Is lack of supply still the biggest obstacle to housing affordability? This panel thinks so.
The topic of housing supply isn’t front and centre of the affordability discussion like it was just a few months ago.
Despite housing affordability in the first quarter posting its worst decline “in a generation,” according to recent data from National Bank of Canada, the public’s focus is now squarely on inflation, rising interest rates and falling home prices.
And for good reason. Inflation is at a 30-year high, mortgage rates have more than doubled from their record-lows of last year and the average national home price is down 8%, as of April, from its February peak. In many local markets, prices are down well in the double-digits.
However, the lack of new housing supply remains the root cause of housing un-affordability in Ontario. At least that was the consensus of a virtual panel discussion last week hosted by Teranet.
Its panelists included Tim Hudak, CEO of the Ontario Real Estate Association (OREA), Jason Mercer, chief market analyst for the Toronto Regional Real Estate Board (TRREB), and Joe Vaccaro, founder and president of RIOS Real Estate Operating System.
All three were in agreement that new housing construction isn’t keeping up with demand, in large part due to the province’s rapidly growing population.
“Most new Canadians want to be in the Greater Golden Horseshoe because it’s where the opportunity is,” said Mercer. “Also, unlike previous generations of immigrants, today’s new Canadians are coming with education and money to invest in homeownership. So, the market is getting bigger every year and the supply doesn’t change.”
Ontario welcomed 107,865 immigrants between July 1, 2020, and June 30, 2021, and that was down from the previous year due to COVID restrictions. In 2019, over 150,000 people moved to Ontario.
Hudak reminded the panel that demand pressures aren’t just being felt in the GTA.
In fact, the municipalities in Ontario with the highest annual jump in house prices were North Bay and Windsor, he said, due largely to pandemic moves out of bigger cities and immigration.
“It’s gotten to the point where an average small-town Ontario family can’t play by the rules and afford the kind of home they need,” Hudak said.
Focusing on the “missing middle” of housing supply
The “home they need” comment led to further discussion about a different kind of population migration: ensuring a sufficient supply of all home types for those moving up the property ladder.
“We’re seeing a gap in the ‘missing middle,’” said Mercer, referring to a term used to describe the segment of housing in between high-rise (condos) and low-rise (single-family homes). Typically that means townhouses, which represent a small percentage of overall new construction and are usually geographically limited to a small part of the urban area.
“On the one hand, they’re not being built because of NIMBY [“not-in-my-backyard”] pressure to not further densify their neighbourhoods with more townhouses,” Mercer continued. “And on the other hand, the rising prices are forcing people who live in those houses to not sell them and instead renovate them out of the ‘missing middle’ and removing them from that market forever.”
The need to streamline approvals
The panel also touched on the need for a reduction in government regulations to make it easier for builders to construct the 1.5 million homes Ontario is going to need over the next 10 years, according to the province’s Housing Affordability Task Force.
“First, the levels of government all have to get on the same page,” said Vaccaro. “The province has to know what the feds are doing with immigration. And the municipalities have to remove the points of conflict and move quickly from approvals to construction. Every delay stretches the goal and perpetuates the crisis.”
Not only does this apply to building permits, but the panelists said they’re also seeing delays in the approvals of new technologies that would allow for more advanced forms of housing.
“We’ve seen some interesting housing concepts in Europe and Asia that we can’t even attempt here because of red tape,” said Mercer. “It’s causing would-be sellers to sit on the sidelines because they can’t find what they want to buy.”