Five ideas for confronting high rent and real estate prices

By John Lorinc - Published on November 20, 2015
Toronto condo buildings
Many new rental units in Toronto are actually condos that have been bought as income properties.

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In a real estate-obsessed city like Toronto, the public and media fixation on home prices, bidding wars and gentrifying neighbourhoods serves to blot out an enduring feature of the local housing market: about 50 per cent of the city’s residents are tenants.

But the stubborn structural problems that have produced runaway house prices have also contributed to a parallel crisis in the rental sector: it must absorb tens of thousands of newcomers, as well as the growing ranks of lower- and middle-income residents chronically excluded from the home ownership space.

Greater Toronto’s rental market, with its extremely low vacancy rates, simply doesn’t keep up with demand for modestly priced apartments. According to Sean Gadon, a City of Toronto housing expert, the city has only created 6,500 new affordable rental homes in the past 15 years, even though the city’s population has jumped by about 300,000 people due in part to intensification policies that have produced the high-rise building boom.

In fact, a great many new rental units are actually condo apartments that have been purchased as income properties. But they tend not to be geared to lower-income residents. What’s more, older rental buildings are being repositioned as pricier up-market addresses. Akelius, a giant Swedish property management firm, is snapping up older buildings in the city, removing landlords and pushing up rents, according to NOW Magazine. “You’ve got a global pool of capital that is financializing the bottom sector,” says University of Toronto housing expert David Hulchanski.

It’s not that new rental apartments aren’t being built. Developer Mitchell Cohen, CEO of Daniels Corp., says a growing number of pension fund-owned developers and other large real estate firms, including his, have begun erecting rental apartments in the GTA: in a period of low investment returns, an apartment building represents a steady source of low-risk cash for large investors. (Toronto is hardly the only city to see this trend.) But the math only works with high-end buildings that can maintain 97 per cent occupancy.

“The impact on affordability is minimal,” Cohen says of the new rental buildings. “We’re becoming a monoculture in expensive areas and the whole nature of the city changes in terms of what makes Toronto great.”            

It’s clear that no single policy fix can counter the sheer momentum of a runaway urban housing market that has failed, for various policy and economic reasons, to generate choices for lower- and middle-income families. Rather, a range of responses from all three orders of government is required. Toronto mayor John Tory yesterday launched a modest plan to fast-track affordable housing development by leveraging city-owned land and inducing developers with financial incentives, such as deferred development charges – a move that will produce 389 units in the short term.

Here are some other options:

  • Approving “inclusionary zoning” bylaws: All developers building medium or larger scale residential projects should be required by the City of Toronto to set aside a certain proportion of new units as affordable rental apartments. Some developers do this in exchange for density bonuses. But Cohen argues that as long as there’s an element of discretion, most builders will opt not to create affordable units for fear of undermining the marketability of their projects.
  • Promoting “intermediate” shared-ownership housing: London, England, and a large local housing provider have launched a program that allows lower- and middle income households to buy apartments for 25 to 75 per cent of the market value, and then pay subsidized rents until they’re in a position to buy the balance of the equity. (Some Toronto developers offer a version of this rent-to-buy approach, but the numbers remain very small.)
  • Taxing real estate speculation. In cities from Vancouver to London, politicians, policy analysts and economists have floated all sorts of ideas for using targeted tax measures to take the heat out of property markets. These include the creation of higher property and land transfer tax rates for very expensive properties; an end to the capital gains exemption for personal residences; and even limits on off-shore investors. In some global cities, but especially Vancouver and London, critics have accused wealthy foreign buyers of bidding up real estate values.
  • Reviving the federal co-op housing subsidies. The previous Conservative government allowed subsidies to thousands of co-op buildings developed in the 1970s and 1980s to expire as their mortgages were paid off. As a result, those co-ops will have little choice but to phase in market rents to all tenants. During the federal election campaign, the Liberals pledged to invest in affordable housing, and it makes financial sense to begin with well-established co-op apartment complexes that have been providing affordable units for decades.
  • Experimenting with new housing forms. Boston, with its large population of university students and recent graduates, faces a similar housing crunch as Toronto. As part of Boston’s solution, it is looking at measures to promote the development of 8,000 to 10,000 new units in so-called millennial villages. According to The Boston Foundation, these villages would feature small units —from tiny or “micro” apartments to small multi-bedroom units—that would be affordable for a range of people, from low-income students to young professionals. A host of common areas would compensate for the scaled-down private living spaces: lounges, workout facilities, office spaces, ground floors to house small businesses such as groceries and coffee shops, and more.  Some floors could even offer units with shared kitchens and laundry facilities.  The villages would ideally be located near easy transit options, increasing their affordability and accessibility.                                           

The broader point is that unless policy-makers start making tough decisions about confronting the well-known failures in urban housing markets, Canada’s most successful and economically vibrant cities face an uncertain future.

Says Cohen: “We’re going to lose something.”        

Urban affairs journalist John Lorinc is a senior editor at Spacing Magazine.

Read more:

Are London’s ‘endies’ a warning for Canada’s housing market?

How high housing prices can choke a city’s economy

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