Accurate forecasts critical to housing

In the early to mid-2000s, Ontario decided to actively manage growth and development in the Greater Toronto and Hamilton areas and the surrounding municipalities, for environmental, social and economic reasons. This decision came to life as the Growth Plan for the Greater Golden Horseshoe, 2006, and subsequent Growth Plans, which direct how much housing gets built, where it gets built and how dense it is. These plans are informed by population, migration and housing completion forecasts that try to project exactly how much housing will be needed in the future.

Given that these forecasts are fundamental to determining future housing needs in our region, it is important to ask whether they are as accurate and reliable as they can be.

If the population forecasts are too high, then municipalities overbuild or invest too early in infrastructure to support growth that either doesn’t materialize or that happens much later. This can put a strain on municipal finances as they invest ahead of the development charge revenue they will receive once the development does occur. This situation is not ideal but may be preferable to the alternative. When the population forecasts are too low or housing completion forecasts are too high, then not enough housing is planned for population growth and we get a shortage of housing supply, leading to the kind of price escalation and affordability challenges we are currently experiencing in the GTA.

In an effort to understand the factors that have led to this forecasting failure and a key reason for our region’s housing supply and affordability crisis, BILD asked Smart Prosperity Institute to take a look at the population, migration and housing completion forecasts used to plan housing in the GTA.

Smart Prosperity’s report, funded by BILD and released on Tuesday, found that over the last seven years, forecasts have underestimated population growth and overestimated housing completions. That means that municipalities are planning for growth using inaccurate assumptions and, predictably, ending up with a shortage of needed infrastructure and a shortfall in housing to support new residents. Combine that with our region’s lengthy building approval processes and the significant government fees, taxes and charges on new homes, and it’s no wonder so many GTA residents struggle to find the housing options they need at prices they can afford.

As the report rightly notes: “Developing accurate long-run forecasts in an environment of rapid policy changes is a Herculean task. It illustrates the need for more regularly updated forecasting, along with uncertainty built into existing forecasts.”

So what are the solutions to make forecasting more accurate? Clearly, there needs to be an examination of how and how often we forecast for housing demand. Some solutions that could be implemented relatively easily include having one set of common and agreed-upon data, updating that data regularly and revisiting forecasts when there are major policy changes, especially around immigration targets. We should also build in contingencies within the planning models to account for variations over time.

The root causes of the GTA’S housing supply and affordability challenges are complex. Understanding that inaccurate population and housing completion forecasting is part of the problem, we need to pursue solutions that will allow us to do a better job of planning for our region’s future.