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Use-it-or-lose-it entitlements

One of the things that cities often try and stamp out is speculation. Homes should not sit empty (enter vacant home tax). Storefronts should not sit empty (enter vacant commercial tax). And development land should not sit undeveloped. To correct this latter problem, one idea that is sometimes floated around is “use-it-or-lose-it” zoning.

The way it works today in, I believe, most cities, is that if you do a site-specific rezoning on a property — and secure additional density — you get those special permissions forever. If you want to wait 100 years before starting construction, you are technically entitled to do that. Of course, in the interim, no new housing is actually being created. It’s all just on paper.

The idea with “use-it-or-lose-it” entitlements is that — instead of these permissions lasting forever — they would expire after a certain period of time, which would mean that the entire rezoning process would need to be done all over again. These take time (at least a few years) and cost money (it’s in the millions). And so it has been suggested that this would incentivize developers to not sit on entitled land.

While I do understand where this line of thinking is coming from, let me make a few points:

  • Generally speaking, most developers don’t just sit on entitled land for fun. They need things to happen, and to happen quickly, so that value can be realized. If there is a problem of too many developers not actually building, it could be a sign that there are other market factors impacting feasibility.
  • There is nothing wrong with rezoning a property and then “flipping it out” to another developer. This is often viewed negatively. But some developers only rezone properties and some developers only buy zoned sites. These can be different phases of the value chain. A rezoning can take years and millions of dollars, and so sometimes developers don’t have the wherewithal or desire to do both.
  • A use-it-or-lose-it approach unfairly punishes developers during market cycles and bear markets, like the one we are experiencing right now. There is no way to predict when the next global pandemic will hit, when construction costs might surge 40%, and when the fed could start rapidly increasing rates to calm inflation. Maybe waiting out the storm is all you can do.
  • If you’re building condominium housing in our market, you generally need pre-sales in order to secure a construction loan. Let’s call it 70% pre-sold. What happens if this takes longer than expected? And what happens if you sell 50%, your site-specific rezoning expires, and then you have to restart the entire process? At this point and in this current market environment, you would likely have to cancel the entire project and reboot it.
  • Timing is important. To give a specific project example, we had planned to launch condominium pre-sales for our One Delisle project in the fall of 2020. And we were ready to do that. But sentiment didn’t feel right. Too pandemic-y still, and so we waited until the spring of 2021. This turned out to be the right decision. But what would have happened had we had this timing gun to our head? (Truthfully, it always feels like there’s a timing gun to our head.)
  • I have written about this before, but go-to-market strategies are changing in this current environment. It is taking longer to start sales and construction because, among other things, developers are spending more time trying to pin down their construction costs. Would rezoning expiries take all of this into consideration and adjust accordingly?
  • Finally, if one is going to do something like force developers to pull all of their building permits within X months of receiving zoning approvals — or else suffer the consequences — then everything required to get there should also have a maximum timeline associated with it. In other words, cities would also need to do things like commit to issuing permits within Y months of receiving a submission — or else. It’s only fair that this cuts both ways. But just to be very, very clear, I do not think this is a good idea.

What I am broadly saying is that (1) development is a pain in the ass and (2) developers are already heavily incentivized to move quickly and make things happen. It is not uncommon for projects to take 5-10 years from site acquisition to completion. And a lot of unexpected things can happen during that time period. Hopefully losing your entitlements doesn’t become one of them.


  1. Randy Kerr

    Well isn’t that a tainted, special interest Centric set of comments? There might be some logic in having under utilized land within the City limits for future needs that are not readily apparent yet. Developers and City Planners need to take off the Beer Goggles for this Economic downturn to see what actual long term damages they orchestrated the last 15 years in the GTA.


  2. Jakob P

    > we had planned to launch condominium pre-sales for our One Delisle project in the fall of 2020. And we were ready to do that. But sentiment didn’t feel right. Too pandemic-y still, and so we waited until the spring of 2021. This turned out to be the right decision. But what would have happened had we had this timing gun to our head?

    You would have had to sell at a discount, or cancel the project and give it to someone who can build at the same spot for a lower cost. I’m not even going to pretend that I have enough insight into the economics of building, but just in terms of general market dynamics, consider two very different markets.

    The PC component market. The pandemic caused demand to skyrocket, while supply went down due to a number of logistics issues. GPUs in particular were almost impossible to get unless you were willing to pay up insane scalper prices. After more than two years of sky-high demand and profits though, the people who were able and willing to pay thousands of dollars for a GPU have done so. Mining on GPUs has stopped due to Ethereum switching to Proof of Stake (thank god), removing the backstop lower bound of GPU prices. Supply, however, continues to flow because it needs to. These things only work at scale and with years worth of advance planning, they can’t be changed on a whim. With stable supply but diminishing demand, prices are obviously falling. Leading to a more affordable PC component market for the time being. And yes, chip manufacturers’ valuation in the stock market gets cut in half or whatever.

    The housing market also goes through cycles of high and low demand obviously. However, instead of prices falling, supply is very elastic so a smaller number of resale properties get sold, and developers wait (like you did) until a more favourable market environment allows for higher prices. In the end, this causes housing prices to only go up during cycles of high demand, but they barely come down afterwards. Elastic supply benefits the seller, who can and often will keep margins high even though sales numbers will go down due to volume. So when does the housing market actually get more affordable? Only when people are forced to sell, like during the sub-prime crisis, or during long periods of stagnant pricing while inflation slowly devalues existing properties.

    Your points are centred on the developer’s point of view, how to ensure that they retain some modicum of profitability in order to finance these projects in the first place. And that’s a valid view, because developers are indeed necessary to build these large multi-unit projects with massive amounts of coordination required.

    But on the other hand, what would happen if, say, developers went out of business because forced selling makes it unprofitable for them to build? 1. The existing leftover stock is sold at a discount to pay off debtors prior to folding, 2. There isn’t anyone left to extract that much value out of an existing piece of land, so multi-unit development largely disappears and land/housing prices crater, 3. With less value being extracted/provided, the labour market for contractors also goes into heavy competition (lowering the price of labour), then eventually shrinks because not everyone can survive in that market environment, 4. Stuff is eventually cheap enough again for people to have another go at larger projects, the boom/bust cycle starts again.

    Having mapped it out like that, it does seem a little gloomy if taken to the extreme. But what if we could apply part of that pressure to the value chain, merely squeezing it instead of breaking it? Accept some loss of productive development-related businesses while forcing some downward pressure on the market? One way or another, the market will find its equilibrium and supply is always going to cost what people can pay for it.

    Which I guess is the downfall of any argument as well. If the price of housing will always adjust to what people can pay for it, then we’ll never have affordable housing. Even a single element in the value chain can extract most of the profits, whether that’s banks or developers or contractors or material manufacturers or land owners or whatever. Right now the value extraction is being shared among businesses. Unless government policies remove market pressures entirely, people will always struggle with housing. And communism is also not a solution for a number of reasons, including because that’s not what most of us want.

    So from an affordability perspective, I guess we’ll always be screwed. Either we make lots of money and housing prices are outrageous, or we lose our jobs and still can’t pay for good housing. So… I guess you’re right, if we’re already screwed, may as well optimize for building large multi-unit developments so we can at least house more people on less land despite poor affordability?


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