lower in 2022 than they were in 2019. Some of that presumably can be chalked up to having made it easier to build for increased density.

Before the pandemic Japan was building nearly a million new homes per year because of its relaxed approach to zoning. This approach is largely why average home prices in Japan have stayed relatively flat for nearly a decade. Enabling supply to keep up with demand is the keystone of Japan’s success in creating a stable housing market, one where home ownership is feasible and rental prices are stable. On the rental side, from 2008-2018 rent for the average two-bedroom apartment in Tokyo hovered around $1,000 (U.S.) per month. A two-bedroom apartment in Toronto is now more than double the price of an equivalent unit in Tokyo.

Now, for some, the thought of smaller Tokyo-style apartments doesn’t seem appealing. But the point here is that with limited government involvement in the building of new homes the market is able to adjust and build in a way that better meets housing demand. And to really demonstrate the power of supply: Japan’s rental prices were stable without the use of rent control, a policy often touted as a means to curb rising rents.

For those who like the suburbs and want them to stay that way, this bill could work to increase density in high-demand areas like Toronto, while easing housing pressure in surrounding areas. Opening up 70 per cent of Toronto to increased density will help curb the trend to suburban sprawl, as people who prefer to live in these high-demand areas will find it easier to do so.

This new bill takes the issue of chronic housing undersupply seriously by saying “Yes, In My Backyard.” Welcome to Team YIMBY, Premier Ford.

Originally published here

In April, the Canadian federal government announced its budget for 2022 with a much-needed focus on building homes over the next decade. Initiatives in the proposal included the launch of a new Housing Accelerator Fund of $4 billion to aid in speeding up housing development, which highlights the obvious demand for homes in this country.

Canada led the G7 in percentage population growth over the last five years (the 5.2% population growth is double that of the United States’ 2.6%). Canada added 1.8 million citizens between 2016-2021 and the federal government has plans to welcome 1.3 million immigrants over the next three years. This population growth is being achieved against the backdrop of a chronic housing supply shortage.  It was reported this year by Consumer Choice Centre that among the G7, Canada has the lowest average housing supply per capita with only 424 units per 1,000 people nationally, a ratio that is lower than it was five years ago. Of all the provinces, Ontario leads this disparity with only 398 units per 1,000 people – requiring 650,000 units to be built just to meet the national average.

With the recent increase in interest rates and construction cost inflation, some developers are taking a pause on launching new products, which will only exacerbate the supply imbalance and contribute to upward pressure on prices in the coming years. Whether for rent or for sale, Canada needs to build more houses, and quickly.

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Increasing the housing stock puts downward pressure on prices and fosters economic growth

At both the federal and provincial level, Canadians and their legislators often look down their noses at American policy and politics, and sometimes with good reason: gun control and the abortion debate come to mind. But when it comes to tackling the housing crisis Canadian politicians could learn a thing or two from what is unfolding south of the border.

Earlier this month President Joe Biden announced that the federal government would be seeking to tackle the root cause of the housing crisis, which it believes to be exclusionary zoning — local rules that prohibit multi-family housing from being built and instead favour single-family units. In a White House statement, the administration said “Exclusionary land use and zoning policies constrain land use, artificially inflate prices, perpetuate historical patterns of segregation, keep workers in lower productivity regions, and limit economic growth.”

All of that is true. Increasing the housing stock puts downward pressure on prices and fosters economic growth. Research on zoning rules in the U.S. has shown that, by freezing workers out of high-rent areas like New York and San Jose where their productivity would be higher, local zoning rules lowered U.S. economic growth by fully 36 per cent between 1964 and 2009. There is no reason to assume similarly exclusionary zoning laws aren’t having the same negative impact in Canada. Toronto, for example, has nearly 70 per cent of its land zoned exclusively for single-family homes, making it illegal to build anything with increased density.

Elevating the conversation and targeting zoning reform are things Justin Trudeau and Chrystia Freeland could have done in their last budget. Right now, only two Conservative leadership candidates are talking about zoning on the campaign trail, Scott Aitchison and Pierre Poilievre.

