Are environmental land protection policies a cause of housing shortages and unaffordability? It is a common question in Ontario following the rental affordability crisis and a recent scandal surrounding Greenbelt protections. University of Toronto PhD Candidate Alexander Hempel’s latest research examined the question by looking at what happened to Toronto housing prices when Greenbelt protections were implemented in the early 2000s.
Hempel created an analytical model to examine what would have happened to Toronto housing development had the Greenbelt never been created. The data did show price effects up to 2010.
“Using the model, I simulated the scenario in which no Greenbelt was implemented,” Hempel explained. “I did find that the Greenbelt led to a reduction in aggregate housing supply of almost 10,000 units and price increases of 4.1% for houses and 6.1% for condominiums; this corresponded to an increase in condo rent of $675 a year.
That does not mean the protection of environmentally sensitive areas always leads to housing affordability pressures. Hempel also found that, had Greenbelt protections been paired with small relaxations of zoning regulations within the city, there would have been no negative implications on housing prices.
“The Greenbelt was implemented in areas with an elastic housing supply and pushed to inelastic areas, which meant prices rose,” Hempel said. “It’s difficult to build within the City of Toronto, but when I created a scenario where zoning changes would supply more housing development elasticity in just 19 census tracts in the city core, the negative cost effects of the Greenbelt disappeared.”
Hempel’s results have important implications for policymakers concerned both about housing affordability and environmental protection.
“If you are going to ban housing on the urban fringe, on top of banning housing within the city, this will raise housing prices,” Hempel said. “But if you want to protect the environment, you can relax zoning and create a better outcome for all.”
Hempel’s research provides global policymakers with several points of consideration when creating similar policies.
“Urban growth boundaries and greenbelts are used throughout the world, but because they impact an entire city, it is challenging to estimate the impact of such policies,” said Jonathan Hall, Professor of Economics and a member of Hempel’s dissertation supervision committee. “Alex Hempel’s research uses a variety of methods to provide credible estimates of how Toronto’s Greenbelt is impacting housing prices here. This research helps us evaluate the trade-offs inherent in any policy and is of immediate relevance to the policy debates in Ontario and worldwide.”
Composed of wetlands and watersheds, greenspaces, and farmlands and forests, the protected Greenbelt includes 8,094 km² of Southern Ontario’s high population Golden Horseshoe. Hempel’s findings are outlined in his Job Market Paper The Impact of Greenbelts on Housing Markets: Evidence from Toronto. Part of Arts and Sciences at the University of Toronto, the Department of Economics is preparing 8 PhD Candidates and 2 Postdoctoral Fellows for the 2023-2024 job market.