Can Toronto’s Inclusionary Housing Policy Overcome Exclusionary Market Forces?

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By Anna Hardie

It is hard to walk through downtown Toronto without coming across a new condominium. This is in part because housing policies incentivize condo development over any other type of housing. Between 1998 and 2018, 77% of all new housing supply in Toronto were condominiums. However, most people cannot access the new supply of housing in Toronto. The average annual income required to afford a condo in Toronto is at a high of $134,726, while the median income of Torontonians is $65,829. In terms of condo rentals, the story is the same. The average condo rental in Toronto currently stands at $2,337 per month, taking up 60.3% of the average median renter’s income of $46,502. Condos are evidently not affordable to the average renter. Most of the housing construction occurring downtown is created for the wealthy, while lower-income individuals see fewer options.

If condos are clearly not affordable for most people, why is the housing market creating more of them? Doesn’t the theory of demand and supply suggest that markets will produce what is most demanded, in this case, the need for affordable housing? There are limitations to prioritizing “market efficiency” as lower-income households are left out of the market. 

Basic economic theory presumes that attaining market efficiency is the road to increasing quality of life. However, the goal of maximizing “economic efficiency” serves to benefit wealthier individuals and leaves out low-income individuals. This is particularly true in the housing market. Housing investments do not flow to where money is most needed or where the social gains to society are the highest. Instead economists assume that one’s ability to pay the most for a good or service is a signal for where investment is most needed. This means that if you are unable to afford or pay a high amount for shelter, you do not value it enough to pay for it. In this way, the economy leaves out low-income households that can’t signal to the market economy that they need housing due to insufficient income. Shelter is also a necessity meaning that demand for it is relatively inelastic. Developers can charge higher and higher prices since housing is a necessity. Given no better alternatives, people are forced to pay higher rent prices or move out of Toronto. If governments are to rely on economic theories to base their housing policy, the burden of rising housing costs on low-income citizens should be weighed more heavily as an externality of supply. But even when accounting for social externalities, the first to gain from it would be upper and middle-class citizens. Relying on the economic model of supply and demand does not serve the needs of people living in poverty. 

The new inclusionary housing targets and zoning by-laws passed on November 9th, 2021 by the City of Toronto do not provide affordable housing options for lower income households. The underlying context of the new targets and by-laws is the City’s faith in market forces to naturally serve the needs for all income levels, including lower income households. First, the low housing target reflects the City’s faith in the housing market to self-correct its supply shortage. The current target is to approve a low of 40,000 new affordable rental homes between now and 2030. This is a low target considering that Toronto will receive about 241,500 new residents within this time span. Unless each of these 40,000 units will house six people each, 40,000 units are not enough. On top of this, Toronto has significant repairs needed to be done to existing aging apartments and has hundreds of thousands of Torontonians who are already financially strained by the housing shortage. How are 40,000 new rental units enough? Second, the zoning by-laws passed to secure the 40,000 affordable rental housing is planned to be reached largely through condo development. Many of the new zoning by-laws require that new condos secure a minimum percentage of floor area to affordable housing. This represents the City’s faith in following market demand to best serve society. Preserving a specific percentage of condo units for affordable housing does not tackle the real issue of the housing shortage. 

The City of Toronto must ask themselves: Are we going to ignore the data, by our own administration, on the shortage of unaffordable housing? Are we going to ignore the expected population growth between now and 2030? The target for 40,000 new units is not reflective of the data and the new zoning by-laws do not counteract the regressive market forces.

Anna Hardie is a first-year student in the Master of Public Policy program at the University of Toronto. She graduated from Mount Allison University in 2021 with a Bachelor of Arts in Economics and English Literature. Her policy interests include housing and health policy. Anna is working towards pursuing a career in consulting for the public sector and is currently a Client Liaison at the Public Good Initiative.

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