Dutch Tulips or Irish Potatoes? The Forces Behind the Frothing Housing Market in the Greater Toronto and Hamilton Area and the Options for State Intervention

It is said that in the Dutch Tulip crisis of the 1630s, demand caused the price of a single tulip bulb to increase to ten times the price of the annual salary of a skilled tradesman in Holland.

Conversely, supply (resulting from crop blight and a shortage of potatoes in Europe) caused a severe shortage and resultant famine in 1840s Ireland. Is it supply or demand that is causing the current insanity of housing prices in the Greater Toronto and Hamilton Area (the “GTHA”)? This question is being hotly debated in the media at the moment. While the correct answer is likely both, my 30 years of experience advising both public and private sector clients in the planning and development industries tells me that today’s problem is overwhelmingly a problem of long term supply.

The issue is a complicated one and in my view, one of the most misunderstood public policy debates that I have seen in recent times. The problem starts from the fact that people do not understand what “supply” is in the context of land use planning. There are two very important elements to determining whether there is an adequate supply of housing in Ontario.

One is planning horizons. Modern land use planning in Ontario is done based on long term planning horizons. Typically our provincial and local governments plan for development in 10 or 20 year planning periods. Local official plans are reviewed every 5 years to monitor performance against these longer-term policies. Thus, in the land use planning world, adequate supply of land is measured using indicia of long term supply, not short - term supply. They are not measured using building permit start numbers. They are not measured using real estate board sales figures, they are not even measured using the availability of builder inventory levels or prices.

The second important thing to remember when talking about housing supply is that you need to accurately measure your supply. In order to do that you need to know how much available land you have because after all, housing starts with land. The other thing you need to remember when talking about supply is that not all land becomes housing. Some becomes employment uses, some is preserved for the environment, some becomes infrastructure and some becomes uses other than housing. Therefore it is a mistake to assume that all vacant land is available and buildable for housing. We need to keep these very important points in mind when we look at the possible solutions discussed later in this article.

I am stunned by the number of misguided suggestions proposed by so called “experts” quoted in the media, many of them academics and bank economists, about the reasons for the housing crisis and about possible solutions to the problem.

It is no wonder the average person is confused and does not understand the problem. It is also no wonder governments are confused. The range of suggestions to solve this vexing problem have included:

1. It's a foreign ownership speculator problem so tax sales to foreigners or alternatively impose a property tax on property owned by foreigners;
2. It's a domestic and foreign ownership speculation problem, so tax vacant property;
3. It's an urban area supply problem so make zoning in urban areas more “as of right” and simplify and speed up the approvals process;
4. It's a greenfield supply problem, so amend or repeal the Ontario Greenbelt Act and Plan and the Oak Ridges Moraine Conservation Act and Plan;
5. It's a greenfield supply problem, so amend or repeal the Ontario Places to Grow Act and the Growth Plan for the Greater Golden Horseshoe;
6. It's a greenfield supply problem caused by developer greed (they are hoarding inventory);
7. It's a “credit is too available” problem - interest rates are too low so raise interest rates;
8. It's a credit eligibility or mortgage insurance problem – mortgage rules are too lax, so tighten lending rules;
9. It's a tax driven problem, so increase, change or remove the capital gains inclusion rate for capital property and its sister recommendation – remove the capital gains exemption for principal residences;
10. It's a rent affordability problem for low income households so impose rent control for properties built after 1991;
11. It's a rent affordability problem for low income households, so build more affordable housing;
12. It's a “supply is not the problem” problem – we have plenty of supply (Province of Ontario and Neptis Foundation positions); and
13. It’s a municipal overtaxing problem, so reduce municipal Development Charges.

There are others, but based on everything I have read, these are the usual suspects. Every so called “expert” seems to have the solution that is the magic bullet and usually, (although not in every case), these experts cite one or two of these reasons and argue passionately that if only we changed this one policy or rule, the problem would be fixed.

In my view, all of these problems probably contribute in some measure to the escalation of housing prices in the GTHA. However, if you were to plot these on a continuum, you would see that one or two of them are disproportionately more influential than others.

In my view, when governments act, we should demand that they act in an informed way (make sure they have all the facts) and that they act in the most efficient way possible (make sure the actions they take will have the greatest effect for the greatest number of people with the least amount of collateral damage). Assessed against those two criteria, the problem is more easily understood and more easily solved.

