High demand and a booming population aren’t the only reasons behind surging house prices in Toronto. Permit backlogs and “greenbelt” policy restrictions mean it takes even longer for new building projects to get the go ahead. These delays are costing builders, who are in turn passing on the premiums to homebuyers.
Ontario land-use restrictions around Toronto have been largely to blame for surging house prices in the region. That was the message Ontario officials relayed to their Ottawa counterparts last year, according to an access to information request provided to the Financial Post. Ontario officials told the federal government that single-detached housing starts per household were “well below” the historical average, as were total starts per household[1]
For economists and urban developers, the issue is straightforward: land-use restrictions limit supply, and higher demand pushes prices up. That’s exactly what’s been happening in Toronto. The Places to Grow Act, first introduced by former Premier Dalton McGuinty in 2005, has been a major factor in slowing down housing developments in the region.It was introduced with the province’s Greenbelt Act, which restricts developments and encourages intensification near existing amenities to protect the 1.8 million acres of greenbelt from further development.
Although the Act restricts land use, it also provides enough land to accommodate new housing developments for decades. However, research from the Neptis Foundation discovered that less than 20% of the available land supply in the greenfield area has been built since 2006, leaving 45,660 hectares left to be developed. To get a sense of perspective, that’s enough land to rebuild Mississauga two times over.[2]
Making matters more complicated are City backlogs in issuing building permits, which delays construction projects and causes prices to rise even further. This is especially the case for demolitions and rebuilds, where the minimum gap is four months to begin work. Land severances that make their way to the Ontario Municipal Board (OMB) can take a year or longer before a builder is issued a permit. The longer the applications take, the more expensive the new residential projects become. This is partly due to builders’ reliance on private lenders, who charge more interest for development loans than the major banks.
In 2014-15, the OMB received 1,535 files from across Ontario related to the Planning Act, including 39% from Toronto. The largest applications were for minor variances, although consents and official plans have increased in recent years.[3]
Building permits in Toronto have run into a snag recently, a sign developers continue to struggle with approval delays. The total value of building permits in Toronto was $1.625 billion in December, down 1.6% from the previous month. Compared to year-ago levels, permits values were virtually unchanged. By comparison, the value of permits in Oshawa surged more than 400% year-over-year, while Hamilton saw no change.[4]
As a result, short housing supply continues to be a major concern for the region. The Toronto Real Estate Board
(TREB) recently reported that new listings in January were down by double-digits year-over-year for most major home categories. Meanwhile, the average selling price for all major home types surged at an annualized 22.3% to $770,745.[5]
References
- Garry Marr (December 7, 2016). “Greenbelt likely contributed to tighter housing market, Ontario bureaucrats told Ottawa in June.” Financial Post.
- Garry Marr (December 7, 2016). “Greenbelt likely contributed to tighter housing market, Ontario bureaucrats told Ottawa in June.” Financial Post.
- Ministry of Municipal Affairs (October 2016). Review of the Ontario Municipal Board.
- Statistics Canada. Value of building permits, census metropolitan area (monthly).
- Toronto Real Estate Board (February 3, 2017). Strong Start to 2017.
