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We Want 1.5 Million New Homes. But Can We Power Them? · The Missing Middle Podcast

• 0:00
  SPEAKER_01: Ontario has pledged to build 1.5 million new homes by 2031, which is now only, if you can believe it, five years away.
• 0:07
  SPEAKER_01: It's an ambitious goal that's going to be very difficult to achieve.
• 0:11
  SPEAKER_01: But even if we could build that many new homes, could we also provide them with electricity?
• 0:17
  SPEAKER_02: That's a really big important question.
• 0:19
  SPEAKER_02: Ontario has a pretty big electricity infrastructure problem.
• 0:22
  SPEAKER_02: You know, we need to generate more power, but we also need to get that power to people.
• 0:27
  SPEAKER_02: And the distribution side of that equation is often overlooked, but it's a massive system and it's in a lot of trouble.
• 0:34
  SPEAKER_02: Over the next 20 years, local utilities are facing a funding gap of roughly 100 to 120 billion just to upgrade things like poles and wires and substations and switches.
• 0:44
  SPEAKER_02: And that's becoming a real obstacle to building housing.
• 0:48
  SPEAKER_02: In some areas, aging equipment and a lack of capacity mean that utilities simply can't get enough power to new neighborhoods.
• 0:55
  SPEAKER_01: That's crazy, and something we definitely need to dig into.
• 0:57
  SPEAKER_01: So in this episode, we'll answer the question: is Ontario's electricity grid robust enough to meet today's demand for new homes?
• 1:04
  SPEAKER_00: Classonomics, hosted by Sabrina Mado and Mike Moffat.
• 1:10
  SPEAKER_01: Both the federal and provincial governments have talked about Canada being an energy superpower.
• 1:15
  SPEAKER_01: And while the feds are building new pipelines, Ontario's putting a lot of money into the power grid.
• 1:20
  SPEAKER_01: According to Ontario's fall 2025 economic statement, it's making one of the largest electricity transmission expansions in modern history.
• 1:28
  SPEAKER_01: This includes building two new electricity transmission lines from Bowmanville to the GTA and from Windsor to Lakeshore.
• 1:35
  SPEAKER_01: The province is also upgrading two major lines between Orangeville and Barrie and between Manby and Riverside Junction, which is in Toronto.
• 1:43
  SPEAKER_02: And while those big infrastructure projects are extremely necessary and welcome, it's actually not the big power corridors that are the most pressing problem in terms of building the number of new homes that Ontario needs.
• 1:54
  SPEAKER_02: It's the last section where developers need to hook up that expansive grid, which is called the last mile.
• 2:00
  SPEAKER_02: And it's that last mile where developers of new neighborhoods are running into trouble.
• 2:04
  SPEAKER_02: Now, there's a whole different set of issues to deal with in getting enough power to infill projects in existing neighborhoods, which we'll discuss in a future episode.
• 2:13
  SPEAKER_02: But for now, we're just focusing on getting power to new homes in new neighborhoods.
• 2:18
  SPEAKER_01: Yeah, there's a great example of this that the Globe and Mail highlighted recently, where a development in Brooklyn, Ontario, which is just north of Whitby on the other side of the 407, seems to have stalled because of the lack of ability to connect to the grid.
• 2:31
  SPEAKER_01: Now, the Globe reported that the local utility provider couldn't connect 10,000 new homes without expanding its infrastructure, which would mean building two new low voltage feeder lines from a transmission station in Whitby.
• 2:44
  SPEAKER_01: And this is a quote.
• 2:45
  SPEAKER_01: In a 2024 report, the town of Whitby acknowledged that the lack of electrical infrastructure has become the main barrier to fulfilling its pledge to build 18,000 homes by 2031.
• 2:57
  SPEAKER_02: Yeah, and this shows why it's so difficult to build new housing.
• 2:59
  SPEAKER_02: That's it's an interrelated set of problems.
