Debating Bill 108: How Economics 101 Can Help Planners Understand the Impact of Bill 108 on Housing Affordability
By: Frank Clayton and Diana Petramala
June 14, 2019
Bill 108 (More Homes, More Choice), which will allow the Ontario government to implement its Housing Supply Action Plan, received Royal Assent on June 6, 2019. These combined policy moves are intended to improve housing affordability in the Greater Toronto Area (GTA) and the rest of Ontario by delivering more serviced sites to the marketplace, shortening the time frame for land use approvals, lowering development costs, and reducing uncertainty for developers. These measures will lower the costs of producing new housing and, in a competitive marketplace like the GTA, will ultimately result in lower housing prices and rents than would otherwise be the case.
Many planners have not considered the workings of the housing marketplace and have reached the conclusion that further regulation is required to ensure the benefits of these measures will be passed along to buyers or renters of new housing. These planners seem to agree that Bill 108 will lead to more supply and lower development costs, but they doubt that it will lead to better affordability, which contradicts economic theory and empirical evidence.
A lack of understanding of how the housing market responds to lower development costs, faster approvals and more certainty is commonplace amongst land use planners according to an insightful new book by Alain Bertaud, a notable urban planner with extensive global experience:
I have found that many urban planners, even in the very affluent cities of Western Europe, North America, and East Asia, not only seldom understand how markets work, but are proud to pretend to ignore them.1
We agree with Bertaud. In fact, the reason the Centre for Urban Research and Land Development was established at Ryerson University was to encourage economic analysis in the use of the formulation of urban policy decisions within the Greater Golden Horseshoe. Through research, seminars and education initiatives, our mission is to inform urban decision makers, the public and students on the importance of economics and real estate market understanding in formulating effective land use policies and minimizing unintentional adverse economic impacts.
The basic rules of supply and demand often used in economic discussion can help illustrate how policies such as Bill 108 will help improve affordability, both in theory and in practice.
The impact of increased supply on housing prices in theory
A recent academic report from the NYU Furman Centre (the New York City version of CUR) highlighted that housing markets follow the laws of supply and demand, even when land is constrained.2
The rules of supply and demand can help us understand the directional impact of Bill 108.3 Its result will be to reduce the costs of producing new homes, which will reduce housing prices, assuming all else is equal.
Figure 1 shows a supply and demand curve, a visualization of how much housing will be supplied and demanded at various price levels (the same analysis applies to rents). How much housing (Quantity) can be interpreted as the number of units, or the square footage of housing.