But lessons about zoning reform aren’t just useful at the federal level. The U.S. offers plenty of examples of state and municipal legislators carrying out dramatic zoning reforms. In Oregon, for example, any land previously zoned exclusively for single-family homes can now, as of right, build a duplex on that site or even a four-unit dwelling if it is in a municipality larger than 25,000 people.

The same goes for Minneapolis, which abolished exclusionary zoning before the pandemic. The city now appears to be bucking the trend of rising rental prices. Rents for one- and two-bedroom units are actually lower in 2022 than they were in 2019. Some of that presumably can be chalked up to having made it easier to build for increased density.

Finally, the small town of Auburn, Maine, shows how local councilors can embrace “YIMBYism” (which stands for “Yes, in my backyard,” as opposed than “Not in my backyard”) to increase affordability. Auburn’s Mayor Jason Levesque, originally elected in 2017, ran on a pro-development platform that gave voters in his town of 24,000 three options: drastically raise taxes, cut public services, or bring in new residents. Having chosen growth, Auburn plans to increase its housing stock by upwards of 25 per cent, gutting zoning rules and taking an “all of the above” view on housing types.

That type of bold ambition is exactly what is needed in Canada’s major cities and the communities that surround them if we want to tackle rather than just talk about the affordability crisis. Nationally, average rents rose nine per cent in April compared to a year earlier. In Toronto and Vancouver, arguably the two Canadian cities most in need of increased density, rents rose 23 and 27 per cent, respectively. On the buying side, the national MLS benchmark price for a home was $882,000 in April, a 27 per cent increase year-over-year despite interest rate increases beginning to dampen demand.

Much of Canadian political culture is framed in opposition to what exists in the U.S. but on zoning reform, we should look southward and learn. It’s time to build but exclusionary zoning is in the way.

Originally published here

David Clement is North American affairs manager of the Consumer Choice Center. He’s one of the authors of a policy paper outlining why cities should allow more multi-family housing.

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Canada ranks dead last in housing units per 1,000 people in the G7, and Ontario is the lead cause, David Clement and Yael Ossowski write.

Ontario NDP Leader Andrew Horwath has unveiled the NDP’s platform in the lead up to the next election, with a policy plank putting an end to exclusionary zoning. For many, this is a bold move from the Official Opposition. It also happens to be a policy change that Ontario desperately needs.

Exclusionary zoning are prohibitions on multi-family housing units ultimately limiting the number of housing units available in a city. Simply put, peeling back exclusionary zoning gives property owners more freedom to build different types of housing, increasing the housing stock, something that Ontario needed yesterday.

Nationally, Canada ranks dead last in housing units per 1,000 people in the G7, and Ontario is the lead cause. Ontario only has 398 units per 1,000 people and needs to build another 650,000 units just to get to the national average.

In Hamilton, buyers and renters are feeling the pain caused by the chronic undersupply of housing. Average home prices are now over $1 million, inflating 25 per cent year-over-year. And the pain isn’t just being felt by those looking to buy a home. Undersupply is putting upward pressure on rental prices as well. The average rent for a two-bedroom apartment is $1,841. That rent requires an income of at least $82,000, but the average family in Hamilton has a pre-tax income of only $66,460. As the housing crisis worsens, the average home, both buying and renting, is out of reach for the average family.

Beyond making life more affordable, increasing the housing stock also grows the economy. Research on zoning rules in the U.S., which mirror what we see in Canadian cities, showed that housing constraints lowered U.S. aggregate growth by 36 per cent from 1964 to 2009.

But, some who oppose density will likely rehash the argument that increased density, despite growing the economy, is bad for the environment. Time and time again, NIMBY voices argue against increased density because of the perception that increased density is a net negative for the environment. It’s not true.

In fact, according to the Intergovernmental Panel on Climate Change (IPCC) more compact cities could reduce urban emissions by upwards of 25 per cent. This should be intuitive for policy-makers. If people can live closer to where they work, the stores they shop at, the restaurants they dine at, or where they seek entertainment, they ultimately drive less. Whether it be by foot, transit or bike, compact cities actually allow for people to reduce their carbon footprint, not increase it.