Using my criteria, it is obvious that the problem is a classic long-term supply problem; to put a finer point on it, long term supply is historically low, but short term demand is historically high. With the exception of the 2007-8 correction, we have been in a 15 or 20-year bull market in real estate. The prices over the last 20 years have increased, but the increase has been steady, not irrational. A long-term supply shortage accounts for this. However, the really exuberant run up in prices has only really occurred in the last six months or so.

The reasons I believe long term supply is low are described below. However, the reason I believe short term demand is high is because the lack of supply is creating hysteria and panic in the market. People se e that prices are rising rapidly, are desperate to get into the market and so they bid up prices without regard to their inherent value. This is compounded by the fact that this hysteria affects (in a negative way), two very important segments of the market – first time buyers and move up buyers. Move up buyers are afraid they will not find a move up home and so they do not list. This further restricts supply. First time buyers fear that they will never be able to enter the market and so they bid-up properties, often in a frenzied bidding war, just to get a foothold in the market. More commonly they are doing this at prices that are over asking and not justified by a bank appraisal when they apply for financing. Add to this the fact that more and more elderly people are staying in their homes to “age in place” (a trend supported by health care policy in this province), and you have a looming crisis on your hands. The fantastic price increases of the last six months are most likely due to this speculation and more panic. However, I firmly believe that if you fix the long - term supply problem, the demand problem will fix itself. Yes, it doesn't help that rates are low, credit is relatively easy to get, that there are foreign buyers in the market, and that some are speculating, but these conditions have existed for a very long time and prices have only recently become insanely wonky.

On top of that, not enough is known about some of these elements of the market. If you look at the 13 factors and ideas I listed above, all of them fall into one of five categories, in my view. The categories are: 1. We don't have enough data about them to justify action; 2. They are misguided from the beginning; 3. They are overly broad and far - reaching; 4. They will do something, but not enough; and 5. We have enough data about them and I believe strongly that they will work.

1. Not Enough Data

Let me begin with #1 – not enough data. We don't have enough data about how many foreign buyers there are in the market; we don' t have enough data about how many houses sit empty and for how long; we don't know if a tax will have any effect (we have the Vancouver experience, but how many times have we heard that that market was cooling before the tax and prices leveled off. Prices did not come down after the tax was introduced); we don't know how a tax would affect markets outside of Toronto and if you restrict it geographically, how far outside of Toronto do you go? What happens on the periphery beyond the boundary you do choose? Why would our leaders propose a solution when they don't have enough information about the problem? I am not a fan of trial and error when it comes to government intervention in the economy. As I state above, government intervention in the economy needs to be informed, focused and effective. Several of the solutions listed above fail on this test (namely #1 and #2).

2. Misguided from the Beginning

In my mind, #s 4, 6, 10, 12 and 13 largely (although not exclusively) fall into this category. I don't think anyone knowledgeable with the subject of land use planning and economics would seriously disagree with these conclusions.

I am stunned when I read articles in our national newspapers suggesting that the government should repeal the Greenbelt Act and Plan and the Oak Ridges Moraine Conservation Act and the Oak Ridges Moraine Conservation Plan because those pieces of legislation artificially restrict land supply. While this is true on its face, it ignores the fact that for the most part, this legislation aims to protect our lakes, our wetlands, our watercourses, our significant woodlands, our source of drinking water, our farmland, our flora and our fauna and our terrestrial and aquatic habitats. Although some valid criticism has been levelled at the Greenbelt Plan (primarily that it is not entirely based on science – an allegation that is partially true), it does for the most part protect those lands that need to be protected and it is much needed legislation. The idea that the Oak Ridges Moraine Conservation Act and Plan should be repealed or amended however is absurd in its entirety. Most, if not all of the 190,000 hectares protected by this legislation needs to continue to be protected for future generations.

The suggestion that the Greenbelt Plan be amended to make it more science based does have significantly more merit. There is a growing consensus that there is much table land in the Greenbelt which is not caught by the policy imperatives behind the creation of the Greenbelt legislation and that the inclusion of this table land in the Plan was not based on science. If this is true, this table land could be released for development.

The Greenbelt is just under 2,000,000 hectares in size. Even if 5% of the land were included without scientific justification, that is a lot of available land which is appropriate for housing which sits idle. This Greenbelt legislation definitely warrants further study and the province should not respond with a knee jerk refusal every time this suggestion is made.

