Pave paradise, put up a parking lot
Much like the rest of the world, Canada is in the midst of a deepening housing crisis. Just a couple of weeks ago, Minister of Housing, Infrastructure and Communities Sean Fraser acknowledged that “housing has become a major bottleneck to economic growth in Canada.” This crisis is having tangible impacts across the economy, including increased household debt, increased government spending on the human and social services associated with housing insecurity and homelessness, and difficulty attracting and retaining labour. This isn’t unique to Canada. Most countries are feeling the affordability pinch right now.
The interesting part is not that a crisis exists (though the numbers above are staggering); it’s in examining the controversial approach that’s currently being taken and gleaning some lessons for future approaches in Ontario and around the world.
Ontario’s Quick Fix
In our backyard, the provincial government focus has been blunt: more supply, anywhere, fast. We certainly agree to an extent, but not all tactics in bringing on new supply are created equal, and the province is now under fire for fast-tracking the auctioning off 7400 acres of the Greenbelt to make room for 50,000 homes. The Ontario Greenbelt is a protected swathe of 2 million acres of farmland, forests, wetlands, rivers and lakes in Southern Ontario. This preserve was created in 2005, and in its protective agency’s own words: “safeguards the vital resources that clean our air and water, reduces our flood risks, provides a home for wildlife, and ensures our communities have greenspace to explore.”
Shortly after the plan was made public, Bonnie Lysyk, Ontario’s Auditor General released a 100-page report that highlighted some potentially damning improprieties in the selection and bidding process:
There was a highly obfuscated land selection process that was “not transparent, fair, objective or fully informed”
Developers with close ties to the Housing Minister, Steve Clark, were favoured
According to experts, there was plenty of land available to hit a 1.5M home goal without needing to develop any of the Greenbelt
The Premier has since acknowledged that the auction had notable flaws and promised to return the land if developers don’t hit development goals before a certain deadline. This is truly an incredible amount of drama – and a potentially significant environmental compromise – for 50,000 homes. It was / is an attempt at a quick fix and it hasn’t gone that well. Unfortunately, there are no quick fixes and easy wins here especially within the context of a multi-million home shortage.
Increasing supply outside of city limits is but one of many tools required in the toolbox. Canadian builders and developers have been major beneficiaries of sprawl – and they’re incredibly talented at creating new “bedroom communities.” Canada ranks 193 rd in the world in terms of population density globally with 4 people per square kilometer, compared to the US’s 35 and the global average of 54. Toronto itself has ¼ of the population density of other major global cities (source) due to 70% of the city’s residential area being limited to building only single-family residential dwellings.
We are very good at building out, and out, and out. But what comes with these expansive projects are vast hidden costs. Roads must be built/extended/improved, utility infrastructure needs to be run, and service volumes expanded. Customers need to be more and more accepting of being further and further from more populated city centres. Public transit needs to be made available. Flood plains and water tables must be managed and compensated for, and biodiversity must be managed. Etc. The point is, there is a limit to this type of development as THE solution.
Are there better solutions out there?
This problem is extremely complex, there are no two ways about it. But we do see other interesting avenues for increasing the housing supply that are potentially less blunt and more structurally sound. We’re optimists after all. Supply is part of it (both urban and suburban), permitting friction is part of it, taxation is part of it, supply chains are part of it, and labor is part of it. We need a multidisciplinary approach, and we see technology playing a pivotal role in unlocking these bottlenecks. Some ideas:
Specific densification permits: Adjusting zoning to expedite for construction in dense urban areas will allow for much faster and more efficient construction. There’s been ample ink spilled writing about Canada’s missing middle problem, and Japan has very compelling solutions for how to handle simplified zoning (we’ve written about how Japan does it better, here).
Think modular: Modular and panelized construction technologies can bring the efficiency of a production line to on-site construction. Modular designers and fabrication shops are very popular and is becoming fairly standard practice (our portfolio company, Modulous, is doing very cool things in the space).
Implement technology in hiring and upskilling: Labour is frequently cited as a bottleneck in construction, but it is believed that matching jobs to workers is the true problem. To find and build the workers they want, companies should try innovative sourcing and upskilling technologies like Faber Connect, Toolbelt and Skillit. The base incentives are there - between 2020 and 2022, Canadian construction wages grew 9.4% versus 6.4% in similar sectors (Statistics Canada and RBC Economics).
Government Fees: Development charges levied by municipalities to fund capital projects add to the overall cost of building homes. At the upper end, government charges can represent more than 20% of the cost of building in major Canadian cities. For example, in 2022, the City of Toronto implemented a 46% increase in development charges, up 200%, since 2018 (source: More Neighborhoods Toronto). We imagine that residents would prefer to cut this cost first, instead of paving over green space.
Adaptive reuse: Turn good quality but un/under-used real estate and land into new assets instead of leaving them sitting vacant. The current push toward converting commercial to residential is one we’re following very closely, and will be writing about in the future. See our previous article here.
In coming updates from us, you will see us explore potential solutions with a cross-section of industry stakeholders. Nothing is more urgent in our mind than improving housing affordability and security for all Canadians, and we believe there are far superior strategies to simply paving everything that isn’t paved yet. Let us know if we missed anything and become a part of the conversation – email info@groundbreakventures.com