And it isn’t just emissions that are reduced by zoning reform. The same goes for water usage. According to the peer reviewed journal Landscape and Urban Planning, single family irrigation rates are 48 per cent higher than multi family housing units.

While the NDP is making steps in the right direction on zoning reform, they are taking a giant step backwards with their proposal to give municipalities more decision-making power by reforming the Ontario Land Tribunal. Giving more power to local councillors is exactly what got Ontario, and Hamilton, into this mess. Zoning reform is needed, but emboldening local governments with more decision-making power is bad policy, and one that could undermine the value of zoning reform.

Hamilton needs more homes. Ending exclusionary zoning is a great step in the right direction. Whether blue, orange, or red, all political parties, both federally and provincially, need to make zoning reform a priority. 

Originally published here

Pour ceux et celles qui souhaitent un meilleur avenir, être propriétaire d’une maison a toujours été un but principal à atteindre, surtout pour la génération des millénariaux.

Mais quand on regarde les prix des maisons qui gonflent, la concurrence massive dans l’achat des maisons et l’inflation qui gruge de plus en plus notre pouvoir d’achat, ce souhait n’est plus qu’un rêve.

Nous étions très contents de voir que le logement figure au centre du budget du premier ministre libéral Justin Trudeau. Mais au lieu d’avancer de vraies réformes afin de donner à notre génération les meilleurs moyens de devenir propriétaire, nous ne voyons que des actions symboliques. 

Mettre fin à l’investissement étranger, taxer les logements vacants et accorder encore plus de crédits d’impôt à ceux qui achètent leur première maison pourrait faire plaisir à plusieurs, mais ne permet pas de livrer ce que tous les économistes sérieux nous recommandent : construire plus de maisons.

Il y a assez d’argent dans le système (encore plus avec l’inflation), mais il n’y a pas assez de construction de nouvelles maisons et de condos. L’offre est limitée, la demande est en croissance.

Or, le problème au Canada n’est pas la demande pour les propriétés résidentielles. C’est l’offre. Il n’y en a pas assez pour notre population grandissante.

Au mois de février, le prix moyen d’une maison au Québec a augmenté à 474 941 $, une hausse de 18,3 % comparée à 2021. Le prix moyen des maisons vendues à Montréal est 18 % plus élevé et 12 % à Québec.

À Montréal, le prix moyen d’un appartement quatre et demie est de 1982 $, ce qui nécessite un salaire annuel de 89 000 $, tandis que le salaire moyen (avant impôt) ne représente que 56 220 $. 

Comme plusieurs autres l’ont reconnu, Montréal fait bonne figure, mais nous avons encore du travail à faire.

Au niveau fédéral, Ottawa aide les gens à épargner, mais ses politiques ne sont pas axées sur l’augmentation de l’offre de logements. Le gouvernement fédéral cherche à créer un nouveau compte d’épargne libre d’impôt pour l’achat d’une première maison, qui combine les aspects fiscaux d’un CELI et d’un REER, permettant aux Canadiens de mettre plus de 40 000 $ dans leur compte, de déduire l’épargne de leur revenu et de la retirer pour acheter une maison sans aucune obligation de remboursement.

Ils prévoient également doubler le crédit pour l’achat d’une première maison, qui passera de 5000 à 10 000 $. Bien que ces deux politiques améliorent l’épargne des acheteurs, si elles ne s’attaquent pas au problème de l’insuffisance chronique de l’offre, elles ne feront rien pour rendre les logements plus abordables. Au mieux, ces politiques aideront ceux qui cherchent activement à franchir la ligne d’arrivée, mais laisseront le marché immobilier inchangé.

D’autres politiques mises de l’avant par Ottawa, comme l’interdiction des offres à l’aveugle, ne font rien pour augmenter l’offre. William Strange, professeur d’analyse économique à l’Université de Toronto, explique qu’une interdiction des offres à l’aveugle ne réduirait pas les prix de manière significative et « qu’il n’y a aucune preuve économique que cela est important ». Les guerres d’offres sont un symptôme d’un marché de vendeurs extrême, et non la cause.