Developer greed as the cause of the housing supply shortage is a crazy idea promulgated by the extreme fringe of the environmental or anti - growth lobby. Developers are in the business of selling houses. Why would they intentionally not sell houses if they could? Every developer I know sells as much and as quickly as they can in order to maximize profit and minimize risk. While developers do land bank, they do so by acquiring land which will not be ready for approval in 3, 5, 10 and 20 year trenches. This approach keeps builders operating (and keeps people continuously employed and keeps the spin off economy continuously primed). In other words, this is land that is not yet approved for development and allows developers to properly plan and phase the sequential and orderly release of land into the market. This does not constitute hoarding, but is just good business sense. The cost of getting land ready for servicing and sale is so incredibly high and the highly regulated process so long and onerous that no developer is going to take the risk of a market correction by holding back land that is ready to be sold. Again, this suggestion deserves to be ignored.

Imposing rent controls is also a bad idea. I should have to say no more than “even the NDP realized this in 1992” when they grandfathered rent control and made it applicable only to homes built in 1991 or earlier. Even Bob Rae recognized that universal rent control was a huge disincentive to purpose - built rental accommodation. Simply put, developers will not build rental accommodation if rent controls are in place. At the very most, government may want to update the current act to increase the reach of the 1992 legislation (like having it apply to units built before 2000). The problem with tinkering too much in the market is that it creates uncertainty for investors and if investors fear risk, they will flee to other investments (like market non - rental condominiums). This was borne out in spades in the early nineties when developers had all but ceased building purpose - built rental housing and the only thing being built was condos for sale. When the 1992 legislation was passed, it took developers a decade or more to trust that the rules would not arbitrarily change again and only now are we seeing a significant trend towards rental housing as an investment vehicle.

If rent controls must be used, the furthest I would recommend is to either update the 1991 grandfather date (to 2000) or alternatively, government could implement a 20-year rolling financing cycle exemption from rent controls for new buildings, an idea proposed by the Federation of Rental-Housing Providers of Ontario (FRPO).

This would still encourage new development of rental housing and give landlords a head start on making a return on their investments. In other words, a new building would not be subject to rent control until it is 20 years old. The idea that we have enough land supply is also misguided. The provincial government and the Neptis Foundation (most often quoted in the media on the oversupply side) have muddied the debate and have confused people about the proper way to calculate supply.

I am talking about long term supply here (10 to 20 - year horizon) measured as unapproved, but available for development hectares, not short term supply, measured in building starts, builder inventories and real estate board sales figures. Because this issue is so complicated the confusion can be successfully perpetuated without any serious challenge. For example, the media eagerly quotes the Neptis Foundation when they proclaim that there are 50,810 hectares of undeveloped land in the Designated Greenfield Area in the GTHA. This they say is based on looking at satellite photos. This is not the correct way to measure long term land supply. I t misses a couple of very important steps. Sadly, the Ontario government has accepted these figures at face value without undertaking any critical analysis of its own. Long term supply is best measured by first looking at how much available land you have (the gross raw land supply), looking at how much of that raw land is available for use as housing (as opposed to other uses and take outs for infrastructure) and looking at how much of that land is already committed (i.e. approved or in the approvals process) for housing. The province has used incorrect assumptions in creating the population targets in the provincial Growth Plan. This has resulted in seriously flawed public policy when it comes to regulating the provision of housing in Ontario.

The best work I have seen to date on the issue of supply was carried out by a reputable land economy and land use planning firm with many years of experience in these matters. They conclude that far from there being an oversupply of land for housing, there is in fact a chronic and crisis level shortage of land for housing (i.e. developable land) in Ontario. I discuss this report further below, but Malone Given Parsons Ltd concludes in its recent study that “...the provision of sufficient housing to match population growth is in crisis, particularly with regard to single and semi - detached forms of housing which continue to be the preferred choice for housing families.”

Visit www.mgp.ca/wp-content/uploads/2017/04/Getting-the-Growth-Plan-Right-March-2017.pdf.

