The Real Reason(s) Toronto Is so Much Less Affordable Than Ottawa

Population growth has created strong housing demand in the Greater Toronto Area, but it isn’t the main reason that the region is twice as unaffordable as Ottawa.

By Josh Sherman | 4 minute read

Ottawa could hold the solution to the Greater Toronto Area’s housing-affordability crisis — or at least lessen its severity.

When looking at housing affordability, Ottawa and Toronto are very different real estate markets. In the former, owning a detached home drains about half of median-income earning household’s pretax income, according to RBC analysis. While that’s not ideal — truly affordable housing shouldn’t eat more than a third of an owner or renter’s income — the Greater Toronto Area is in a different stratosphere. By the same RBC measure, the carrying costs of a standalone house add up to a jaw-dropping 93% of the local median income.

But this wasn’t always so. Believe it or not, there was a time — as recently as the mid-’80s — when Toronto’s housing market was no less affordable than Ottawa’s, notes economist Frank Clayton. In fact, in 1985 the nation’s capital scored worse than Hogtown for detached-home affordability. “I’m surprised, and when I tell people about it, they’re surprised,” says the co-founder and senior research fellow at Toronto Metropolitan University’s Centre for Urban Research and Land Development. “People don’t really realize that.” 

The little-known factoid, which is drawn from RBC’s historical analysis, is the starting point for Clayton’s recent research into the divergent real estate markets. Through his work, which includes a 33-page report and follow-up note, he attempts to answer the question: what happened?

Clayton’s answer may present another surprise: the main culprit isn’t population growth. That’s not to say that demand from a fast-growing population hasn’t driven prices higher. But Clayton suggests it’s what policymakers for the Greater Toronto Area have — and have not — done to establish an adequate supply of the right mix of housing that makes the biggest difference. 

The 2 Drivers of Toronto’s Housing-Affordability Crisis

The policy problem boils down to two key issues, both planning-related. “The main thing is Toronto is very fragmented,” says Clayton. “Toronto’s got all these regional municipalities and local municipalities in between that, so nobody’s in charge of the Toronto region,” he tells Wahi. Contrast that with Ottawa, where much of the entire metro area is under the purview of one single-tier municipality.

Under this fragmented structure, some GTA municipalities have been friendlier to development than others. For example, the development charges levied by municipalities on developers range from about $102,000 in Bradford to about $225,000 in Mississauga, according to a report from the Building Industry and Land Development Association. “A developer, or a builder, they have to pay those fees up front,” says Clayton, who notes the fees are too high throughout the GTA and ultimately passed on to homebuyers. “In the United States, in a lot of places, you can buy a serviced lot for $150,000, and here, all you do is get the right to build.” 

Establishing a new regional municipality, similar to the former Municipality of Metropolitan Toronto, which was disbanded in 1998 with the amalgamation of the City of Toronto, would remove disparities in zoning rules. It would also be in a better position to respond to overall housing demand across the region, says Clayton. “The housing market is not a municipally based entity; the housing market is an economic unit that covers a commuter shed,” he explains. (Statistics Canada defines a commuter shed as “the area from which a workforce commutes to a (central) workplace.”)

Provincial policies have been the second planning-related problem since the ‘80s. The 2005 Growth Plan for the Greater Golden Horseshoe — which Doug Ford’s Progressive Government recently replaced — encouraged urban density, but, Clayton says, it wasn’t friendly to building new low-to-mid density subdivisions on greenfield, or undeveloped, land. Nearly half of Ottawa’s development, meanwhile, occurs on such land, which Clayton suggests is the kind of balance the GTA should strive for

Stymying the construction of so-called ground-oriented housing is a problem, he says, because many Canadians still want single-family homes, a preference supported by a recent Wahi survey. “The Liberals, under their regime, didn’t want greenfield development so they discouraged it,” he says of the former Growth Plan. “If you restrict supply and demand is strong, your prices go up, so that was an added factor to Toronto in addition to the fragmented planning,” says Clayton, who holds a PhD in economics from Queen’s University.

Clayton suggests the main problems are planning related because, when looking at the other factors that influence affordability — growth in population, employment, and incomes — the GTA and Ottawa have displayed similar trends over the long run. While GTA population growth has exploded in recent years, that wasn’t the situation when affordability began to diverge between Ottawa and Toronto. “They’re all very similar,” says Clayton. “That’s why I thought they were good case studies, because the economic and demographic trends were very, very similar in the two cities — even though the Toronto region is five times as big.”

Ottawa may have done a better job of managing housing supply across the broader metro area, but Frank Napolitano, mortgage agent and co-founder of Mortgage Brokers Ottawa, says the city isn’t cheap.“The people in Ottawa feel that houses are too expensive, too,” he tells Wahi.

Still, he finds Ottawa house prices surprisingly low for the kind of real estate market it is. “You’ll see that Ottawa’s still one of the most affordable capital cities in the world to buy a house in,” he says. “I honestly can’t put my finger on it;, I’ve never been able to figure it out.”