Le zonage d’exclusion est une politique qui vise à limiter le nombre de logements pouvant être construits sur une même propriété. Ces règles interdisent souvent les logements multifamiliaux ou fixent des exigences en matière de taille minimale des terrains. Ces restrictions finissent par limiter le nombre de logements disponibles dans une ville. 

Une interdiction de ce zonage donnerait aux propriétaires plus de liberté pour construire différents types de logements et augmenterait le parc immobilier. En mettant fin au zonage d’exclusion, les grands centres urbains comme Montréal pourraient immédiatement permettre la construction d’un plus grand nombre de duplex et de petits appartements. 

C’est exactement ce qui se fait à l’étranger pour lutter contre la hausse des prix. 

Par exemple, l’Oregon a récemment adopté une loi qui abolit le zonage unifamilial pour toutes les communautés de plus de 10 000 habitants. Les propriétaires pourront ainsi construire différents types de logements, s’ils le souhaitent, ce qui augmentera considérablement l’offre de logements.

La Nouvelle-Zélande a entamé le processus de restructuration de ses lois de zonage dans le but d’augmenter considérablement l’offre et d’exercer une pression à la baisse sur les prix. Le Brookings Institute, situé à Washington, a décrit l’approche de la Nouvelle-Zélande en matière de logement comme un modèle idéal à suivre pour les autres pays.

Il reste beaucoup à faire si nous souhaitons devenir un tel exemple à travers le monde. 

Les législateurs canadiens doivent suivre l’exemple de ceux de l’étranger, et même à Montréal, et faire de la réforme du zonage une priorité essentielle pour s’attaquer à la crise du logement. 

Si notre génération souhaite le même niveau de richesse que celle de nos parents, nous aurions besoin de vraies réformes au lieu des mesurettes qui ne s’attaquent qu’aux symptômes.

Originally published here

“The issue of chronic undersupply is having a devastating impact for both prospective buyers, and those who are renting in major Canadian cities.”

One of the core components of Ottawa’s 2022 budget was a focus on housing. While it’s appreciated that the government is now taking a serious look at housing affordability, much of its plan will do very little to dampen the chaos, like its ban on blind bidding, primarily because it fails to properly address the issue of chronic under-supply.

The supply of homes in Canada, per capita, is the worst in the G7, and it has actually gotten worse over the past eight years. In 2016, Canada had 427 housing units per 1000 people. In 2020, that number actually decreased to 426 units per 1000 people, and in 2022 it fell to 424 units per 1000 people. France by comparison leads the G7 at 540 units per 1,000.

The issue of chronic under-supply is having a devastating impact for both prospective buyers, and those who are renting in major Canadian cities.

In Toronto, for example, the average home price is now more than $1.3 million dollars. A family needs an annual income of $180,000 to purchase the median Toronto home, and $130,000 to purchase the median condo, all while the median income for a couple in Torontois only $97,640. As the crisis worsens, buying an average home is becoming virtually unattainable for the average family.

Unfortunately, the issue of chronic under-supply is also being passed onto renters as well. The average rent for a two-bedroom apartment in Toronto is $2,715, which, based on the CMHC’s affordability metric, requires an annual income of $118,000.

So, housing prices are inflating at rapid levels, while wage growth is lagging far behind, and the response from Ottawa could largely be described as “tinkering with demand.”

Take the federal government’s ban on blind bidding, which is the process where prospective buyers submit their bids on a house without knowing the amount of the other bids. The thought process here is that blind bidding is causing bidding wars that are artificially inflating prices upwards. But is that true?

Not according to housing economists. William Strange, a professor of economic analysis at the University of Toronto, explains a ban on blind bidding wouldn’t reduce pricing. 

“Not to a meaningful degree. There’s no economic evidence that it would matter.” 

Economic analysis comparing bidding models, such as blind bidding versus open auctions, finds different types of auction do not produce dramatically different sales prices.

In addition to Professor Strange, Professor William Wheaton, at the Massachusetts Institute of Technology’s Center for Real Estate, called the ban on blind bidding “dubious” because bidding wars are a symptom of an extreme sellers’ market, and not the cause. And the reason why Canada’s real estate market is such a sellers market is because virtually every city has an under-supply of housing.

