This post originally appeared on the Fraser Institute Blog, February 24th, 2024.

Ontario’s housing woes—a supply-side problem

Housing prices in Ontario, like in much of the rest of Canada, have soared because of several factors including supply constraints combined with rising demand fuelled by robust population growth. The most recent installment in this ongoing saga is the federal government’s move to cap international student visas to which Ontario has announced measures requiring universities and colleges to guarantee student housing—though how this is to be done is a good question.

These short term reactive regulatory actions at both the federal and provincial level will ultimately do little to solve the problem of scarce and expensive housing because they do not address the root of the problem—the supply side, particularly the high cost of building new homes, which results in meagre efforts to build new housing stock.

Aside from the recent labour shortages and run-up in construction costs in the pandemic’s wake, there are two additional facets to the supply and cost-side issues of housing in Canada in general and Ontario in particular.

First, there’s the role of government in driving up the cost of new housing through regulatory actions at the provincial and municipal level. Housing in early 21st century Ontario has been treated not as an investment but as a source of cash for governments, which always seem to need more money. According to a CMHC report, government charges on new housing development via warranty fees, municipal fees, development and permit fees easily add 20 per cent to the cost of building a new home. Indeed, the regulatory charges for a new home in a place such as Markham can easily add up to $180,000 with some of the higher costs imposed on higher density row homes and high rise units relative to single-detached homes. This is not an inconsequential amount given housing prices in Markham average about $1.3 million.

Second, housing supply has not kept up with population growth. This is not a new story—the addition of new per-person housing stock in Ontario peaked in the 1970s. The chart below plots total housing starts for Ontario from 1955 to 2023. While there have been cyclic highs and lows, the overall trend has been upwards. Even so, the total number of starts peaked in 1973 at 110,536 starts. By way of contrast, 2023 saw 89,297 new home starts. In 1973, Ontario’s population was 8.1 million people whereas by 2023 it was estimated at 15.8 million.

When one calculates the number of new starts per person and constructs an index with 1955 equal to 100, it becomes clear that new housing starts per person have been on a long-term decline. Compared to 1955, we’re building 45 per cent fewer new homes per person. If you compare it to the per-person peak in the 1970s, Ontario in 2023 built nearly 60 per cent fewer new homes per person.

To add to the stock of affordable housing, the Ontario government has set the target of 1.5 million homes to be built by 2031. To this end, it created a Building Faster Fund that would provide up to $1.2 billion to municipalities that meet or exceed the government housing target set for that community and provide strong mayoral powers to municipalities to help cut through municipal red tape and speed up construction. The government has also set housing targets for municipalities to meet to receive the funding.

Keep in mind that to reach a target of 1.5 million new homes by 2031, Ontario would need to add 187,500 new homes a year until 2031. As the first chart illustrates, since 1955 there has not been a single year where Ontario has come close to that number. Indeed, if one compares housing starts as a per cent of the target set by the provincial government across municipalities based on data from its Housing Tracker (see chart below) it’s clear that as of late-January 2024, barely one-quarter of municipalities had met their 2023 housing target. Not the most auspicious start.

What’s Ontario to do? The province’s housing availability and affordability problem will likely get worse before it gets better. Along with boosting the supply of skilled trades people to help construct more homes, it must reduce the regulatory and zoning barriers that slow down the construction of multi-unit residential projects, reduce the governmental development charges particularly on “missing-middle” density builds that emphasize family-sized units, and provide further tax incentives geared to building high-rise multi-unit builds with family-sized units. Governments should also increase efforts to leverage surplus public lands at the federal, provincial and municipal levels to help construct affordable housing as the current approach has paid little attention to having a constant and ample supply of shovel-ready sites.

Only such a multi-pronged approach will have any hope of meeting the housing needs of Ontarians over time.