• 3:02
  SPEAKER_02: Uh, you know, these infrastructure gaps are just one reason why Ontario municipalities have struggled to meet their provincial housing star targets, but it's just one of many.
• 3:11
  SPEAKER_02: You know, as of the latest data, Whitby has built less than half the homes they need to reach their provincial targets.
• 3:18
  SPEAKER_02: And Ajax has built less than one-fifth.
• 3:21
  SPEAKER_02: They're like 80% behind.
• 3:22
  SPEAKER_02: Now, Whitby and Ajax also happen to be smack in the middle of this electricity load capacity desert.
• 3:29
  SPEAKER_02: So we'll share the uh Ontario Energy Board map, uh, which highlights this, which is really telling it shows, you know, the lack of capacity in this part of the province.
• 3:39
  SPEAKER_02: So if you're listening on audio, you might want to check out the YouTube version, but we'll also link to it in the show notes.
• 3:45
  SPEAKER_02: Now, again, to be clear, there are a lot of reasons beyond electricity why these communities haven't hit their provincial housing start targets.
• 3:53
  SPEAKER_02: But given the Brooklyn example, I think it's clear that this electricity situation certainly isn't helping.
• 4:00
  SPEAKER_01: For sure.
• 4:00
  SPEAKER_01: And what struck me about this story is how similar it is to the development fee issue.
• 4:05
  SPEAKER_01: It all boils down to who pays for growth.
• 4:08
  SPEAKER_01: The Brooklyn project allegedly stalled because the developers felt they were being asked to pay super high connection costs from the local utility, which would then need to be recouped, of course, through the price of the new homes.
• 4:19
  SPEAKER_01: And then those homes would therefore be too expensive in today's market, and presumably the project would no longer pencil out.
• 4:26
  SPEAKER_01: So you could say that the cost of upgrading the electricity system for the entire community blocked new people from becoming part of that same community.
• 4:33
  SPEAKER_02: Yeah, absolutely.
• 4:34
  SPEAKER_02: And it's not just about the number of homes, though obviously that's important.
• 4:38
  SPEAKER_02: We also have to consider the changing nature of how we use electricity.
• 4:42
  SPEAKER_02: So there's this big push to get homes off of natural gas and onto electric systems, you know, onto things like heat pumps.
• 4:49
  SPEAKER_02: There's also the uh massive increase in EV charging that's already happened and is going to continue to happen.
• 4:55
  SPEAKER_02: So the energy load per household is going to skyrocket in the coming years.
• 5:00
  SPEAKER_02: So when we build new grid infrastructure, we shouldn't just build it to current demand levels, but we have to build it to future demand levels.
• 5:07
  SPEAKER_02: So the needed investments are even larger than they appear on first glance.
• 5:12
  SPEAKER_02: You know, otherwise, you run into the situation that we often see in infill development, where the builder of a small multiplex might discover that, you know, they can either have EV charging stations or they can have electric heat pumps, but they can't have both simply because they can't get access to enough electricity.
• 5:28
  SPEAKER_01: For some historical context, I think it's important for people to know that Ontario was built on cheap power, delivered as close to cost as possible.
• 5:36
  SPEAKER_01: And in many respects, fast, easy, and reliable access to plentiful electricity was the backbone of Ontario's economy from the very start of electrification over a hundred years ago.
• 5:46
  SPEAKER_01: You know, we take it for granted today that you flip a switch, the lights go on, but creating the system to make that possible was no small job.
• 5:53
  SPEAKER_01: And that's a big part of Ontario's history.
• 5:55
  SPEAKER_01: Now, this came up a little bit in a recent episode we did on the creation of big infrastructure projects and who pays for public debt that we'll link to in the show notes.
• 6:03
  SPEAKER_02: Yeah, and at the turn of the 20th century, electricity in Ontario was generated by a mishmash of private operators.
• 6:10
  SPEAKER_02: But around 1908 or so, Sir Adam Beck, mayor and MPP from London, Ontario, where all good things come from, had helped create the Hydroelectric Power Commission of Ontario.