Beyond the policy being ineffective, it completely ignores the issue of under-supply and raises questions about competition between auction types. So long as there is nothing mandating all home purchases be done in a blind auction, the market should remain open to competing auction types. Sellers may choose to sell their home in a blind auction, but if buyers demand otherwise, we could see some shift and competition between the two auction types. That would be a preferred outcome, in comparison to picking one auction type over the other, because it ultimately leaves that decision between buyers and sellers.

And while some might read competition between auction types of free market zeal, we are seeing changes from the industry itself. For example, the Canadian Real Estate Association already announced it’s piloting a real time tracking system for bids, streamlining the buying process and increasing transparency for consumers.

So will a blind bidding ban do anything to alleviate the housing crisis? No, not really. At best, it tinkers at the margins of demand, while leaving the housing shortage problem unaddressed.

Originally published here

Ottawa’s housing plan isn’t bold enough to deal with the issue of chronic undersupply

Chrystia Freeland bought a brand new pair of shoes last week, as is tradition for the finance minister when the government introduces a budget, and Canadians are wondering what sort of tracks Freeland the Liberal-NDP “agreement” will be leaving on their day-to-day lives. The 304-page document has a lot to unpack, and plenty of policy changes that will impact consumers.

On the positive side, the federal government has repealed the excise tax on non-alcoholic beer. Yes, you read that right, there was a sin tax on alcohol-free beer. This is a big win for health-conscious consumers, and those who advocate for the principles of harm reduction. Alcohol-free beer doesn’t carry the same risks as traditional beer, so it was always nonsensical that the government would sin-tax these products.

Unfortunately though, the federal government’s smart approach to harm reduction and risk-based tax policy took a quick U-Turn on the topic of vaping. The federal government will implement a new tax on vaping at $1 per 2mL for vape liquid containers less than 10mL; $5 for containers larger than 10mL; and $1 for every additional 10 mL. This is incredibly problematic from a harm-reduction perspective because vaping products are a useful tool for smokers trying to quit, and 95 per cent less harmful than cigarettes according to Public Health England. Scaling taxes up on vaping liquids makes these reduced-risk products more expensive, and thus less attractive for smokers trying to quit. The harder we make it for smokers to access vape products, the more likely they are to continue smoking, and no one wins in that scenario.

On housing affordability, which is the most pressing issue for millennial Canadians, the Liberals are a day late and a dollar short. Unfortunately for millennials priced out of the housing market, like myself, the government’s housing plan is not bold enough to effectively deal with the issue of chronic undersupply.

They’ve proposed a ban on blind bidding, which has already been shown to have no impact on prices and does nothing to increase supply. Their foreign-buyer ban is yet another policy that is attempting to tinker with demand, without addressing supply. And while some of Ottawa’s response will allow for consumers to save more, like the Tax-Free First Home Savings Account, these tax policy changes also do nothing to increase the supply of housing.

The only supply side policy the federal government has announced is its earmark for communities that grow at a quicker pace than the historical average. The government’s own estimate forecasts that this could result in 100,000 new homes by 2025, but the problem is that Ontario alone needs another 650,000 new homes just to get to the national average, which wouldn’t be much to celebrate considering that Canada ranks dead last in the G7 for housing units per 1,000 people.

And while a rate increase will certainly help dampen unprecedented home price inflation, the real policy solution here is zoning reform. The federal government could have quite easily tied federal funding for affordable housing and public infrastructure to density goals, with zoning reform as the core mechanism to achieve it. This would be broadly similar to the recent childcare agreements which involve the transfer of federal dollars in exchange for a set of provincial deliverables. On housing, it looks like millennial consumers will be left waiting — at least until 2025 when the Liberal-NDP agreement expires — for meaningful policy change.

Originally published here

Tanya joins David Clement, North American Affairs Manager for the Consumer Choice Centre, and Elliot Hughes, Senior Advisor with Summa Strategies, to examine the new agreement between the Liberals and the NDP and what will become of this new alliance.