It Really is About Housing Supply and Canada Needs to Get Building

 

The housing shortage, rising prices and rising rents continue to preoccupy Canadian public policy debates and with good reason.  As of June 2023, median rent for a one bedroom apartment in Vancouver stood at $2,700 and $2,400 in Toronto with rent across Canada up 20 percent over pre-pandemic levels.  Meanwhile, average housing prices in Canada reached $729,044 in May of 2023 – the highest they have been since April of 2022.  Since 2000, residential property prices in Canada have essentially doubled – per capita income have not.  

 

Needless to say, the response in the most Serene Kingdom of Canada has been predictable.  In the name of boosting supply, municipalities starting to chase multiple property owners for tax revenues  (who incidentally are probably renting out the properties they own and helping to alleviate the shortage). Then there is the typical passive-aggressive Canadian story about how seniors are not downsizing and are living in homes with empty bedroom but of course “Policy experts and large city mayors are not suggesting that seniors should rent out their rooms en masse to better use the extra space.”

 

There is indeed a supply issue in Canadian housing, but it is not because there are too many multiple owners who are hoarding empty apartments or existing homeowners who do not want to share their spare rooms.  It is because over the long term the supply of new residential construction has fallen behind the rate of population growth so that housing starts per capita are dramatically lower than they were during the 1970s and 1980s.  Incidentally, this era had even higher interest rates and inflation than today and still managed to keep up with construction.  The accompanying figure plots seasonally quarterly total Canadian residential housing starts (units) as well as the per capita index (with 1961=100) [Data Source: Statistics Canada] for the period 1961Q1 to 2023Q1.  The results are quite startling. 

 

 

 

In the first quarter of 1961, total housing starts in Canada were 34,225 units.  In the first quarter of 2023, they were 55,753 – an increase of 63 percent.  The problem is that in 1961Q1 Canada’s population was 18.1 million while in 2023Q1 it was 39.9 million – an increase of 120 percent.  As a result, when the number of starts per capita are converted into an index (with 1961=100) it becomes quite apparent that despite surging population, we are building fewer new units per person despite a slight upward trend in the total number of units. 

 

The most quarterly housing starts ever were actually  in first quarter 2021 at 73,738 with the average quarterly number of starts in 2021 at 68,612.  In 1973, the average number of quarterly housing starts was 66,883.  Total starts at present are not much different than the peak of the early to mid 1970s.  When you look at the per capita index, the overall trend since 1961 is downward but essentially it appears that after the housing bust of the late 1980s, housing starts per capita have stayed flat at about half of what they were in the 1970s.

 

The baby boom and tail of the boom that entered the workforce in the 1969s to early 1980s was a population surge that was accompanied by new and rising per capita housing construction.  The current surge in population is not being accompanied by rising per capita construction but with construction at the historical per capita rates in place since the 1990s.   That is why housing prices are high. Band-aid solutions that attempt to solve the problems by essentially redistributing existing supply is but another sign of a society that seems to find it increasingly hard to build new things and to get things done.  But then, this is the same society that is dealing with inflation by injecting more money into the demand side of the economy. In the end, government policy to fight inflation is still conflicted with higher interest rates to slow down the economy on one hand and stimulus on the other.  It would be more useful if some of that stimulus went to building housing.

Yes Councillor! Municipal Costs in Thunder Bay Are Higher But Let Us Explain...

 

Thunder Bay spends one of the highest per capita amounts of major Ontario cities.  Moreover, it has chosen to prioritize three things: general government, police, and fire services.  Indeed, of 27 major Ontario municipalities, Thunder Bay spends the most per capita of its tax levy supported operating budget on these three things as illustrated in Figure 1.  Indeed, nearly 60 percent of Thunder Bay’s operating tax levy is spent on these three items.  Naturally, what it also implies is that there is less to spend on everything else and in fact, while Thunder Bay spends one of the highest amounts per capita and the most on general government, police and fire, it actually spends a lot less on everything else compared to these other cities.

 

 

 

Now, if I were a Thunder Bay city administrator tasked with addressing  the above statements in response to a query by a municipal councillor, I would naturally respond by saying that yes indeed, councillor, the numbers are higher but they really do not tell the entire story because in Thunder Bay ‘general government’ is a broader and more encompassing term of innumerable complexities compared to other municipalities that are located in more densely populated and less policy challenged parts of the province.  As well, I might even venture that perhaps Thunder Bay includes costs in general government that other cities do not as part of its own diverse and unique circumstances reflecting its special position as a northern municipality with serious social and economic issues of the utmost seriousness that in the fullness of time must be very seriously addressed.

