How can Ontario's housing affordability crisis be solved?

Ontario’s housing affordability crisis is complex. And like any complex issue, there are myriad causes. But there are also solutions, such as restricting housing costs to four times household income (it is currently six times) or building not only more housing, but more affordable housing. For how we got here and some potential fixes, here is what you should know.

Is there a housing crisis in Ontario?

Simply put—yes. Nowhere is this fact more evident than in Toronto, which is now the second most expensive city to rent and the most expensive city to purchase a house, according to the Canadian Real Estate Association (CREA). Recently, Toronto surpassed Vancouver as the most expensive city to live in the country.

And housing in Canada’s largest city has become less affordable, with 30% or more of household income being spent on shelter, according to the Canada Mortgage and Housing Corporation. In fact, housing costs have become completely out of step with incomes, with the median income in Toronto at $35,000 per year, according to Statistics Canada. This means that most Torontonians are priced out of purchasing homes—and others are even priced out of renting.

What are the causes of the housing crisis?

One of the often-cited causes of the housing crisis is the supply problem. These exorbitant costs are increasing because Ontarians are competing for the same limited number of houses. However, it is important to understand that the housing crisis in Ontario is complex, with more than one single cause. There is even debate about whether the housing supply crisis is even the most significant cause.

Another, for instance, is that the rising cost of housing is outpacing wage growth. In Toronto, buying a home is roughly 300% more costly than it was in the 1990s. The median income, meanwhile, has essentially remained the same. In 2022, it would take a middle-earning household saving 10% every month for 24 years to save for a down payment of an average home in Toronto. In the early 1990s, on the other hand, a similar household would have to save for two years for a similar home.

Speculation is another cause, with homes being increasingly treated as an investment to buy and sell, as opposed to a basic human right. First-time homebuyers usually have to compete against wealthy multi-property owners and international investors. Another factor is the lack of affordable housing. In the 1990s, the federal government disinvested in social housing projects, leaving Toronto short 100,000 units of social housing that would have helped alleviate the crisis in some segments of the city’s population.

Factors that are related to Ontario housing affordability crisis

If we want to understand Ontario’s housing affordability crisis, we have to look at the supply chain and the inflationary climate. Interest rate hikes from the Bank of Canada are seeing the country through an inflation period. While those hikes should technically help to decrease the cost of houses, a supply shortage is keeping prices high. In addition to lack of inventory, there are also shortages of workers, developers, resources and materials, among others.

Another factor fuelling this housing crisis is the talent gap. The unemployment-to-job vacancy rate in Canada is at an historic low, meaning there are more jobs that people to work. Like most industries, the home building industry is feeling the strain of that, with not enough trained professionals or workers to build houses.

Possible solutions that can alleviate the crisis

Just as there is a multitude of causes of the housing crisis in Ontario, there is also no shortage of possible solutions. One is to restrict the availability of credit. Some blame the current housing bubble on a move the federal government made in the 1970s, which was to stop intervening in the credit market and thereby allow the private sector to call the shots. To fight the housing crisis, the feds could restrict housing costs to four times household income with the aim to bring it down to three times. Right now, we’re at six times household income.

Another solution could be to build more affordable housing. While this will be unlikely to solve all the problems posed by the housing crisis, it will ease competition in the homeowner and rental markets to reduce prices, or at least help stabilize them.

Not only does affordable housing help house low-income people, but it could also support potential homebuyers who are trying to save for a down payment on a property. While housing subsidies for units and individuals are a short-term solution, the simple fact that in Ontario, and Toronto in particular, there is not enough permanent affordable housing to meet the demand.