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No-cost affordable housing in Toronto

It upsets me when I read things like this (click here if you can’t see the embedded tweet above). I think it creates a false sense of a free lunch and ignores all of the nuances and complexities associated with inclusionary zoning.

IZ is an obligation to provide a certain number of affordable units in new housing developments. There’s a lot of detail and debate around where this should apply, how much needs to be provided, and at what degree of affordability.

But at the end of the day, it’s important to keep in mind that at meaningful levels of affordability, these IZ homes are going to be built at steep losses. More info on the economic impacts of IZ can be found here.

The simple math is that the costs to build these homes are going to be greater than the revenues that they bring in. Which is why developers aren’t out building affordable housing everywhere. There’s no margin.

In order to build, somebody or something needs to provide a subsidy so that this revenue-expense shortfall can be made up. How this works its way through the market is where I have tried to focus the discussion when writing about IZ. There are complexities. Some lessons from Portland, here.

But to just assume that these costs will get magically absorbed by housing developers, with no other knock-on effects or distortions to the market, is incorrect.

2 Comments

  1. There is a short term issue, and long term consequences. Developers who paid top dollars for a site assuming there would be no restrain on the type of units they build will either trim their expectations for profit or sit on the site hoping that one day they will be able to produce a project that pencils out. Over the longer term, developers will pay less for the land if they have to cross-subsidize units. So the ultimate losers will be the owners of sites for housing who will have to settle for less when they sell for developers.

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  2. There is an existing system that exists and has worked well for a half century:

    Full sized family home divided up into three apartments:
    – Basement (separate back entrance – build so rear entance has sunken patio, rear glass wall for light? access to shared yard);
    – Main Floor (front door entrance to vestibule – stairs walled off with a front door built into it; rear has patio and access to shared yard);
    – Top Floor, Entrance via front door vestibule – top floor patio, access to shared yard).

    The average residential occupancy in the core is 2.1 persons – that one home with 3 apartments will house 7 people.

    If the three apartment setup doesn’t cover paying the mortgage, second property owners (absentee landlords) can turn this set-up into a rooming house really easily: with three people sharing amenities on each floor that same physical setup houses 9 people (that’s ~$1,500.00 per floor – that’s $4,500.00 / month).

    If that isn’t happening in the real world – discover what factors are causing it … Now it becomes a public policy problem that politicians can act on to encourage more of this existing built form.

    Income inequality is exploding – lots of upper middle class owners with more than one house (and many of them are deep in debt and significantly leveraged) – to finance these second home buys you rent out as three apartments or as rooming house. If the margins are too low and maintenance and management costs are the problem – politicians can consider lowering property taxes on that kind of property use and creating programming to help – for example:

    To make these homes run smoothly you need superintendents living in or nearby, each property. To this end the city could fund training programs for handy-persons who will take on superintendent positions (paid for via free rent up to a certain labour cost per month) and the do maintenance work (simple electrical: outlets; switches; fixtures; 220 wiring for stoves etc.; tile laying; drywall; painting; basic understanding of furnace and air conditioning maintenance; basic plumbing including opening walls and fixing leaks, washer replacementr, ficture replacement … All this training can be done in public high schools taught by building trades teachers. Likely a 3 month coarse with yearly upgrading for new systems knowledge, and testing.

    And finally – I posit that the seriousness of the homelessness problem actually drives up home prices by acting to reduce the number of people in the market – thus causing a positive pressure on demand that and negative pressure on supply. Housing everyone that would markedly reduce upward pressure in the housing market.

    In the core right now – all these 8-9 person homes are being renovated to family homes housing on average, 2.1 persons in each. By increasing taxes on that demographic you encourage them to rent out a basement unit – or a top floor unit — and encourage builders to manufacture these typologies… And those higher taxes go to training superintendents and building inspections.

    Michael Holloway
    Leslieville, Toronto

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