Moffatt: Ontario budget forecasts deeper housing supply crisis

Ontario has a housing supply crisis and Ontario’s 2022 budget projects more pain to come.

Earlier this year, the Doug Ford government introduced the More Homes for Everyone Act (Bill 109) based, in part, on recommendations made by its Housing Affordability Task Force. Despite this, Budget 2022 projects yearly housing starts will remain under 90,000 units a year for the foreseeable future, lower than current levels and just over half the target set by the provincial government’s own task force.

Over the last decade, Ontario has had about 750,000 housing starts, with housing completions lagging somewhat at 670,000 units. Both the Ford and Trudeau governments have recognized that this is not enough to keep up with Ontario’s booming population growth. The provincial task force has called for an “ambitious but achievable target of 1.5 million new homes built in the next ten years,” which the budget references, while the federal government’s 2022 budget sets a target to “double our current rate of new construction over the next decade.” For Ontario, this would mean 1.5 million housing starts, which is in line with the provincial task force target of 1.5 million housing completions.

Averaging 150,000 starts (or completions) every year over the next decade is no small task. Last year, Ontario had 100,000 housing starts, the highest level since 1987, and the fourth-highest in provincial history. Despite the reforms of Bill 109 and the need to substantially increase housing starts, the Ontario budget projects that housing starts will fall and remain below 90,000 per year until 2025, where its projection ends.

It would be impossible to immediately start building 150,000 new housing units a year overnight. A more realistic path to 1.5 million housing starts in a decade would be to grow housing completions by six per cent a year, every year, until 2031. If Ontario were to achieve this level of growth, housing starts would exceed 126,000 units by 2025, rather than the less than 88,000 currently projected by the Ontario government. The gap between the government’s ambitions on housing, and their projected results, are stark.

There is no reason to believe these housing start projections are inaccurate and the budget implicitly acknowledges that the current set of government policies is insufficient. Buried in the middle of the document, on page 94, there is a commitment to “deliver a housing supply action plan every year for the next four years, with policies and tools that support multi-generational homes and missing middle housing.” Given the time it will take to develop that plan, design policy, implement those policies, and get shovels into the ground, that is unlikely to change the number of housing starts before the middle of the decade.

This lack of new supply will continue to fuel Ontario’s housing affordability crisis. The same budget also projects that while the massive home price appreciation experienced during the pandemic will end, home resale prices will rise faster than inflation through the middle of the decade. It also shows that interest rates will also rise over the next few years. This puts a double-crunch on first-time homebuyers, as not only will the size of required down payments rise, but so too will monthly mortgage payments from higher interest rates.

Fewer home starts, higher home prices, higher interest rates. If the projections in Budget 2022 are accurate, Ontario’s housing woes will get worse before they get better.

Mike Moffatt is the senior director of policy and innovation at the Smart Prosperity Institute and an assistant professor at Ivey Business School.

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