Economists rarely agree on the effects of economic policies or ideas on how to fix the current nationwide housing crisis. However, there is one matter where most economists agree: We need more homes.
In Ontario, Premier Doug Ford’s administration is acting on that need. The Ford administration believes that boosting Toronto’s housing supply is a key step toward helping fix the city’s housing crisis.
Steve Clark, Ford’s housing minister, has been hard at work putting together new reforms that would make it easier to speed up new housing developments by eliminating unnecessary bureaucracy.
“We have to remove the barriers and the red tape that [hinder] housing being built at a more affordable cost,” said Clark in an earlier interview with the Toronto Sun.
Many issues to tackle but lack of supply is first on the list
Though there are many issues to overcome, such as stalled sewage and highway infrastructure projects, Ford’s administration believes that increasing the total supply of housing should be a priority.
In a document released in November 2018, the administration suggested adding at least 10,000 housing starts this year. While it’s unlikely that this effort would be a “silver bullet” that fixes Toronto’s housing woes, it would certainly be a good place to start.
Toronto and Vancouver are the two least affordable real estate markets in the country and frequently show up at the top of the lists the rank the most inflated markets in the world. In the City of Toronto alone, home prices have doubled since 2010 and while the luxury real estate market saw a slow down last year, homes in the price range for the middle-class families have seen little to no reduction in price.
Impact of supply and demand on housing affordability
According to the Ford administration, housing prices are affected by supply and demand side forces. Demand-side policies, such as the mortgage stress test and foreigner investor taxes have had their share of criticism, especially because their real effects are hard to predict with certainty and run the risk of overreaching. They also have the tendency of affecting lower-income buyers disproportionately.
Clark argues that supply-side measures are a much safer option since construction and planning take time. This allows markets to continue growing, but at a much more manageable rate. Unfortunately, supply-side measures are not quick to react to changes in the economy because creating more housing supply takes time.
Clark is not alone in his assertions. Robert Hogue, senior economist at RBC Capital Markets recently stated: “The issue, in our view, for the sharp rise in prices and the lack of affordability is fundamentally on the supply side. [The supply side] is not able to adjust quickly enough to demand. So a big part of the solution is on the supply side. Except you have to be more patient, because it takes a while”