How Much Housing Supply is Really Needed in Ontario?

How Much Housing Supply is Really Needed in Ontario?

Written By: Josh Sherman - ?Toronto-based journalist. His work has appeared in the Globe & Mail

PUBLISHED:?6:00 AM NOV 8, 2022

Building 1.5M homes in Ontario by 2031 may sound like an ambitious target, especially for a province that has struggled with a long-time housing shortage, but it’s still not enough to meet demand, some experts say.?

“Whatever the number is, it’s larger than you think,”?Benjamin Tal, Deputy Chief Economist of CIBC, tells STOREYS.

The seven-digit figure continues to make headlines as it’s central to the Doug Ford Progressive Conservative government’s More Homes Built Faster Act, or Bill 23. The far-reaching legislation, which was announced last month, includes policies that would override local planning rules, waiving or reduce development charges and unlocking more developable land — all with the aim of producing 1.5M dwellings.?

While Tal considers the housing policy move to be possibly “the most significant” in recent history, he’s among the researchers suggesting that the target underpinning it doesn’t reflect the full extent of the province’s massive supply shortfall. “We are undercounting demand in a very significant way,” he warns.

So How Many New Homes Does Ontario Need?

Estimates for housing demand vary. A?June report from the Canada Mortgage and Housing Corporation, for example, suggests that to “restore affordability,” Ontario needs a whopping 2.4 to 2.6M more homes by 2030.

The provincial government’s 1.5M target, meanwhile, comes from its?Ontario Housing Affordability Task Force report published in February, and in an email to STOREYS, a spokesperson for Ontario’s Ministry of Municipal Affairs and Housing supports the number.

“We know the bottom line is that bold action is needed to build more homes, and that is exactly what our government is doing,” the spokesperson says, pointing to research from the Smart Prosperity Institute to lend further credibility to the province’s target.?

In a separate report this August, the University of Ottawa-based think tank came to the conclusion that?1.5M homes was an accurate target. That finding shocked?Mike Moffatt, the institute’s Senior Director of policy and innovation. His research team had just been trying to “road test” the task force’s number since it wasn’t accompanied by any methodology. He didn’t expect to draw the same conclusion. “We basically looked at the number of homes per person to get Ontario up to the average of the rest of Canada,” he tells STOREYS.

When crunching the numbers, he and co-authors Alison Dudu and Maryam Hosseini factored in the size of the province’s population as well as its age distribution. “We took those two things into account just as a thought exercise,” he says. “Much to our surprise, it turned out that that got you to the 1.5M number.” The findings suggest nearly half of all these homes are needed in just three municipalities: Toronto, as well as the regions of Peel and York, respectively.

However, Moffatt acknowledges that even his own report likely underestimates demand, at least to some extent. For one, the federal government recently announced?its highest immigration targets ever. Forecasting population growth is one of the hardest parts of projecting demand, he explains. “If you reran the numbers again, we’d probably get something higher just because our immigration targets have been increased fairly substantially just in the last week or so,” he says. (The Smart Prosperity report, he notes, was based on earlier growth projections from the Ontario Ministry of Finance.)

That’s not all. Some common measures used in demand calculations have flaws. “The census tends to undercount the population,” Moffatt explains. “There are factors like that that we tried to account for — though I don’t think we did fully — that if you did account for fully, you’d get an even higher number.”

Part of the issue with the census is that its household counts ignore students if, for example, they report that they’ll be returning to live with their parents for the summer, Tal explains. “That’s tens of thousands, hundreds of thousands of students that generate demand for real estate at any point in time — mostly rental — that nobody’s counting,” CIBC’s deputy chief economist notes.

Murtaza Haider, professor of data science and real estate management at Toronto Metropolitan University, agrees that looking at the headship rate, or the rate at which new households are formed, won’t reveal real housing demand. “You can have multiple families in the same house acting as the same household, and that’s hiding the actual and true demand of housing in Canada,” Haider tells STOREYS.

Though existing data points don’t tell the full story, he adds, 1.5M homes is in the right ballpark. “These are estimates to reflect the amount of housing we need to balance the increase in our demographic footprint,” he says, noting he studied the Smart Prosperity report deeply after it came out. “Over the past five decades, since the early-70s, our population has grown at a faster rate than our housing supply.”

How Did the Province’s Housing Shortage Get So Severe?

Lengthy municipal approvals processes for residential developments are one of the main culprits behind the housing shortage, experts say. It also hasn’t helped that the development community has been unfairly demonized, suggests Haider: “Essentially we became disciples of this way of arguing that builders are bad.”?

Haider dismisses the idea that greedy developers holding onto land to drive prices up further are to blame. Some developers have certainly banked property like this, but the issue isn’t pervasive enough to contribute significantly to the housing shortage, he argues.

The introduction of rent control in Ontario in the ‘70s and subsequent expansion in the ‘80s, however, took a substantial toll on supply, says Tal. “When we started with rent control, that’s something that slowed down the market significantly,” he explains.?

In the early-’70s, Ontario was building more than 40,000 rental apartments a year, as per a?report co-authored by Haider and Stephan Moranis?last year for the Macdonald-Laurier Institute. “That went down to about 800 in 1997,” says Haider.?

Most recently, sky-high construction costs and climbing interest rates are further compounding the shortage, although in 2021 rental starts surpassed 13,000, the highest level since 1991,?according to the Ontario government.?

Can Ontario Build 1.5M (or More) In a Decade?

Beyond unreliable data, Tal has another reason to be skeptical of any numbers purported to represent housing demand. “The capacity of the industry to generate 1.5M is not there,” he says. “So we can throw numbers, it doesn’t make much of a difference; we have to build as much as we can — that’s the way to go, without numbers,” he adds.?

The industry group representing the GTA’s homebuilders and developers confirms that a labour shortage is a main barrier to keeping up with new-housing demand moving forward. “This is now the fundamental challenge,” says?Dave Wilkes, President and CEO of the Building Industry and Land Development Association, in an email statement to STOREYS.?

He notes that 2021 saw contractors break ground on upwards of 100,000 homes across Ontario last year, the highest number of housing starts on record — yet it’s still not enough: “To meet the goals we need to increase industry productivity and ensure immigration policy reflects [the] needs of [the] industry to attract the skilled labour we need to build homes.”