They identify the following problems with the land supply calculations that underpin provincial policy at the moment:

Raw land, not serviced land has been used b y the government to calculate supply. This overestimates the amount of land available within the planning horizon of the Growth Plan because some of the raw land included will not become available before 2031, (the plan’s current planning horizon). In addition, approval of raw land so that it is building permit ready now takes 10 years or more;

Gross area, rather than net area is used to calculate supply. This is wrong because there are “take outs” from the gross supply that you apply for things like wet lands, woodlands, storm water management features, roads, schools and parks when determining what net supply is actually available for new housing development. In fact, only 25% to 50% of raw land is left for actual development after these “take outs”;

The calculations include employment lands. It is painfully obvious that you cant build housing on lands that will be designated for employment use (the Growth Plan mandates a minimum amount of employment land tied to the amount of residential approved);

The land supply number used assumes that every community will achieve the current target of having to achieve 40% intensification before they can expand an urban area boundary (i.e. “up not out”). The current amendments to the Growth Plan propose to raise that number to 60%. Since it is generally accepted that it is impossible for these percentages to be achieved everywhere in Ontario, this assumption clearly overstates the supply.

The approvals process in Ontario is 10 years behind in delivering supply. The GTA will not meet its intensification target for 2031. This overstates the land supply calculation because the supply will not be available in the current planning horizon of the plan.

Malone Given Parsons concludes, at the end of the study, that there are only 17,000 or so vacant hectares of land available for development in GTHA, not the 50,810 hectares bandied about by the government and critics of the housing industry. The same area expects 2.6 million new people to move here in the next 15 years. How can these people possibly be accommodated on 17,000 hectares when government is thinking there will be 50,810 hectares? Something is seriously wrong.

A recent policy report prepared by Dr. Frank Clayton and Professor David Amborski at the Ryerson Cent re for Urban Research and Land Development come to the same conclusion as Malone Given Parsons in that the problem is entirely one of supply, and argue that the blame falls squarely on the shoulders of the provincial government and municipalities for failing to respond effectively to the expected demand.

It is my understanding that the Neptis Foundation land supply numbers that are often quoted in the media have inherent in them the same assumptions that the government used in calculating its supply numbers . In fact, there have been suggestions that the government did not do this work itself (which is shocking), but actually relied on the Neptis Foundation numbers (which is shocking). These supply numbers are clearly flawed and will only compound the problem once the proposed amendments to the Plan are approved (discussed further below). They do not apply the same academic rigour that the Malone Given Parsons work does. The Neptis Foundation analysis is what we in the industry call a “desk top analysis”. They are, simply put, misleading.

The Malone Given Parsons work actually looked at supply on the ground, approved and committed development region by region and made reasonable assumptions about “net” vs “gross” land available for development and about what percentage of vacant land would be used for housing and what percentage would be used for other uses. They conclude that there is one-third the land actually available for development than the government assumes. This is quite a striking difference.

Finally, while reducing Development Charges would reduce house prices dollar for dollar, implementing this suggestion would be a zero-sum game. Development Charges are incredibly high (approaching $100,000.00 per unit in some jurisdictions), reducing them would simply transfer the cost of providing the services that Development Charges finance (roads, sewers sewage treatment plants, libraries) to the general tax base, instead of requiring growth to pay for growth. These things need to be paid for somehow, s o taking them off the DC merely shifts the burden to the general tax base. On top of that, the current DC legislation does not allow for 100% recovery of the cost of these things, (in recognition that there is a benefit to existing development that result s from providing these services) so a portion of these services are already paid for by the general property tax. Putting even more of the cost of these services on the general tax base would unfairly overburden it, in my view.

3. Overly broad and far-reaching

#s 7, 8 and 9 fall in this category. Tinkering with interest rates is risky and unpredictable business. The larger problem however is that if the Bank of Canada raises rates, it does so not only for the GTHA but for the rest of the country and its effect would not only be felt in the housing industry, but in every aspect of Canada’s economy. The uncertainty of this economic tool can be demonstrated by two examples. In 1982, retail residential interest rates peaked at over 20%. This did not cause a significant effect on housing supply or housing prices.

In fact, many people bought houses in that market and prices stayed relatively high and there was no significant rate of default. That is an extreme example of rates not having an effect on housing prices. Then in 1989, in response to inflation, the Bank of Canada raised interest rates and that had a devastating effect on housing prices. That is an extreme example of raising interest rates having a devastating effect on housing prices. Same too l, two different results.

