It’s no secret that a lack of affordable housing has been plaguing Canadians and must be remedied by the cooperation of different levels of government. “The housing supply shortage affects all Ontarians, including rural, urban and suburban, north and south, young and old.” said Minister of Municipal Affairs and Housing Steve Clark.
In an effort to generate enough supply to meet a high demand now and in the future, in October 2022, Premier Doug Ford and the Ontario government announced their intent to build 1.5 million homes in the next ten years. This ambitious goal breaks down to an average of 150,000 new homes per year — setting a target to double new housing construction from that of the decade before 2022, which saw 750,313 homes started (and 669,378 homes completed).
This province-wide objective, called Bill 23, or the More Homes Built Faster Act, was met with criticism from many groups, including opposing political parties, economics experts, public servants, and environmental advocates. It has been seen as detrimental to the Greenbelt and municipalities, based on where and how quickly new homes will be built; it has also been considered unrealistic and overly aggressive.
Let’s dig deeper into why many scoff at the idea of Ontario reaching this lofty goal and why the government still remains optimistic.
Crunching the Numbers
Based on the recently released provincial budget for 2023, current projections indicate that fewer than 90,000 homes will be built per year for the next three years. In fact, the numbers have been trending downward: 96,100 new home builds were started in 2022, and the amount is set to fall to 80,300 in 2023 and drop again to 79,300 in 2024. Experts predict a small bump to 82,700 new home builds in 2025, but these numbers are generally well below the target average of 150,000 a year.
Another obstacle to this plan is the problem of labour shortage. Ontario needs 72,000 more workers to meet labour demand, and that heavily relies on federal immigration policies to find and encourage those specific types of workers to come to Ontario. Right now, the budget accounts for only 2,000 new workers, a drastically insufficient number to meet the province's housing goal. And with a backlog of immigration paperwork that has built up over the course of the pandemic to 2 million applications, this seems like a particularly difficult and time-based problem to overcome.
These current, short-term projections seem to illustrate that Ontario's goals are unworkable, but the government has indicated that it will continue to take steps to reach them with future changes to budget and policies. Minister of Finance Peter Bethlenfalvy is still optimistic about the province's housing target, stating that “We'll have some lower years, and we'll have some higher years," but clearly, more planning must be done to prepare the province for the demands of the future.
Local Effects and Criticisms
Controversially, Bill 23 includes policies that would forcibly turn 7,400 acres of protected Greenbelt into land for new homes, which would negatively impact ecosystems and cause future problems for cities trying to reduce sprawl. Taking a bite out of the Greenbelt will have terrible ramifications for already threatened green spaces, wildlife, and the climate.
One proffered solution would be to add to the protected lands in strategic places to make up for losses elsewhere. Another solution would be to switch from the strategy of sprawl to that of intensification — building upwards instead of outwards. So far, the province has amended some of Bill 23 to allow some green project appeals, restoring some of the previously stripped municipal powers and sustainability standards that were impacted by the initial version of the Act.
Another part of Bill 23 made cuts to developer fees in order to boost and expedite new builds; however, those funds, which could tally hundreds of millions of dollars, are necessary for cities to build and maintain infrastructure. Without the infrastructure in place to support swathes of new housing developments beyond current municipal boundaries, towns will face great strain in the coming years to keep pace with population growth. It's evident that there must be cooperation and support from the province to the cities in order to address these issues.
What Does This Mean for Investors?
Regardless of Bill 23 and it's apparent impracticality or controversies, everyone is aware that there is a lack of affordable housing in the province. But Ontario continues to be where many individuals and families want to live in Canada, especially in urban areas like the City of Toronto, York Region, and Peel Region, so there will always be a demand.
Immigration is unlikely to slow down, meaning that no matter what happens with the supply, it will continue to be a contributing factor to the increasing demand for homes. In fact, between 2021 and 2022, there were 227,235 immigrants who came to Ontario — a sizeable increase of more than double the number during the height of the pandemic, which saw 107,929 immigrants settle in the province between 2020 and 2021. And of course, those newcomers will need someplace to call home as soon as they arrive.
In the current market, where supply is low and demand is high, now is the best time to invest because the interest rate remains low when considered from a historical viewpoint. For the last 30 years, the average 5-year conventional mortgage rate has been at 6.46%. When compared to the all-time high of 18.38% in 1981 and the all-time low of 4.79% of 2021 for average 5-year conventional mortgage rates, the controlled rise of interest rates in 2023 — now hovering at 4.5% — doesn’t seem as dire as the news cycle would have people believe.
The incremental hiking of interest rates will eventually hold steady and lower, prompting buyers to rush to purchase in a seller’s market in the future. But for now, while most people are still hesitant to sign up for mortgages due to rising interest rates, savvy investors know that this is the best time to buy.
Developers lower housing prices significantly to entice purchasers in this period, and in some cases, someone buying a lower-priced condo with a higher-rate mortgage will save more money than someone buying a higher-priced condo with a lower-rate mortgage. Like the adage goes: buy low, and sell high!
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