 

Of course, that begs the question as to why the composition of the numbers that have been used in the above comparisons - which come from the BMA Municipal Report – would be so different given that they are supposed to be constructed and provided to allow for some type of standardized comparisons?  Needless to say, at this point as a City Administrator I would probably respectfully argue that these are complex questions beyond the pale of the councillor's valuable time given their plethora of pressing duties and ultimately requiring further study by knowledgeable and qualified individuals with intimate knowledge of local realities.  If pressed for details on the composition of general government spending in Thunder Bay, I would certainly take the request into consideration and get back at some future date as providing the data requires substantial resource expenditures given its all-encompassing complexity.

 

So, we are left to our own devices. In addressing the higher costs of certain municipal expenditures in Thunder Bay, perhaps we can focus on something more specific and better defined rather than something as amorphous as ‘general government’.  Why not policing or fire?  Figure 2 provides a first ranking of policing by presenting the number of police officers per 100,000 population obtained from Statistics Canada for 15 major Ontario centres in 2019 (with Hamilton only available up to 2017).  It turns out that Thunder Bay does not have the highest numbers of officers per capita of these 15 cities. It is tied with Windsor at about 205 officers per capita.  

 

 

 

No doubt there are extenuating circumstances as to why Windsor has so many officers. -perhaps there is more crime in border cities with a lot of casinos.  Thunder Bay is a border city – well almost – but it is very close to the border.  And we have a casino too.  Lo and behold, Thunder Bay, also has a lot of crime so we must be like Windsor after all.   And as for Ottawa which has so many fewer officers, it is the seat of government and also has innumerable other security forces such as our military and the RCMP which allow the municipality to spend less on policing.  If only Thunder Bay could be blessed with a Canadian Forces base or perhaps a branch office of CSIS, we would be a more secure place.  Moreover, Ottawa is inhabited largely by peaceful civil servants and government sector workers so it must be a more law-abiding town, right?  But wait, Thunder Bay has over 30 percent of its employment in the broader public sector – not as high as Ottawa but still very high by provincial standards - so why no spillover into crime statistics?

 

 

 

Of course, the number of officers may be correlated with cost but perhaps policing resources in Thunder Bay are abundant because we pay officers less and therefore, we are getting more bang for our buck?  Well, Figure 3 looks at the cost of policing for these same 15 major Ontario centres using cost measures from the BMA 2020 Municipal Report.  The cost measure is what is available – the cost of policing in terms of dollars spent on policing per $100,000 of tax assessment.  Using this measure, Thunder Bay comes in third place – behind Windsor and Timmins – at $439 per $100,000 of taxable assessment.  Put another way, in Thunder Bay, if you have a $250,000 home, you are probably paying close to $4,000 in property taxes on that home.  Of that amount, $1098 (2.5 times 439) is going to pay your share of police services – about 28 percent of your taxes.  In other words, in Thunder Bay, one-quarter of the tax levy goes to provide policing services. A good question is how this might compare to other cities but good luck conveniently getting the data for that.

 

Are there good reasons why we spend a lot on policing in Thunder Bay. Yes, councillor, maybe.  Or, maybe not. However, relying on the City of Thunder Bay to make the case rather than a more impartial source probably results in a predetermined answer. It still does not change the fact that we are at the top of the list both in terms of policing numbers per capita and in costs as measured by the publicly available data.  Does that mean we need do nothing about it? No. We can always do better.  That does not mean spending more on policing, it means finding ways to achieve current outcomes with less money.

Thunder Bay Simply Spends More...A Lot More

 

Budget deliberations will continue this week at Thunder Bay City Council and the conversation to date suggests that there does seem to be some recognition that this year needs to recognize the financial hardship of the current pandemic.  However, easing back on tax increases this year and expecting to get back to normal the year after is really also not the right strategy.  This does seem to be the source of division right now on Council given the difference of opinion on just how serious future financial challenges are.

