By Graham Haines
Toronto real estate in 2017 can be summed up in one word: Crazy.
The cost to purchase a house or condo hit all-time highs, rents were higher than ever, and vacancy rates were at historic lows. In short, whether you were looking to buy or rent, things were more challenging last year than they have ever been before. And they continue to stay this way today.
Fortunately, our governments are responding and thinking more critically about their role in the housing sector. One of the key government actions this year was the Province of Ontario’s new Fair Housing Plan which put rent stabilization back on the table along with incentives for new rental housing. CMHC also developed a new program to help finance rental buildings that provide affordable units while the Federal government announced its National Housing Strategy. And in the final month of 2017, the City of Toronto put strict controls on short-term rentals. More work is needed, of course, but this attention to housing has not been seen in decades.
The Ryerson City Building Institute (CBI) takes a keen interest in housing and worked on several publications exploring the potential impacts of new housing policies. After all, providing appropriate housing for all residents is a core component of city building.
In the spring, CBI worked with Simon Fraser University researcher Josh Gordon to examine the impact of speculation on our real estate market. Our In High Demand paper showed how demand-side factors, not just supply-side factors, are creating affordability problems in the housing market. With more investors speculating on real estate, housing is becoming less affordable for the average Toronto resident.
CBI followed up In High Demand, with a pro-forma analysis of how Ontario’s rent stabilization regulations would impact the bottom line for Toronto landlords. We found the impact to be relatively small and recommended it be balanced with appropriate incentives. Unlike traditional rent control schemes, Ontario’s stabilization program allows landlords to reset rent to market levels between tenants. We also found that over the long-term, average rents have not significantly outpaced Ontario’s rent increase guidelines.
In October, we released Getting to 8,000 with Evergreen that examined why the Toronto area has seen very little construction of rental apartments over the past 25 years. We found that developers consistently build condos because they outperform rental buildings from a financial standpoint. Not only that, but tax policies penalize developers that choose to build rental buildings.
CBI also partnered with Urbanation to write Bedrooms in the Sky, which examined Toronto’s condo supply. We found that during the 1990s, over two-thirds of condos built had at least two bedrooms, which could be suitable for a family. Today, despite our growing reliance on condos to provide new family-friendly housing, only 40 per cent of condos have two or more bedrooms. Again, financial factors play a significant role—small condo units are easier to sell to investors who provide the capital that condo projects require in order to break ground.
How to build these solutions?
Last month, CBI hosted a panel discussion featuring experts from Vancouver, New York, and Denver that explored ways to solve another critical issue facing the Toronto region–transit governance gridlock. In fact, the discussion demonstrated how building more transit-oriented development could lead to more affordable “missing middle” homes in desirable places. Building more affordable housing and mixed-use complete communities close to transit would help meet the density required for new transit lines and ridership. It would also encourage less use of cars to get to daily destinations and reduce the GTA’s greenhouse gas emissions.
We recently explored the potential of scaling up residential development by appropriately re-zoning employment lands near transit hubs. More Than a Desk and Parking Spot showed how we could recreate the success the “Kings Initiative” by making some of our most accessible employment lands suitable for mixed use. This would create space for thousands of new housing units and employment opportunities.
All of CBI’s research over the past year tells us that despite new government programs, policies, and initiatives, a lot of work is still required to get our housing sector on track and ensure that it helps everyone.
This is why it’s so important to adopt the right policy framework. Without appropriate incentives, tax policies, and building standards, we’ll continue to get more of what we received in the past decade: lots of small one-bedroom condos sold to investors, few family-friendly units, and even fewer purpose-built rental units. Creating this shift won’t be easy, and it requires us to think carefully about pulling the right policy levers.
Fortunately, there are specific measures to make building more purpose-built rental buildings more attractive, and many suggestions are outlined in Getting to 8,000. First, we need to ensure that tax policies do not dis-incentivize developers from building rental units as it currently does. Changing how GST is charged to rental developers, for example, would be a significant incentive.
Additionally, upfront financing must be more accessible to developers building rental projects. While condo developers have access to pre-sale deposits to help raise money, rental developers must finance projects on their own. Expanding CMHC’s Rental Construction Financing Initiative would address this issue. And expanding this program would provide developers with a more affordable financing option when deciding whether to construct rental buildings.
Providing access to capital must also be considered to get affordable family-friendly units on the market. Developers often struggle to pre-sell larger units, and one solution could be government-backed loans to get these types of units built. This is just one of many suggestions by the Canadian Urban Institute to help scale up affordable ownership.
With downtown land going for as much as $100 million per acre, it’s been difficult to create public amenities such as parkland. However, a recent CBI paper on the proposed Rail Deck Park showed how a new 20-acre greenspace could remedy this problem. These sky-high land values might provide an opportunity to create change and build affordable housing; affordability and unit-type requirements could be put in place without submarining land values. Since Ontario recently allowed inclusionary zoning, the City of Toronto could build affordability requirements into how developers evaluate opportunities and assess land values.
As we go into the holiday season and look back, 2017 was the year everything hit the fan. But 2018 is the year Toronto’s housing sector could lay the foundation for a more affordable housing system. Significant government investment in housing through the 1960s and 1970s helped ensure baby boomers could find appropriate and affordable housing to raise their families and celebrate the holidays. Renewed government interest is needed to ensure the next generation of Canadian families have homes for the holidays, too.