September 22, 2016
Is the Ontario Government Responsible for Soaring GTA Home Prices?
It’s no secret that house prices in the Greater Toronto Area have been soaring. Within the city itself, the average price of a detached home is now over $1.2 million. For the GTA as a whole, the figure is nearly $953,000. But why are GTA home prices skyrocketing?
Last month, Benjamin Tal, deputy chief economist at CIBC, pointed the finger at developers. In his opinion, they have been hoarding land in expectation of rising prices, which has led to a shortage of housing development. As the National Post reported at the time, Tal believes developers are sitting on land because of provincial legislation that, in his view, has created a shortage of land around the GTA.
In their August report, Tal and his colleagues argued that two pieces of provincial policy are significantly responsible for rising Toronto real estate. First, they point to the Greenbelt Plan, which limits the development which can occur in the area outside of the GTA. But they put most of the blame on Ontario’s Places to Grow legislation. This act, CIBC maintains, “is, by far, the most important policy factor affecting housing conditions just outside of the GTA.”
What is Places to Grow?
So what is Places to Grow? And how might it be leading to ever-increasing house prices around the GTA?
Places to Grow, as CIBC’s economists explain, is a part of the province’s attempt to limit urban sprawl and encourage sustainable development in Ontario. One key part of the policy was that by 2015, municipalities had to ensure that 40% of new development occurred within existing urban boundaries. Recently, the government has proposed raising the target to 60%. This means that less land outside urban boundaries will be permitted to be developed for residential housing.
As CIBC succinctly tells it:
“Now, if you are an owner of potential development land and you are well aware that Places to Grow will result in a shortage of land by even more than currently anticipated, you probably will not be eager to sell. Clearly, time is money for land owners. Holding on to land is already a significant force restricting supply in the GTA.”
Not Everyone Agrees
Cherise Burda, the executive director of Ryerson’s City Building Institute, doesn’t buy the argument that government policy (namely the greenbelt and growth plans) is the key driver of rising GTA house prices. And while she believes land hoarding and speculation is going on, Burda doesn’t see legislation as being responsible. As for the main drivers of soaring prices, she points to other factors, such as low interest rates, foreign investment, population growth and strong employment growth all contributing to expensive Toronto real estate.
Speaking to Zoocasa, Burda also makes the point that rising prices have not just been a GTA phenomenon. She notes that the CMHC has designated nine Canadian cities as having overvalued house prices, yet not all have greenbelts or intensification legislation. In other words, it’s tough to blame Ontario government policies for rising prices when real estate has been rising across the country, even in jurisdictions without legislation to limit sprawl.
Low Interest Rates a More Likely Culprit
Before moving to Ryerson, Burda worked for the non-partisan Pembina Institute, which released a report in 2013 dismissing claims that provincial legislation should be blamed for rising house prices. The report, stated there was no evidence “that provincial land use policies, including the Greenbelt Plan and the Growth Plan for the Greater Golden Horseshoe, restrict housing development and contribute to rising home prices. There was no price spike when the legislation was passed. The main reason is federal changes to mortgage rules and low interest rates.”
The report admitted that some established neighbourhoods have a shortage of land available for new development, which has had an effect on prices. Nevertheless, as they put it, “There is an adequate supply of land in the GTA for approved and future residential developments. Based on municipal projections, 81% of the land available for development will still be unused in 2031.”
What Does Places to Grow Mean for A Prospective Homebuyer?
If you agree with Benjamin Tal and his CIBC colleagues, house prices in the GTA are on the rise because developers are sitting on land. And they’re doing so because of provincial policies which limit the amount of land outside urban areas which can be used for residential construction. If they’re correct, real estate in the Toronto area will probably not ease up unless there’s a change in policy. However, if you tend to agree with Cherise Burda and other experts, you’ll likely conclude that Places to Grow and the Greenbelt Plan are not having a substantial impact on the GTA housing market. In this case, you probably won’t take these provincial policies into account if you’re thinking of buying Ontario real estate.