 

The summer saw talk of a tax levy in the 3-6  percent range as a result of increased costs due to COVID but it appears that the substantial amount of federal and provincial aid has dampened that talk to the point where the proposed increase is now 2 percent for 2021.  However, many in City administration and on council feel that this is temporary, and we will be returning to business as usual with increases well over three percent in subsequent years. 

 

The response at some of the budget presentations last week was that even the proposed two percent now needs to be reduced further.  In response, the call by one councillor to accomplish that by simply taking the money out of City reserves or stabilization fund for this year again reflects the belief that the problems are short term and things will be better next year.  This is a mistake given the long-term structural problems affecting City of Thunder Bay finances.

 

[As an aside, the councilor’s quote that “That stabilization fund is there for crises, like the [2012] flood,” was interesting comment given that the 2012 flood affected several thousand homeowners much like the current leaky pipe pandemic and apparently dipping into the reserves then now seems to be viewed a form of assistance to homeowners. The City has remained tight-lipped on the leaky pipe matter since the start and now especially since it is before the courts as a result of a class action lawsuit.  However, the homeowners affected by the 2012 flood have also filed several large lawsuits so one wonders why the double standard in public commentary? Has some sort of self-imposed statute of limitations on discussions expired?]

 

Thunder Bay’s municipal finances are marked by a long term erosion of its property tax base due to industrial decline and a lack of population growth combined with above average spending and costs due to a higher cost structure acquired during a time when revenues were more abundant.  There is a failure to recognize or deal with the problem.  This higher cost structure is apparent when Thunder Bay is compared to major Ontario municipalities.

 

The following figures present municipal spending for Thunder Bay compared to 26 other major municipalities in Ontario for 2020 using data obtained from the BMA 2020 Municipal Report.  Note that for municipalities with regional government, in the police and fire categories, spending per capita for the regional functions was included on top of their reported municipal spending.  Figure 1 presents the per capita tax levy for all 27 cities as well as the average for them.  Thunder Bay does have the fourth highest tax levy [municipal operating spending] of these 27 major municipalities.  What is more interesting is when the composition of the spending is broken down a bit.

 

 

 

What emerges from Figure 2 to 6 is that Thunder Bay spends the most per capita on general government (administration), police and fire of these municipalities.  Thunder Bay spends $241 per capita on general government compared to the 27-city average of $113 – more than double.  It spends $317 per capita on fire protection compared to the average of $191 and $441 per capita on police protection compared to the average of $311. While in total, Thunder Bay only spends about 10 percent more per capita than the average, compared to the category averages it spends 116 percent more on general government, 66 percent more on fire and 42 percent more on police.

 

 

 

 

 

 When these three expenditure categories are summed up, it turns out that Thunder Bay spends nearly $1,000 per capita on general government, police and fire compared to an average of $612 – that is 63 percent more than the average.  While northern Ontario municipalities because of their larger urban areas and lower population densities have a tendency towards higher costs and spend more, we are head and shoulders above the rest of the North.  Looking at Figure 5, after Thunder Bay at nearly $1,000 comes Sault St. Marie at $752 and North Bay at $736. Sudbury is only at $656.

 

 

 

 

 

 

As a share of the per capita tax levy (Figure 6), spending on general government, police and fire in Thunder Bay at 56 percent is approaching nearly 60 percent!  The average across these cities is closer to 40 percent.  One cannot simply blame arbitration costs for police and fire spending in Thunder Bay because all cities in Ontario are under the same system and salaries do not differ that much across jurisdictions.  Based on what is being spent on administration, police and fire, we are spending an awful lot for government protection services which makes one wonder if in Thunder Bay we are living in some type of municipal public sector version of the Sopranos? The cost structure is a problem and require a concerted long term effort to bring costs and spending more in line with other jurisdictions. 

