Condo booms still aren’t enough to satisfy housing demand
Here’s an interesting fact. Before the pandemic—specifically, between 2015 and 2019— Toronto and Vancouver accounted for 44.2 per cent of all net new jobs in Canada. That’s some massive job creation. One would hope to see a corresponding surge of new housing in these two already hot real estate markets, which attract Canadians from across the country. Unfortunately, that didn’t happen.
In fact, according to a new Fraser Institute study, total annual “housing starts” in the Toronto and Vancouver metropolitan areas have remained essentially flat since 2002. Meanwhile, rental vacancy rates have remained below 2 per cent for most of the past decade in both cities and home prices increased by 111 per cent in Toronto and 82 per cent in Vancouver between 2010 and 2019. Even in the midst of COVID, demand for housing remains strong while housing supply continues to lag.
So why is this happening?
Perhaps surprisingly to some, housing starts have only modestly declined in the Toronto area (as residents who live among the visible condo boom can attest) and have actually grown in the Vancouver area. Simply put, these are fast-growing cities populated in part by Canadians from other provinces and indeed people from around the world. And they’re playing catch-up, given that they’ve had high vacancy rates and bidding wars on houses for years.
Cranes in the sky might give the impression of rapid housing growth, but they don’t change the fact that since 2002 annual housing starts in these two large metropolitan areas have hovered around 57,000 while annual job-creation numbers doubled from around 60,000 (between 2002 and 2014) to 120,000 (between 2015 and 2019).
While we don’t know whether these trends will continue post-pandemic, absent fundamental changes in where people live and work, both cities will remain unaffordable to many Canadians.
Clearly, there’s a disconnect between supply and demand—for several reasons. New houses aren’t built overnight. But regulatory constraints can impede the construction of new housing. For instance, British Columbia’s Lower Mainland and the Greater Toronto Area both have artificial limits on urban expansion. For example, B.C.’s Agricultural Land Reserve and southern Ontario’s Greenbelt both limit “greenfield” development on undeveloped land.
Of course, limits on outward development don’t necessarily prevent housing supply from keeping pace with demand (after all, it’s possible to build upwards). But unfortunately, there are also many restrictions on upward development, from zoning that outright prohibits multi-family buildings to nagging costs including community amenity charges and mandatory minimum parking requirements. This double-squeeze on both outward and upward development means that with strong demand, housing will likely remain expensive and relatively scarce.
On the bright side, Toronto and Vancouver can learn from other North American cities where land-use liberalization has taken hold. Reforms range from eliminating minimum parking requirements to eliminating single-family zoning, which helps free up the market and allows for cheaper and more available housing. If it can work in Minneapolis or Edmonton, there’s no reason why such reforms can’t work in Toronto or Vancouver.
The evidence is clear. Without a surge of housing construction, housing in Toronto and Vancouver—two major centres of job creation in Canada—will remain scarce and expensive. In reality, the current condo boom it isn’t enough. It’s time for both metropolitan areas to get serious about new housing construction.