Tightening lending criteria or mortgage insurance eligibility will certainly take some buyers out of the market, but will do nothing for land supply (where by now you should realize I think the problem is). It would temper only demand. As well it suffers from the same ailment that the interest rate solution does in that it would apply to the whole country, not just the GTHA. It should be pointed out as well that these tools might only be effective if they resulted in a significant increase in rates and a significant tightening of credit and mortgage insurance eligibility. In other words, you would need to raise rates and change rules a significant amount if you wanted to take a significant percentage of buyers out of the market. And you would have to be that drastic to significantly move the demand side of the equation.

Increasing the capital gains inclusion rate might have some effect, but based on everything I have read, not enough. I don't think any government has the fortitude to tinker with the principal residence exemption and if they did, I don't think taking people’s perceived gains away from them retroactively would be very fair either. The unfairness argument would apply to both principal residence sales and other sales as well. So if we leave the principal residence exemption in place, I don't think we affect too many of the transactions in the market. W e would hit speculators, but my sense is that they are not a significant proportion of the long - term market (but again we don't know because we have imperfect or no data). Assuming however that changes are made in the same way that they were made when the federal government brought the tax in in 1972 (prospectively rather than retrospectively), I still don't think that it would affect market psychology enough, for the simple reason that the tax is payable on disposition, not on acquisition and this results in the sharing of the profit with government, not the elimination of the profit. In any event, the significant complaint about speculators is that they are skirting the rules. The answer to that complaint is better enforcement, not changing the rules. The current rules (anti - avoidance and “transactions in the nature of a trade” rules) are sufficient to catch serial speculators as far as capital gains go. If someone is in the business of flipping houses, their gains on the houses should be taxed as income at the full marginal rate, not as capital gains at the reduced rate. CRA simply needs to enforce the rules better.

I think the government should leave well enough alone in this category. However, if something is to be done using tax policy, the least offensive of the suggestions that I have heard is to require a minimum period of ownership for properties before they attract the lower capital gains inclusion rate (2 years seems as good a number as any).

4. The tools that will do something, but not enough

#3 and #11 fall into this category.

More as of right zoning and a streamlining and speeding up of the development approvals process would definitely help the supply of housing, but not in the right place. I don't think as of right zoning in urban areas will help in the area of grade related housing (singles, semis and ground related townhouses) and I don't think it will help in the short term. If done properly (i.e. in areas of the City properly serviced by transit and other services, along major corridors and not in stable residential neighbourhoods) then this would go a long way to increasing supply in urban areas. Unfortunately, the majority of this intensification will be apartment style of built form (low, medium and high rise). It will create next to no single family type of housing and like it or not, the greatest demand for past generations and the greatest demand in this market continues to be overwhelmingly for single detached homes on a street, with a backyard.

No amount of government policy will change this attitude. The problem with the Growth Plan for the Greater Golden Horseshoe is that it attempts to interfere (rightly or wrongly) with that basic North American ideal or desire. People want what people want – you can’t change that and I am afraid that this provincial Liberal government’s desire to socially engineer such a change is what is chiefly responsible for this current crisis. The greatest price increases have occurred because of the bid up of prices on ground related housing. As you will see below, condos have also risen but not to the same extent. In a sense, they have been dragged along for the ride – “if I can’t afford a house I will buy a condo just to get into the market” is the mentality of the current first time buyer. As you will see below, the inventories in the GTA for condos, while historically low, are nowhere near the crisis proportions of the ground related product.

Building more affordable housing is definitely a good solution here. However, to put it simply, governments can’t afford to build enough to influence the market. In addition, in the 80s and 90s when provincial and federal money was available in significantly abundant supply, affordable housing programs proved to be one of the most expensive ways to provide housing to people. Affordable housing programs resulted in some of the most expensive cost to construct per square foot in the industry.

There was waste, there were inefficiencies, there was little oversight and there was even corruption and fraud. Assuming government could design a program that avoided these pitfalls, I still think there are insufficient resources available in the public purse to fund this initiative with sufficient volumes that would affect the housing supply. It would take lite rally billions of dollars and I don't believe, with mounting demands on public expenditures (especially the looming health care crises) that governments have the political will to do this.