In Ontario, Its Back to School...and Back to COVID

As the September 2020 edition of Labour Day unfolds, the long summer of 2020 which for many students began in March, comes to an end in Ontario.  It is back to school at the elementary, secondary and post-secondary level and the rush to cram in as many outdoor social opportunities as possible during the good weather also comes to an end.  Like in many other parts of the world, the last few weeks have seen a relaxing of individual behaviour as also noted by pundits such as Andre Picard and the inevitable result has been a creeping up of the daily count of new cases.  The accompanying figure puts the start of the reversal of the downward trend at day 200 which coincides with about mid-August. 

While it appears the uptick in Ontario is being driven by GTA cases, as Picard himself notes, it is difficult to know exactly where or how people are being infected given the obsession of public health authorities in Canada with secrecy.  Sometimes, it would be nice to know when a case is reported in your community if it was due to international travel, inter-provincial travel, connected to a workplace or social event in an effort to personally gauge the threat level but such is not the case.  Of course, it is also difficult to know whether governments and public health agencies in Canada are being secretive or they simply do not have the capability to finely analyze and present data.  The latter possibility is even more disconcerting.

 

Back to school in Ontario will be interesting to watch unfold.  There apparently is a shortage of teachers given the anecdotal stories of retired teachers being phoned up and asked if they would like to come back this fall.  There is also a growing  shortage of school bus drivers.  And parents appear to be surprised that classes are as large as they are given that as much as one third of children will be doing their lessons online.  Of course, it is amazing how little people in general understand about resource allocation and basic economics.  Even online teaching requires teaching resources and they need to come from somewhere and given the anecdotally reported spate of sudden retirements it is no surprise that in-person classes are larger than expected.  Indeed, many JK and SK classes in particular are as large as previous years – that is to say 25 to 30 students.  It would be interesting to have more information and data about class sizes and their distribution, but provincial education ministries and school boards are as secretive as public health authorities.  If anything, the pandemic seems to have accelerated the tendency to less and less accountability on the part of government authorities when it comes to publicly available and accessible data and information. 

At the university level, the early cries of an enrollment collapse in the wake of COVID appear to have evaporated.  Overall enrollment in Ontario at the university level is holding its own and the numbers are good at both the domestic and international student level.  As of the August 2020 update, it would appear that  undergraduate confirmations are up at 107,001 from last year’s 104,635 – that is an increase of 2.2 percent and hardly the apocalyptic collapse many university administrations were articulating.  At my own university, as of this morning the total enrollment statistics showed the total enrollment down by several hundred but the system traditionally lags in presenting information which I think means that enrollment is pretty much on target.  My own first-year class is up 60 percent from last year while my upper year classes are either at the same level of enrollment or actually higher. 

It would appear that online education has actually had the effect of expanding choices for students because in person class schedules – especially at small universities with few sections - often meant there were scheduling conflicts.  I do recall in the past conversations with senior administrators chastising economics for its low undergraduate enrollment and never seeming to acknowledge the point that part of the problem was the class schedule itself given small departments and fewer sections of anything.  At Lakehead, more students seem to be opting for economics because they can actually fit it into their schedules this year. I suppose that is one proverbial silver lining to the COVID cloud.  The other is that universities – like other employers - have downloaded many of their costs onto people working at home and are saving a lot of money on their utilities and operating costs while keeping their tuition fee structure and other funding fully in place.  And unlike private employers, we are apparently not being provided with T2200  to help in the costs of any upgrading internet and computers at home to deal with larger classes.

So, it is September and once again the drama begins.  Another new school year but this time starting under conditions of a global pandemic.  Stay tuned.

Policing Resources and Costs in Northern Ontario: A Brief Municipal Comparison

Municipal budget season is upon us and expenditures on protection – police and fire – are some of the most important areas in which municipal tax dollars are spent. Municipal police services have the responsibility of ensuring the security of residents, businesses and visitors to their communities and the basic activities are crime prevention, enforcement of laws, maintaining public order,  assisting the victims of crime as well as emergency services.  Over the years, policing has become more complex dealing with new types of criminal activity in the cyber age as well as devoting more resources to social concerns.

