Housing affordability in Ontario has reached crisis levels. Home prices and rents in many of its cities are among the highest in Canada, while rental vacancy rates are returning to pre-pandemic lows.

Restoring housing affordability will require more housing construction. The province’s Housing Affordability Task Force recommended building 1.5 million additional homes over a decade.

One of the challenges to achieving this goal is that housing policy has traditionally been led by municipal governments. This has created a misalignment of interests. The provincial government is well-placed to set goals for the province as a whole, but municipalities answer only to local voters, who often oppose new housing.

This dynamic has led the Ford government to wade deeper into housing and land-use policy, most recently with Bill 23, the More Homes Built Faster Act, which includes sweeping changes to local zoning, land-use planning and revenue sources. One less-discussed approach the government has adopted is municipal housing targets. The housing targets are a start, but the municipalities likely will fall short unless there’s a way for Ontario to enforce these goals. There are, however, both carrot and stick approaches that the province can take to make that more likely to occur.

Why targets?

Before unveiling Bill 23, Premier Doug Ford and Minister of Municipal Affairs and Housing Steve Clark announced a series of targets that each of Ontario’s 29 largest municipalities should reach by 2032. For example, the targets indicated the City of Toronto should build 285,000 homes, Ottawa 161,000, Mississauga 120,000, Brampton 113,000, and so on.

Efforts to reform the planning and delivery of housing are best-served by clear objectives. In this sense, introducing targets improves the coherence of Queen’s Park’s overall attempts to improve housing affordability. But for all their coherence, targets are far from perfect conceptually.

As a technocratic exercise, targets assume perfect information from the ministry staff developing them concerning both current and future demand. . This is virtually impossible to achieve because both population growth and residents’ locational preferences can and do change.

For example, the federal government’s recently expanded immigration targets and the fluctuations of employment in different regions (such as  resource-based economies in the Prairies) affect how many people are looking for homes and where. Targets are therefore an imperfect substitute for real-time responses by market actors such as homebuilders responding to rising prices by increasing construction.

The reality of how communities grow, however, is more complex. Homes require infrastructure, such as road, water and sewer access. As long-term investments, this infrastructure depends on the foresight of local and regional governments, who are ultimately responsible for delivering and maintaining it.

Unlike property developers, local governments have limited motivation – both fiscal and political – to grow their communities. Increased property tax revenue from new homes is unlikely to cover the long-term costs of infrastructure, while revenue from varied levies on developers depend on the relative leverage local governments have (for example, due to high demand and limited supply).

Local voters, meanwhile, are less likely to prioritize growth over other concerns, notably property values. As such, this major limitation to Ontario’s capacity to add homes and infrastructure is not responsive to market signals such as home price increases or rental vacancy rates.

In this context, it makes sense for provincial governments – which are responsible for municipalities and land-use planning governance and which are more politically sensitive to the consequences of shortages on affordability – to make a “best guess” regarding the amount of housing needed to restore balance between demand and supply. In short, “second best” solutions, such as the targets Ontario introduced, are better than no solutions.

Do targets work?

So, if targets can be conceptually valid, the next question is whether they will work. The context in which Ontario’s targets were unveiled should help answer this question. Specifically, they were verbally revealed at a private event before the legislation’s official announcement and do not feature in the bill itself. Further, the minister offered no clear consequences for municipalities that fall short of their targets.

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Another hint as to these targets’ potential effectiveness is whether previous initiatives with similar aims had any effect. As  other critics have suggested, successive iterations of Ontario’s Provincial Policy Statement for land-use planning (which sets out broad directions for municipalities instruct municipalities to have servicing capacity for a three-year supply of residential units to anticipate future housing needs.

If current shortages are any indication, this directive is neither generally followed nor enforced, and its related estimates are likely inadequate. If the provincial government wants to make its latest targets count, it should consider more tangible options.

Making targets enforceable

With little evidence to suggest that the newly announced targets will be enforced, what options are available to the Ontario government if it wants to make targets count? There are two broad strategies: the carrot or the stick.

First, the carrot. As discussed, municipalities have limited fiscal or political motivation to grow. As such, any ill-enforced directives running counter to this tendency are unlikely to bear results. One solution may be to incentivize growth. In Germany, for example, equalization payments are allocated to municipalities based in part on population. In fact, most municipalities receive more than one-quarter of their revenue this way, creating a direct link between how much a community grows and how much it gets in revenue.

The result? A far more responsive housing system, featuring the second-highest number of homes per capita in the G7. To better incentivize growth, therefore, Ontario (and indeed the federal government) could review all transfers to municipalities and identify or develop funding formulas better-suited to reward a growing population and/or housing stock.

Second, the “stick” option. As the level of government responsible for local government and planning, the province has all the tools it needs to directly enact change. Beyond the proposals in Bill 23, Queen’s Park can streamline and liberalize land-use regulations or even approve housing itself. Ontario’s recent reforms move in this direction, but to a lesser extent than reforms enacted by international and domestic counterparts.

For example, following the 1991 collapse of one of the largest housing bubbles ever recorded, successive Japanese governments approved sweeping changes to land-use planning. From the early 1990s until the early 2000s, the national government (which holds similar powers to Canadian provinces over land use and municipalities) enacted a series of incremental but significant steps. Basements and common areas were excluded from floor-area calculations; there were relaxed or simplified “slant-plane” restrictions on the shadows that buildings cast; and building approvals were accelerated by allowing private consultants to authorize permits (among many other interventions).

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These rule changes helped increase the supply of housing to the point where home construction in Tokyo, for instance, routinely outpaces that of all California, which has almost three times Tokyo’s population.

Closer to home, the Nova Scotia government recently introduced nine “special planning areas” across the Halifax Regional Municipality, where the municipal affairs and housing minister has the authority to review and approve housing development proposals. To date, the number of units planned to  be “shovel-ready” by 2024 in Halifax alone is more than the total number approved provincewide in the last five years. Though less far-reaching than the reforms undertaken in Japan, the approach is similar: senior governments taking direct action rather than hoping for change at the local level.

Ontario’s targets: good news, but a lot more to do

Overall, Ontario’s recent housing measures that include municipal homebuilding targets are good news. Targets can be conceptually coherent and clear goals can provide focus while potentially exerting “soft power” over local growth planning decisions. They can inform the drafting processes of official plans for example. However, without more substantive action to encourage or enforce adherence to these targets (carrots or sticks), Ontario is unlikely to meet its housing supply objectives.