If governments did have the capital and the political will to do t his, market conditions are ideally suited to doing it now. Interest rates are at historic lows. Government could take advantage of those low rates to build affordable rental housing in co-operation with the private sector. This area lends itself to creative alternative public private partnerships. I don't think this solution is too late, but I do think, given competing demands on the public purse, it’s too little.

I might also include rate increases and credit and mortgage insurance eligibility in this category as well if the proposed solution was for marginal exclusions of potential purchasers (i.e. moderate tightening of credit and eligibility). This would not be enough.

5. We have enough data about them and I believe strongly that they will work.

The indisputable facts are these. According to BILD, in February of 2017 there were just 324 (no digits missing) new detached single - family dwellings available for sale in all of the GTA (the lowest in our history). In 2007, there were 12,242. This is mind boggling. It’s astounding. I am amazed that given these numbers, that prices are not significantly higher than they are in the GTHA. The average price of a new detached home in the GTA in January was $1,469, 449.00. That's up from $444,368.00 in 2007 (only 10 years ago). BILD also points out that after years of healthy supply, even the supply of condos is starting to fall, although not nearly to the same extent as low rise. In February there were 10,342 new condos in builders’ inventories - a 10 year low. As a result, condos have reached a record average price of $625.00 per square foot across the GTA and are topping $1,200.00 per square foot in the Toronto core. Townhouses and other built forms are similarly in short supply and high in price. The full set of numbers can be seen on the BILD website. There is very little doubt as to what BILD thinks the problem is. Brian Tuckey, the CEO, thinks the problem is clearly one of supply. He says: “Our industry is implementing provincial policy by building more condominium apartments and less ground - oriented housing. A decade ago condominiums represented just 42 per cent of available inventory, compared to 88 per cent in 2017”.

www.bildgta.ca/news/newsreleases/New-ground-oriented-homes-surpass-1-million

Mr. Tuckey has made no secret of the fact that he thinks provincial policy is the culprit behind the supply problem that we experience with housing in the G TA today. I am firmly of the same view.

What is the province doing in response? I believe they are making matters worse. I am mindful of the fact that we do not measure supply by looking at short term factors, but those short-term factors are indicative of a larger problem.

As indicated above, the provincial government is proposing amendments to the Growth Plan which will further restrict supply and increase prices. It’s almost as if they don't care about housing affordability. It is not clear to me why people are not demonstrating in the streets about this. Here is what the Ontario government is proposing as an amendment to the Growth Plan: First, they are changing what is called the “residents to jobs ratio” in the Plan. At the moment, the Plan pro vides that every community must achieve a target of 50 residents and jobs per hectare of land that they approve in their Designated Greenfield Areas. If they do not achieve this ratio, then they cannot expand outside of the urban area. Malone Given Parson s says that this ratio cannot be achieved because 50% of the Designated Greenfield Areas are already built on or are committed for building.

Therefore, new development would have to achieve impossible densities of between 130 and 300 residents and jobs per hectare. They say that this will result in significantly reducing the supply of housing in the GTA and it will result in that supply occurring at the fringes of the GTA, not spread throughout in appropriately serviced locations as it should.

Second, the Plan currently requires that before expansion of an urban area can occur, a municipality must achieve 40% intensification in its urban area. The government is proposing to increase this threshold number to 60%. This will also lead to lower inventories of ground related housing thereby putting upward pressure on housing prices throughout the GTHA. There is no question in my mind that the most significant single long - term factor leading to the escalating housing prices in the GTHA is the provincial Growth Plan.

Malone Given Parsons agrees. Where my opinion diverges from theirs is with respect to what should be done to fix these shortcomings in the legislation. Malone Givens Parsons makes some recommendations like applying the proposed new standards to different parts of the GTA, encouraging the growth to occur in higher order transit areas and better defining how to calculate the 80 residents and jobs per hectare ratio so that it is not so restrictive. I don't believe that these recommendations go far enough.

My recommendations are that the proposed changes be scrapped entirely, that the Growth Plan’s underlying principles be re-examined and that the Plan be subjected to a wholesale re-write with a view to ensuring that there is an adequate supply of affordable housing in the GTHA.

A good start would be to walk back entirely the proposed changes to the Plan described above (the jobs and persons ratio and the intensification targets) and then to critically examine the Plan for areas that can be amended which will relax the restrictions on expansions to urban areas. This will result in meaningful changes to the supply of housing in the GTHA, not some of the crazy ideas we read about in the press. The government’s proposed 16 - point plan to fix the problem misses the mark by ignoring entirely the supply problem. Its proposal to widen the reach of rent controls will kill the purpose - built rental construction industry.