• 6:21
  SPEAKER_02: And he had a really simple goal, that to provide the province with cheap, publicly owned electricity.
• 6:27
  SPEAKER_02: And by 1920, the commission had bought up a number of key private competitors, giving it control over electricity generation in the Niagara region.
• 6:35
  SPEAKER_02: This then helped spur the expansion of manufacturing across the province, which was the backbone of economic growth for decades.
• 6:43
  SPEAKER_02: It's what made Southwestern Ontario such a manufacturing powerhouse.
• 6:48
  SPEAKER_02: So you have to look at the philosophy behind that expansion.
• 6:51
  SPEAKER_02: Sir Adam Beck's vision wasn't just about having lights and homes, though that was important.
• 6:56
  SPEAKER_02: It was about treating electricity as a foundational utility, like a road or sewer system that we build ahead of the need to use it to unlock the province's potential.
• 7:06
  SPEAKER_01: Right.
• 7:06
  SPEAKER_01: It was an if you build it, they will come model.
• 7:09
  SPEAKER_01: They knew that if you brought power to a region, the industry, the housing, and the growth would naturally follow.
• 7:14
  SPEAKER_02: Okay.
• 7:14
  SPEAKER_02: So normally I'm the one that makes Gen X movie references.
• 7:17
  SPEAKER_02: So congratulations on the field of dream reference there.
• 7:20
  SPEAKER_02: I hope the audience caught that.
• 7:21
  SPEAKER_02: But you're exactly right.
• 7:22
  SPEAKER_02: You know, somewhere along the way, the model shifted.
• 7:25
  SPEAKER_02: We moved from viewing electricity as a public utility, a system that we invest in collectively to support the province's future, to viewing it as a project that costs, it needs to be managed on a ledger.
• 7:36
  SPEAKER_02: Now, when a developer wants to build, they're being asked to affront the capital for the entire last mile connection.
• 7:42
  SPEAKER_02: And that creates this massive friction, which we've seen in many communities.
• 7:46
  SPEAKER_02: You know, we've gone from building power to enabling growth to requiring the growth to fund that power.
• 7:52
  SPEAKER_02: And that's the mismatch that potentially stalled projects like the one in Brooklyn.
• 7:56
  SPEAKER_02: And forecasting the long-run demand for electricity is tricky because you're basically having to forecast the growth of new technologies that consume electricity, as well as the growth or decline of entire sectors that use large amounts of electricity, like manufacturing.
• 8:10
  SPEAKER_02: So if you take this just-in-time and require users to pay for just the infrastructure they need at this moment, you risk under or overbuilding the system.
• 8:19
  SPEAKER_02: And more likely that manifests is underbuilding because you're just building for today, you're not building for the future.
• 8:26
  SPEAKER_01: Right.
• 8:26
  SPEAKER_01: This now brings us then back to the last mile portion of this story.
• 8:30
  SPEAKER_01: In Ontario, it's typical local distribution companies or LDCs that are responsible for the electricity network in a particular area.
• 8:38
  SPEAKER_01: Most are owned by either the province or municipalities, think Hydro One or Toronto Hydro.
• 8:42
  SPEAKER_01: Now they're the ones that deliver electricity to the homes, businesses, and factories in their region.
• 8:48
  SPEAKER_01: There are 57 electricity distributors in Ontario, but it's a pretty concentrated industry with almost 80% of distribution handled by just five providers.
• 8:57
  SPEAKER_01: And these are the companies that maintain the local poles, wires, transformers, and other equipment that take electricity from the transmission system and get it into your neighborhood and ultimately into your house.
• 9:09
  SPEAKER_02: And that's exactly where we're running into issues with the potential lack of upkeep of the system and the disputes about who's going to pay for the infrastructure upgrades needed to build all the new housing that our province desperately needs.
• 9:22
  SPEAKER_02: So you get into these questions of how much of the system should be paid for by current users versus future users.
