Association argues in favour of massive home construction to address affordability

by Justin da Rosa on 24 May 2017
Current housing affordability measures aren’t capturing the entire picture, according to one association that has developed its own index and provided solutions to addressing affordability in Canada’s overheated housing markets.

Toronto requires up to $150 billion in new construction over the coming decade – mostly in the rental sector – to properly address affordability, according to a new report from the Canadian Centre for Economic Analysis (CANCEA).

The association came to that conclusion by examining the causes of unaffordability in Canada by first arguing against the current methods used to determine affordability.

Home prices don’t define affordability; they have to measured in relation to the rate of rising income, CANCEA argues.

“By this measure, Toronto could be seen as relatively cheap, with a price-to-income ratio roughly 1/3 of the highest in world, such as Hong Kong, Hanoi, and Mumbai,” it said in its report, entitled Understanding the forces driving the shelter affordability issue. “If comparing to typically expensive (and often poorer) cities seems unfair, limiting the comparison to other large North American cities and other “world class” cities makes Toronto appear similar to the likes of Berlin, Boston, and Melbourne.”

Another argument often flouted – especially by the real estate and building industries – is that the lack of supply is driving unaffordability.

According to CANCEA, this is unlikely the case.

“Even a simple analysis suggests that this is unlikely to be the case. For example, over the last decade, housing starts per household have over doubled in the GTHA, and housing stock per capita has remained flat in the region for 25 years,” it said. “The question is therefore not just about supply (which includes the supply of serviced “developable” land), but about how productive and appropriate that supply is.”

To determine affordability, the association developed its Shelter Consumption Affordability Ratio (SCAR) index, which measures the percentage of after-tax income households devote to housing-related needs after paying for other necessities, such as food, health care, and child care.

It argues this index, unlike other affordability measures used in Canada, does not simply measure the costs of home ownership; it measures the affordability of consumption of (or access to) shelter.

Along with the index, CANCEA uses computer modelling to assess how other factors – 40 in total, which include; population, labour force, household expenses, transportation, and government taxes – impact affordability.

The association concludes that one-third of Torontonians and one in four in Ontario face housing affordability issues.

“What all of these factors and behaviours seem to be pointing to is the idea of not just building more housing, but building appropriate housing, and then getting people to move into it,” the association said.

It also argues in favour of addressing three key issues that are linked to affordability pressure. That includes a lock of housing choice in terms of size, location, and access; a lack of housing productivity that has led to low density; and families being forced into settling for inappropriate housing options, including living far from work or buying when they should rent.

“Addressing these significant drivers of the affordability issue require things going differently. Building the nearly 600,000 new housing units – on the order of $100 billion to $150 billion worth of construction –expected to be needed across Ontario a decade from now can go a number of ways,” CANCEA said.

“For example, for Ontario’s homeownership rates to get back close to those seen in the 1970s, 80s, and 90s – i.e., Toronto’s rates being similar to those seen in major U.S. cities – then all expected new units built over the next decade would need to be purpose-built rental,” it said. “Most of these would need to be multi-bedroom units, unless smaller households (e.g., senior couples) started disproportionately renting relative to current rates.”

To read the full report, click here.

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