Market ‘correction’ offers opportunity to reset housing policy
A defining feature of housing discussions in the Greater Toronto Area in recent years has been the notion of an affordability “crisis” as housing prices have risen dramatically. The fallout from an overheated Toronto market has spread to Atlantic Canada.
We are currently witnessing a dramatic slowdown in the housing market and lower prices in the Toronto area. A key factor in the market’s move appears to be the Bank of Canada’s interest rate hikes in July.
The result has been deeply painful for homebuyers caught at the wrong time in the market move, having bought at the highs but now having to sell their existing homes at the lows. But market restructuring has provided important insights into the nature of the housing crisis.
Stories that the rapid increases in housing prices in the GTA have been a function of a lack of supply have been widely accepted, including by the province itself. The sudden shift in the market in response to rising interest rates indicates that these supply-side explanations have greatly oversimplified a much more complex situation.
On the contrary, what has happened in the GTA market over the past two years has been a period of sectoral hyperinflation, primarily fueled by a prolonged period of exceptionally low interest rates. The dramatic rise in house prices was, in fact, inflationary collateral damage resulting from efforts by governments and central banks to counter the economic impact of the COVID-19 pandemic through rock-bottom interest rates.
In the case of the GTA, other factors also came into play. These included record federal immigration targets, with a large portion of newcomers expected to settle in the Toronto area. The combination of near-zero interest rates and the anticipation of increased demand for housing has reinforced the “financialization” of housing as an investment vehicle, as opposed to simply providing housing to people. In fact, multiple real estate investors, not individual households, had become the largest group of home buyers in the region.
To this situation, the Ford government has added its own accelerator in the form of a deeply developer-friendly approach to planning and development. This has encouraged further speculation and investment in anticipation of properties being easily rezoned for intensive development or redevelopment.
The overall result has been a combination of skyrocketing housing prices and, in the words of renowned Toronto architect and urban planner Ken Greenberg, « high and sprawling » development patterns – hyper-intensive high-rise residential development (mostly residential condominiums) around select urban transportation nodes, such as downtown Toronto, and sprawling low-density development on high-value agricultural and natural heritage lands on the urban periphery. Neither outcome addressed affordability issues, particularly for families at the bottom of the income scale.
All of this suggests the need to seize the opportunity offered by a “reset” to stabilize the housing market and the region’s development path. Further action, including through federal and provincial tax regimes, will be needed to prevent speculators and investors from re-entering the market and pushing prices up again.
Real affordability will require the strengthening of planning regulations, not their elimination, as the development industry and the February 2022 Provincial Housing Task Force report suggest. The same is needed to produce communities functional areas where people will actually want to live.
Rules are needed to ensure that the necessary infrastructure of all kinds is in place as development proceeds, that attention is given to combining land uses to reduce road transport requirements and that a Appropriate attention is given to design, public spaces and urban form.
The process must listen to the voices of residents and municipalities, not further marginalize and ignore their contribution as bureaucracy — as the government’s « strong mayor » legislation seems designed to do.
The market correction offers an opportunity to rethink the province’s approach to housing. Whether the Ford government seizes the opportunity or continues to double down on a failing path remains to be seen.