• 9:28
  SPEAKER_02: You know, do we invest today or do we invest later on?
• 9:31
  SPEAKER_02: And so on.
• 9:32
  SPEAKER_02: And, you know, it doesn't really matter what the domain is that if you ask people, okay, do you want to pay today or do you want somebody else to pay for it in the future?
• 9:41
  SPEAKER_02: The answer is almost going to be always going to be make somebody else pay for it in the future.
• 9:45
  SPEAKER_02: That's the popular answer.
• 9:47
  SPEAKER_02: And that tends to bias the system towards putting off investments until the last possible moment.
• 9:53
  SPEAKER_01: So to sum up, on top of all the things we regularly talk about in the missing middle, like zoning, development charges, and the political will that impedes the building of homes, we can now add the last mile of the electrical grid to the list of things that we need to work on, which is very, very long and seems to be always growing.
• 10:11
  SPEAKER_01: Now, how do we fix this?
• 10:12
  SPEAKER_02: Yeah, this is just one more uh to a long list, but uh here's some ideas that first we have to look at the problem that one of the big problems is raising enough low-cost capital.
• 10:21
  SPEAKER_02: You know, that's always the most challenging part of making any infrastructure investment.
• 10:26
  SPEAKER_02: The business model here is relatively simple.
• 10:28
  SPEAKER_02: You know, the utility makes the investment, uh, they finance that investment, usually with debt, and they pay off that debt from the revenue generated from increased electricity usage.
• 10:37
  SPEAKER_02: But you you need to be able to get the$100 or$120 billion to do that.
• 10:41
  SPEAKER_02: So where does it come from?
• 10:43
  SPEAKER_02: Now, when it comes to debt financing, uh utilities usually do this in the form of issuing and selling bonds, you know, just like governments do.
• 10:51
  SPEAKER_02: But you have to sort of figure out how do you make those bonds attractive enough so that investors uh will buy them.
• 10:58
  SPEAKER_02: Obviously, you could just you know offer a massive rate of interest, but you know, that's expensive and makes electricity more expensive for the consumer than we'd otherwise want it to be.
• 11:09
  SPEAKER_02: So that's really not a solution.
• 11:10
  SPEAKER_02: So we got to figure out how to do this without jacking up those interest rates.
• 11:14
  SPEAKER_02: Now, one thing Canada, I think, should consider is making the interest on those bonds, on those utility bonds, tax exempt.
• 11:23
  SPEAKER_02: That would encourage everyone from middle-class families to pension funds to buy them.
• 11:27
  SPEAKER_02: You know, the United States does this and it seems to work reasonably well.
• 11:31
  SPEAKER_02: So that's on the debt side.
• 11:32
  SPEAKER_02: When it comes to raising equity, there's a rule in Canada's Income Tax Act that a municipal service corporation like Hydro Ottawa must have at least 90% of the shares of that utility owned by a municipality and have at least 90% of its income within its municipal boundaries.
• 11:51
  SPEAKER_02: That makes it really hard to attract equity capital.
• 11:55
  SPEAKER_02: If they loosened the so-called 90-10 rule to something like an 80-20 or 70-30, it could attract a lot of much-needed capital that's uh that we need to make those infrastructure investments.
• 12:07
  SPEAKER_01: That makes a lot of sense to me and seems like something that should be a relatively easy fix and wouldn't have any obvious unintended consequences.
• 12:15
  SPEAKER_01: The municipalities would still maintain, obviously, the majority of control.
• 12:19
  SPEAKER_01: And making this more attractive to investors is the really the only path forward.
• 12:24
  SPEAKER_01: Thank you so much for watching and listening.
• 12:26
  SPEAKER_01: Our producer is Meredith Martin and our editor is Sean Foreman.
• 12:30
  SPEAKER_02: And if you have any thoughts or questions about famous people from London, Ontario, and the high schools named after them, please send us an email to missing middle podcast at gmail.com.
• 12:40
  SPEAKER_01: And we'll see you next time.