One interesting point of comparison for the five major northern Ontario cities is the number of police officers per 100,000 of population and the trend in this number over time.  Figure 1 plots Statistics Canada data on police officers per 100,000 for the period 2000 to 2016.  In 2000, the largest number of police offers adjusted for population was in Thunder Bay at 171.6, followed by Sault Ste Marie at 156, Timmins at 153.1, North Bay at 147.6 and finally Greater Sudbury at 143.1.  By 2016, Thunder Bay was still first at 199.5 officers per 100,000 of population.  It was followed by Timmins at 196.2, Sault Ste Marie at 176.7, Greater Sudbury at 160.7 and then North Bay at 152.6.   

 

As Figure 2 illustrates, growth in per capita policing numbers was greatest in Timmins at 28 percent, followed by Thunder Bay which saw a 16 percent increases.  Next highest growth was Sault Ste Marie at 13 percent, followed by Greater Sudbury and North Bay at 12 and 3 percent respectively.

 

Another point of comparison is spending. The BMA Municipal Reports provide some data on the costs of providing policing services. The rankings for costs generally parallel those for police numbers. When the net costs per 100,000 dollars of assessment are compared (including amortization), in 2016 the highest cost was in Timmins at $441 per $100,000 of tax assessment followed by Thunder Bay at $434. Next was Sault Ste Marie at $402, then North Bay at $317 and finally Greater Sudbury at $299.  Naturally, this ranking is influenced by the richness of the tax base and all other things given cities with a weaker total tax base can expect costs of policing per $100,000 of assessment to be higher.  At the same time, over the last decade, all five cities have seen a reduction in the net costs pf policing per 100,000 dollars of assessment.  This could be a function of growth in tax bases as well as other efficiencies and economies.

Reorganizing Health in Ontario

As part of the Ontario government’s austerity drive, health minister Deb Matthews recently announced plans to save money by reorganizing health care.  To start with, the province’s family health teams will be placed under the control of Ontario’s Local Health Integration Networks (LHINS) so as to help plan and provide physician resources and care more effectively.  In addition, they want to move more routine procedures out of hospitals and into specialized not-for-profit clinics but with little detail as to what might happen.  All in all, there will be efforts to provide more community care and integration of that care with the main health system in an effort to rein in spending.  The health minister in her remarks to the Toronto Board of Trade earlier this week also remarked that the changes “will not happen overnight”.

Will this work?  Well, it has been tried before.  We only have to go back to the 1990s with hospital restructuring and the implementation of home and community care initiatives that nearly 20 years later are still not very well developed.  Why?  It turns out effective home care was really not that cheap after all.  As for handing over physician resource planning to the LHINs, well that suggests another complicated exercise in planning fraught with transaction and administrative costs especially given that the LHINs when they were created were never given any responsibility over core health spending resource allocations – physicians and hospitals.  For LHINs to be effective resource allocators, health budgets would need to be completely decentralized from the health ministry so that LHINs could tailor their health services to local and regional needs.  However, LHINs have evolved more into “planning” mechanisms rather than service providers.  Moreover, at this point Ontario would be a late comer to the regionalization game as other provinces – for example Alberta – have already tried it and it turns out they have retreated back to a more centralized model.  It turns out centralized budget decision-making is more useful when you are trying to cut costs across an entire health system.

It is difficult not to come to the conclusion given the vagueness of statements and pronouncements to date that the Ontario government is treading water on health care reform.  Health is contentious and the government has a minority.  True integration of the health care system in an effort to eliminate duplication of mandates and services, reorganization of physician services, billing practices and hospital human resources, the delisting of less cost-effective services and the transfer of additional procedures to not-for-profit clinics will be controversial.  Witness what happened after the health minister’s musings that reducing the number of C-section births would ease health-spending costs.  The media storm was immediate.  After several days, there was a statement that the government would not be delisting C-sections ands that the government would be encouraging new birthing centers as a better way. Taken at its word, this means keeping the current practices and introducing new ones – which means even more health spending down the road.  In health care reform, tomorrow is yesterday.