Sean SpeerThe Ontario government's just-announced housing rules will at best do nothing for and at worst exacerbate the province's housing affordability problems, writes Sean Speer.

Speer is the co-author of an MLI paper on how to make housing affordable for Canadians.

By Sean Speer, April 24, 2017

Ontario Premier Kathleen Wynne’s 16-point plan to address the growing housing affordability challenges in the province is the policy equivalent of searching for one’s keys under a street lamp. New taxes on foreign buyers and expanded rent controls are a classic case of the “streetlight effect” whereby politicians like the rest of us search for simple answers rather than real ones.

The result is frustratingly predictable. The so-called “Fair Housing Plan” will at best do nothing to address the underlying supply issues affecting affordability and at worst further distort the housing market.

A real solution would be for provincial and municipal politicians to look at the extent to which their own policies – particularly around zoning and development – are contributing to Toronto’s housing affordability challenges.

The so-called “Fair Housing Plan” will at best do nothing to address the underlying supply issues affecting affordability and at worst further distort the housing market.

The extent of those challenges is well-documented. Year-over-year prices are up by one-third. The average detached home is now nearly $1.6-million. The contagion is spreading from the city and is now reflected in rising prices in surrounding communities such as Guelph, Kitchener and Hamilton.

The Ontario government is right to be concerned about these trends. Unaffordable housing prices not only hurt those priced out of the market, they can come to carry economic costs in the form of opportunity costs for the national economy.

Homeownership is associated with a raft of economic and social benefits including better educational and health outcomes, stronger families, safer communities, higher levels of civic participation and greater wealth accumulation. There are few policy areas more likely to enable upward mobility and economic opportunity than housing and home ownership, and so affordability matters.

But unaffordable housing prices can also have larger economic implications. Toronto and Vancouver are disproportionately responsible for net new job creation in Canada. The labour market in these cities is shouting at the top of its lungs for workers. Yet unaffordable prices are precluding people from relocating and are thus causing those cries to go answered.

Politicians at all levels are understandably in search of solutions. But it’s much less understandable that the Wynne government’s response is to focus only on demand-related factors and neglect the role that provincial and municipal policy plays with regards to housing supply.

That restrictive land-use regulations or building codes that limit supply can lead to higher housing prices is demonstrated in a growing body of research. The role of zoning policies, urban containment strategies and other policies that affect supply is generating considerable attention across the intellectual and political spectrum. It’s worth noting for instance that Barack Obama’s former chair to the Council of Economic Advisers has written extensively about this question from the perspective of income inequality and broad-based opportunity.

Excluding supply related reforms in the Fair Housing Plan is a major blind spot – especially since Toronto’s single-family detached home construction has been consistently low. Surely foreign buyers and greedy landlords can’t be held responsible for low housing starts.

At minimum, provincial and city governments should undertake a detailed review of existing policies related to zoning and development to better understand the implicit tradeoffs involving housing construction and in turn prices. The BC Green Party has recently made such a commitment in the context of the provincial election. Environmental and quality-of-life objectives may ultimately be paramount but at least we ought to understand the costs in the form of fewer homes and higher housing prices. We’re presently “flying blind” as one urban policy expert recently put it to me.

The Ontario government’s plan is thus inadequate and bound to be ineffectual because it overlooks the question of supply.

Other supply related options include: greater flexibility for “accessory dwelling units” and other residential renovations; expedited approvals for development and construction; adopting inclusionary zoning; further investment in public transit; and ultimately more market-based urbanism as witnessed in Houston.

Progress in these areas would invariably go further in addressing the underlying problems than a foreign buyer’s tax, which has only had short-term effects in Vancouver, and rent controls, which have consistently failed where they’ve been tried.

The Ontario government’s plan is thus inadequate and bound to be ineffectual because it overlooks the question of supply. A real, effective plan to address the province’s housing affordability challenges – particularly in the GTA – will require that policymakers see their own role in creating the problem and now fixing it.

Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute.

MLI would not exist without the support of its donors. Please consider making a small contribution today.