The Canadian province of Ontario is in the midst of a housing crisis. The number of people who are homeless is growing. A large number of people who have housing are at risk of losing it because housing costs have grown faster than their ability to pay for it. It is hitting people with low- and very low- incomes particularly hard.
The provincial government has assessed that local governments are holding back housing supply with slow approval processes. To get development going, the provincial government has taken back powers that were given to municipal governments in the 1980s to manage growth. As well, the provincial government plans to reduce the amount of land allocated for the green belt and other conservation purposes. These changes are bundled into Bill 23, the More Homes Built Faster act, which was signed in to law in November 2022.
There is a consensus around the province that more housing is needed. But not everyone agrees that supply is the problem.
The Alliance for a Liveable Ontario commissioned Kevin Eby to investigate the supply of land for building homes in the Greater Golden Horseshoe1, where the majority of Ontarians live. Eby was picked for this task partly because he is a registered professional planner. Drawing from published reports about the land already approved for development, Eby found that planning permission already exists to build 2 million homes, without approving any more development plans. Two million homes is well ahead of the forecast need for homes. You can read Eby’s report and more about the Alliance for a Liveable Ontario at Environmental Defense: NEW REPORT: More than enough land available to build over 2 million homes in the Greater Golden Horseshoe by 2031, without touching the Greenbelt or expanding urban boundaries
Since the 1980’s, the responsibility for forecasting need and managing housing supply has rested on municipal politicians and their professional planning staff. Planners are the source of the plans that Kevin Eby studied for the Alliance for a Liveable Ontario. Planner’s responsibilities will be considerably constrained by Bill 23, so their advice might be seen as sour grapes. Sour grapes aside, their perspective should be foundational knowledge for the provincial government as it moves into an area of responsibility where it has been largely inactive for 30 years.
The Regional Planning Commissioners of Ontario (RPCO) represents public sector planners who work for municipal governments. The RPCO report, called Making Room, adds to the findings of the Alliance for a Liveable Ontario’s report. Making Room contends that manipulating regulatory levers will not create more supply and could make the situation worse. Making Room identifies 21 gaps in the provincial strategy that need urgent attention, many of which relate to a common theme:
“Many of these gaps pertain to housing affordability, arguably the Province’s biggest housing challenge.”
You can read the report here: Making Room – Final Report
So if housing supply isn’t the issue and housing affordability is, what is making it so unaffordable? Making Room says part of the issue is understanding supply and demand at a deeper level. It identifies eight factors that affect supply:
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- Availability of raw land for development, especially where demand is greatest
- Approvals in place for development to proceed, including decisions made
through appeals; - Availability of supporting infrastructure;
- Building material availability (including dealing with domestic supply chain
constraints); - New material uses (e.g. more engineered wood products).
- A ready supply of workers, including skilled trades; and
- Ways to be more efficient (e.g. using more pre-sized material to reduce time and waste
A list like this might suggest that each factor has equal weight, but the influence of these factors is quite uneven. The value of land has risen faster than materials and labour costs, particularly in urban areas. Planning decisions, such as the intention to build a mass transit line or a high rise apartment building, also affects the value of land. Planning decisions are social choices made by society through legal and political processes.
Since planning decisions are social choices, it begs the question of how much of the increase in land value should accrue to the person who owns the affected parcel of land. If all of the rise in value goes to the owner, it means society is giving the owner access to more profit because they owned the land at the time the approved land use changed. But the rise in value could be allocated to the community that has changed the land use.
When the rise in value goes to the owner, the owner has an incentive keep pushing up the profit they will obtain from their land. An owner could do this by delaying re/development of their property and/or applying to increase the number of homes to be built.
If the rise in value goes to the community, the property owner has less incentive to push the land value higher.
In the real world, who gets the benefit of the increased land value is much more nuanced than 100% to the owner or 100% to the community. This, along with a discussion of residual land value is the subject of the next post, Residual Land Value And Why It Matters
