It was an incredibly busy week here at MMI, with the release of two reports: One on stablecoins and middle-class affordability, and Jesse Helmer’s GTA and GGH Housing Report Card: Starts, Sales, and Employment examining the massive decline in housing starts and new home sales in the Greater Toronto Area and Greater Golden Horseshoe (big takeaway: The declines aren’t isolated to Toronto, and they’re not isolated to high rise condos).
In just a few days, our episode on Ontario’s Housing Sales Collapse, based on the Helmer report, is already one of our most-watched ever. It has also generated a great deal of thoughtful comments and debate on YouTube, Reddit, and in our email inboxes.
If that weren’t busy enough, we also presented at Canada 2020’s policy conference in Ottawa, RESCON’s virtual Housing Summit 5.0, and the Global Progress Action Summit in London, UK.
I’m on a Transatlantic flight back home with too much time on my hands, so I thought I’d take this opportunity to respond to some of the points our viewers and listeners have made.
Ten thoughts on the GTA and GGHs housing collapse
The fall in home prices is good, the fall in housing starts and new housing sales are bad. There is no way around it: The only pathway to middle-class housing affordability is substantially lower home prices and rents. The problem isn’t lower prices, it’s lower housing starts and new home sales, during a period where both the federal and provincial governments recognize that we need to double housing construction to keep pace with population growth.
The fall in new home sales is far larger than the fall in resales. Our episode focused on the fall in the sale of new homes, the majority of which are pre-construction sales. Existing home sales in the GTA are bouncing back, though still well below 10-year averages.
The only way to have both new housing construction and lower home prices is through lower costs. As outlined in the piece Why Lower Construction Costs and Taxes Are the Only Path to More Homes and Lower Prices. Developers and builders are not going to intentionally build at a loss. Costs must be sufficiently lower than prices for building to occur. Currently in the GTA resale homes are selling for less than what it typically costs to build new, which has ground everything to a halt. Housing construction will only resume if prices go up, or costs go down. Given the need for housing affordability, we need the latter, not the former.
A period of slow homebuilding will inevitably lead to skyrocketing home prices. It is tempting to think, “home prices and sales are falling, the mania is over, we’re on a path to affordability”. That would be a grave mistake. We still have too few homes relative to our demographics, particularly homes suitable for families with children. There are too many people currently on the sidelines who will eventually be in the market for a home. If that demand is not matched with supply, prices will skyrocket.
There is no one single policy fix. We are often asked “Do you really believe that cutting development charges (or reforming the building code or eliminating the HST on new homes) will really solve the crisis?” And our answer is typically “by itself, no”. Southern Ontario is so far away from housing affordability that it will take a suite of policies and a wartime like effort to get us there. There are no silver bullets, and “will this reform single-handedly solve the crisis” is an unrealistic and unhelpful bar to set.
Reducing taxes on housing construction is not a subsidy. It’s a recognition that high housing construction taxes are incompatible with the human right to housing. The taxes alone on a new home are more, even after inflation, than what I paid for my house 20 years ago. If you want housing to be attainable to the middle class, you can’t set taxes at levels they cannot afford.
Population growth drives the need to build more infrastructure, not homes. Our infrastructure financing system should reflect that. We discussed this at length in The Policy Sleight of Hand Behind “Growth Should Pay for Growth”. Much of Ontario’s development charge dysfunction, which has led to skyrocketing costs, is due to policymakers confusing population growth for housing supply growth. Homes don’t use libraries, people do, and forcing people to live in cramped, overcrowded housing does not reduce that need.
We need more market and social housing. Housing advocates spend way too much time and energy fighting each other. We need more market housing and more social housing. Most housing reforms, from building code to zoning, simultaneously helps both. We’re better off working together.
Both market and social housing benefits (some) developers and builders. Speaking of conflict, there is a tendency among some to dismiss beneficial policy reforms on the grounds that “developers and builders” will benefit. The reality is that it doesn’t matter if it’s market housing or social housing, it will get developed and built by private sector entities, in the same way that the government procures subway cars and hospitals from the private sector.
Both market and social housing are volatile and have historically been procyclical. Clearly, the construction of market housing is volatile, as shown by Helmer’s report. Governments should look to reduce that volatility wherever possible. Sadly, this is not unique to market housing; the history of social housing in Canada is rife with large swings in starts. And like market housing, it tends to be procyclical; Canada’s largest cut in social housing occurred during Canada’s largest post-war recession (early 1990s). Business cycles, political cycles, and electoral cycles impact all forms of housing. We need to be aware of these cycles, and work together to accelerate the building of all forms of housing during downturns.
We hope these ten thoughts spark more discussion and debate.