Ontario’s Housing Crisis: We Need to Stop Interpreting Constrained Optimization as Free Choice

As always, here is the TL;DR:

TL; DR Ontario’s trend of forming larger households isn’t due to changing preferences; it’s due to young people getting priced out of the housing market and being forced to live with their parents longer.

The response Alison, Maryam, and I received after we published Ontario’s Need for 1.5 Million More Homes was incredible. Over a dozen front-page stories across the province, more radio interviews than I can count, and briefings for all three levels of government. Last week we saw the Ford government implement housing targets for 29 municipalities, similar to the housing demand estimates from the report.

One group that gave us a mixed reaction, however, was urban planners. Some gave it glowing reviews, some were skeptical but good-natured, but others hated it. And that feels like an understatement — they really, truly hated it. Got told the report was “irresponsible” and that I should “know better”. Received a couple of angry phone calls. That kind of thing.

Their argument boiled down to, “Ontario is fundamentally different than other provinces, so cross-country comparisons are pointless. My witty retort was, “yeah, we are different; our rents and home prices are higher”. I think I need to re-read How to Win Friends and Influence People, because my lack-of-charm offensive didn’t seem to work with them.

Anyhow, last week we saw that argument published in the Toronto Star, by Karen Chapple and Cherise Burda under the title The province is setting a housing affordability trap for Toronto. The core argument they make is identical to the ones the angry (at me) planners made, which is as follows:

[I]f Ontarians continue a trend of forming larger households (or families) than the Canadian average, we likely need just 40 per cent of those units.

The piece is worth reading, and I have a tremendous amount of respect for both Chapple and Burda, so my intent is not to dunk on them (though it will likely be taken that way… I really do need to re-read How to Win Friends). However, I think their argument is wrong. Dangerously wrong.

My good friend Dr. Lindsay Tedds likes to remind her students and our profession that:

We have to stop interpreting constrained optimization as free choice

That is, we should recognize that people’s decisions are inherently constrained by their options, which are a function of a variety of factors from income (or wealth), cultural norms, systemic discrimination, and a host of other factors.

Chapple and Burda are correct that Ontarians are forming larger households. This is due, in large part, to adult children in Ontario living with their parents longer than they have in the past. Take, for example, the proportion of 30-to-34-year-olds who live with a parent. According to Census 2021 data, of the 15 metros in Canada with the highest proportion of this cohort living with a parent, 13 of them are in Ontario.

In 2016, Toronto was the only metro in Ontario that had a higher proportion of 30-to-34-year-olds living with a parent than Vancouver. By 2021, Oshawa, Windsor, St. Catharines-Niagara, Barrie, and Brantford had overtaken the home of the Canucks.

The numbers only tell a what; they do not tell a why. The planner's argument is that this is a trend or a preference. They interpret this data to mean that Ontarians in their 30s prefer to live with their parents, so we don’t need as many homes for this cohort as in other provinces since they’d rather live with Mom or Dad.

My take differs. My take is that the preferences of adults that live in Brantford probably aren’t fundamentally different than those in Winnipeg, Edmonton, Calgary, Montreal, or Saskatoon, and the reason they’re living with their parents longer is due to a lack of homes.

Why don’t young people in Brantford want to move out on their own anymore? It’s a complete mystery.

In transportation planning, there’s the concept of induced demand for highways. That is, if you build my highways, the result typically isn’t less congestion but rather more trips taken.

We’re seeing the converse of this happening in Ontario housing: repressed demand. A lack of housing options is causing fewer homes to be rented or purchased by young adults, who live with their parents longer.

In both transportation and housing, demand is not a constant, rather it is a function of the options that people have. Or as Prof. Tedds correctly describes it: we have to stop interpreting constrained optimization as free choice.

Now, policymakers might decide that they prefer to have a society where housing is scarce, where people are forced, for economic reasons, to form larger households. But we should recognize that this is a choice being made by policymakers, not some inherent change of preferences among everyday Ontarians.