Also helpful would be a review of the population targets and how they were calculated. In particular, there needs to be an adjustment to the assumptions related to the amount of vacant land that is available for development. Clearly, there is a huge disconnect with the inventory numbers that BILD has presented (and which have not been controverted by anyone), and the impression that the Neptis Foundation and the province want to promulgate with their flawed vacant land assumptions. The province is playing a dangerous shell game and is wittingly or unwittingly contributing to the speculative madness driving this insane market. Speculators are not helping. I really do believe this can be avoided by changing the Growth Plan. I believe that this tool has the potential to effectively correct the market.

The most compelling, albeit anecdotal, evidence yet that there is a shortage of buildable land in the GTHA is the fact that in every region of the GTHA, builders are battling it out against each other at the Ontario Municipal Board to have their lands approved for development because the Growth Plan legislation severely restricts the supply of land that municipalities may allow onto the market. In York Region, it takes roughly 5 years to get an official plan approved for development because of mega hearings based on land economics arguments. The City of Vaughan had over 150 appeals to its Official Plan. This is not unusual. The hearings in Halton Region took almost 3 years to resolve themselves and will begin again when the new plan is commenced. Again, this is common in the GTHA. Much of this time was used up arguing about land supply and how to best meet population targets. Georgetown will run out of developable land in about a year and a half, yet the provincial government refuses to loosen the rules. The Town of Innisfil can no longer fun d much needed employment lands infrastructure because it is bumping up against Growth Plan housing limits. Imagine how insane it is to have as government policy rules that restricts the amount of employment land a community can have along the important Highway 400 corridor.

In Caledon, there is an opera playing out which has pitted 6 different development groups against one another, scrapping to the death over severely limited Growth Plan limits on expansion to the Bolton residential area. Does this make sense? The OMB will decide which one wins the beauty contest. Why can’t they all win? Imagine if the province tomorrow approved all of that land for residential development. The housing crisis would of course be solved. The same movie is playing in Dur ham Region, Peel Region, Simcoe County, the City of Hamilton, Niagara Region, Brant County, the City of Brantford, the City of Guelph and Waterloo Region.

What is the answer?

I believe that the amendments to the Growth Plan that are described above are far and away the best tool to temper the long term land supply problem facing Ontario today. However, it is a longer-term solution. It will not bring prices down in the very short term. Is there a solution to the short-term problem? Nothing I have read suggests an obvious answer and so given my view of the role of government, I think the government should let market forces play out. If they feel compelled to act, then of all of the solutions I have heard, a speculators tax (disallowing the lower inclusion rate for capital dispositions on properties disposed within 2 years of their acquisition) should be the one tested.

I believe that all of the proposed solutions written about in the media and described in this article, can be listed in descending order of usefulness as follows:

Implement Immediately

• Cancel the proposed changes to the Growth Plan
• Amend the Growth Plan in a way that frees up much more land for residential development in the GTHA
• Calculate land supply (and therefore population targets) in a way that is in keeping with reasonable land economy principles
• Loosen the rules for urban area expansions
• Speed up the development approval s process in general
• Limited Usefulness but Still Worthy of Consideration
• As of right zoning in urban areas
• Build affordable housing
• Speed up the development approvals process in urban areas
• Amend the Greenbelt legislation to make it more science based and free up additional inherently developable lands for development

Gather More Data then Decide

• Tax on sales to foreigners
• Property tax on foreign owned properties
• Tax on vacant properties

Should Not Do Under Any Circumstances

• Repeal or amend the Oak Ridges Moraine legislation
• Repeal the Places to Grow Act and the Growth Plan for the Greater Golden Horseshoe
• Increase rent controls (except maybe to update the grandfather date or implement rolling financing cycle exemptions)
• Decrease Development Charges
• Raise interest rates
• Change mortgage eligibility rules

If the government were to adopt the central thesis of this article (change the Growth Plan legislation), then care would have to be taken not to overcorrect too quickly as we would not want there to be an oversupply of housing; that would not be good for the market either as that could trigger a rapid collapse in prices. It is clear to me that we need more potatoes. At the same time, we need to take care not to destroy the tulips.