Ontario's road to 1.5M new homes has gotten rockier, construction insiders say

Ontario faces a tough road to meet its goal of building more than a million new homes.

Construction industry insiders say the latest government policy reversal and elevated interest rates wreak uncertainty for developers.

On Monday, Housing Minister Paul Calandra announced the province would roll back boundary expansions it imposed on several municipalities, including in Peel, York and Halton regions. Calandra said he made the decision after a review found there was "too much involvement" from his predecessor's office in the process. 

The news was met with disappointment from the Building Industry and Land Development Association (BILD), a GTA-based construction advocacy and lobby group. CEO Dave Wilkes said this week that the so-called white belt land — land with potential for development just outside of existing urban boundaries — was identified through an "extensive and exhausting process.

"As it gets rescinded and pulled back, that land is no longer available for growth. That land is no longer available for new homebuyers. And it will seriously impact the ability to meet the provincial objective" of 1.5 million new homes by 2031, he told CBC Radio's Metro Morning. 

Population growth projections for some municipalities affected by the initial boundary expansions means more land is needed to build the right mix of housing for "what the market is demanding," Wilkes said, particularly single-family homes.

"We do have a structural problem," Wilkes said. 

"If we don't address that structural problem by identifying land for growth, by building infrastructure like sewers and roads in those areas and building them now … we're never going to get out of this affordability challenge."

LISTEN | Construction industry group says more land needed for housing goals:

The province is already far behind on its housing target, according to an independent analysis which says the annual pace of construction needs to nearly double to 150,000 by 2025 to have any hope of hitting it. 

Private sector projections cited in the province's 2023 budget forecast no more than 83,000 new housing starts in any year until 2026. Notably, however, those estimates were made before the federal government's recent move to eliminate GST on purpose-built rentals, with Ontario then promising to eliminate the provincial portion of the tax.

The province launched an online tracker Thursday that shows every municipality's progress toward their mandated housing targets. 

Disagreement over need for more land

Calandra and his predecessor Steve Clark said the urban boundary expansions were another part of the wider plan to boost construction. But in some instances, the changes were unilateral and made over city staff and council objections. 

Maureen Wilson, councillor for Hamilton's Ward 1, takes issue with the contention that the expansion process was fair or transparent. She notes that on Nov. 4, 2022, the same day the province announced it was opening 15 Greenbelt sites for development (a decision since reversed), it also said it was adding 2,200 hectares to Hamilton's urban boundary. That's an area roughly the size of Orillia, Ont.

Wilson told Metro Morning the move would have only encouraged more sprawl for expensive detached homes.

"Sprawl is not in a city's financial interest, it drains the city's purse," she said. "And I think right now, Hamilton is living with the legacy of sprawl and the compounded impact of that … on our water rates, property taxes, and on the condition of our existing infrastructure."

She says extensive planning reviews concluded that Hamilton has enough land within its existing urban boundary to build a variety of housing stock.

"Our vision here is dense, walkable communities that support small and medium-sized businesses, that are transit-friendly, that are family-friendly, and that are inclusive and affordable to all," Wilson said.

Hamilton city council passed a motion Wednesday calling on the RCMP to expand its ongoing investigation into the Greenbelt land swaps to include the province's urban boundary expansions.

Interest rates keeping some developers 'on the sidelines'

Even before the political whiplash of those reversals, higher interest rates and uncertainty about how long they will stay high limited prospective new housing construction.

"I think volatile is the right word," said Neil Rodgers, interim CEO of the Ontario Home Builders' Association, of the current development outlook.

Construction financing has become harder to secure, and the costs of carrying it much higher while the prices of many raw materials have remained high post-pandemic, though an analysis by real estate data firm Altus Group said those costs have started to moderate more recently. 

In Toronto, Altus Group found the costs of building single family homes increased more than 80 per cent from early 2019 to early 2023, and roughly 63 per cent for apartments. 

"It's becoming a riskier proposition in a high interest rate environment for some of these builders," Rodgers said.

"There are definitely a lot of builders sitting on the sidelines patiently waiting for the right credit environment to return."