In Conversation With Frank Clayton, Centre for Urban Research and Land Development, Ryerson
Builders and developers have long been calling for the Province and municipalities to loosen up on land supply and approval processes to allow more new homes to be built, and more quickly. To the uninitiated, however, this seems a self-serving request, since, of course, they believe these companies want to build more and make more money.
But now we have more and more third parties, without any vested interest, expressing the same concerns, and citing hard, objective numbers. One of them is Ryerson University’s Centre for Urban Research and Land Development.
“Toronto’s booming economy has brought with it housing affordability challenges that will continue throughout the next decade,” Frank Clayton, PhD and senior research fellow, said at a recent Toronto Regional Real Estate Board (TRREB) event. The Centre’s recent study, An Economic Outlook for the Greater Toronto and Hamilton Area (GTHA) and What it Means for Housing Affordability, examined the economy and its impact on housing to 2031.
We spoke with Clayton to explore the issues discussed in the study, what government and the industry can do, and what it all means for homebuyers.
HOMES Magazine: Your recent report doesn’t exactly sound like good news for those still looking to buy a home. What positive news can they take from your findings?
Frank Clayton: The affordability picture painted in our report means that, comparatively, more prospective buyers will have to devote more of their budget to housing, rely on parents for down payment assistance or reduce their housing expectations in terms of location, size and type of structure. On the positive side, many prospective buyers (especially double income professional couples) will still be able to afford to purchase a home. Also, once prospective buyers purchase, they will benefit from the appreciation in home values.
H: Given the findings of your study, where do you see the most promising opportunities for prospective homebuyers – in terms of location and housing type?
Clayton: This is not an easy question to answer, as it depends on where people work, household composition and lifestyle preferences. Durham Region is the most affordable of the 905 areas, and has become more attractive with the extension of Hwy. 407 and improved GO train service. For buyers who want to locate closer to Toronto’s central area, there are wide swathes of existing low-density housing in the city’s post-Second Word War suburbs, such as much of Scarborough, which are priced much lower than neighbourhoods closer to the core.
Unit types depend on lifestyle preferences and affordability. The housing choice menu that I have seen over the years goes like this: Many households prefer a single-detached house, but if they can’t afford it, they move up the density ladder until they can afford to purchase. So, if a single-detached house is unaffordable, a semi-detached house, followed by a townhome becomes the targeted housing type. If a townhouse is not affordable, then a stacked townhouse unit, followed by other types of lower-rise condos (four storeys of less) are preferred. If a prospective buyer is considering purchasing in a highrise, they should look at new units being built in a mixed-use project such as those being built on redeveloped shopping centre sites.
H: You note that average home prices and rents are to rise four to five per cent over the study period. This seems low, given that TRREB forecasts home price growth to hit 10 per cent for this year… Why the disparity?
Clayton: Our home price and rent forecasts represent average annual per cent increases from 2019 to 2031. If prices rise by 10 per cent per year early in the period, it will likely be due to irrational exuberance like in 2016-17, when home purchases exploded as buyers and investors rushed to buy before prices rose more. By doing so, they pushed prices up even higher. Typically, these price surges are unsustainable and are followed by stagnant or slightly lower prices. So, if prices rise by 10 per cent for a year or two, there will be years when prices may rise only slightly, if at all.
H: If figures such as TRREB’s are accurate and continue for a couple of years, and are not just an anomaly for 2020, what does that mean for housing affordability? How much worse could it get?
Clayton: It would be very damaging for affordability, and the picture would be bleaker than what our study predicts. Even more potential buyers would be relegated to the rental market, which would put added pressure on rents. If prices were to rise by 10 per cent per year for several years, we could expect to have a rather serious market readjustment so that prices would cease to rise or even decline moderately as they did following 2016-17.
H: What kinds of things can or should builders and developers do in the short-term to deal with these challenges?
Clayton: There isn’t a lot builders and developers can to increase the supply of housing in the short-term. It is important that the industry continue to pressure municipalities to expedite development applications for all kinds of housing, to bring developments to market much more quickly than at present. Builders should be exploring ways to bring more affordable units to market by reducing unit sizes and finding locations where underlying land values are lower, such as in Scarborough and Durham Region.
H: And what can or should municipalities do?
Clayton: Municipalities first have to recognize that they are a primary cause of the shortage of housing. Their land use planning systems have bogged down the production of new and innovative types of housing. The planning system is burdensome, uncertain, time-consuming and costly. What is needed is a change of priorities. The rapid increase in the production of a range of new housing by unit types and price ranges should become the number one priority of all municipal councils and staff in the GTA. Without this, a shortfall of new housing will continue to keep prices much higher than need be.
H: What kind of response or reception has your study received from the Province or City of Toronto?
Clayton: The Province is aware of the causes of high and rising housing prices and is doing what it can to persuade GTA municipalities to increase their housing production sharply. Unfortunately, many municipalities aren’t on side, so it will be a struggle to greatly increase housing production.
Many councillors at the City of Toronto, for instance, fail to recognize how the city’s planning system, along with those in neighbouring municipalities, is a primary cause of the current housing shortage in the GTHA. While the City’s efforts to increase the supply of affordable housing over the next decade is in the right direction, this will not get at the root cause of the affordability crunch – not enough new housing is being built, particularly, non highrise varieties.
H: ReMax is citing Ontario markets as already some of the least affordable in Canada. Even with the economic growth in the GTA, how well will household incomes be able to keep up to housing costs?
Clayton: Our study is clear that average incomes are very unlikely to keep up with rising average prices and rents in the GTA. The only sure-fire way to change this projection is to significantly increase the supply of new housing in the GTA.