One of the reasons why we are seeing more multiplexes in Toronto (smaller infill buildings with less than seven homes) is that the city has waived development charges and parkland dedication fees on this scale of new housing.
This has helped enormously; without these changes, we'd be seeing far fewer of these housing projects being built.
But here's the odd thing about this exemption: if you build even one more home in the same building, the project is now subject to development charges on all of the homes (minus any credits you might receive for existing homes on the site).
Adding a seventh unit shouldn't suddenly trigger hundreds of thousands of dollars in fees for the first six. This makes zero sense:
It creates a disincentive to build incrementally more homes on sites that can accommodate them.
It creates a bias toward multiplexes (also known as "houseplexes") and away from apartments. The housing type shouldn't matter. We're talking about homes.
It perpetuates the "missing middle" problem. Build small or build big enough to shoulder the additional costs and regulatory burden.
If we're waiving DCs on sixplexes, why not at least waive them for the first six homes on every site? Better yet, waive them on even more homes. This is just one specific example of the hurdles I was talking about yesterday.
Note: My understanding is that the City of Toronto is currently looking to remove this DC cliff and implement a universal first-six-free rule.
Yesterday we spoke about the merits of fine-grained urbanism and why the direct and obvious way to achieve this is to just, you know, encourage more small-scale development. So today, let's talk about some of the specific things that would likely need to happen in order to unlock all of the small and under-utilized sites that today are not being developed at scale.
I'm going to speak from a Toronto perspective and talk specifically about small-scale "apartments," which in today's planning environment are generally buildings with seven or more dwelling units. Under this threshold, we have new terminology like "houseplex." But I'm sure that much of what I raise will translate to other cities and building types.
Here's my working list (I've also added a few items from this Twitter discussion):
As-of-right zoning permissions (the key, though, is that what's as-of-right needs to be economically viable)
No side-yard and front-yard setbacks
No site plan control approval (currently required for projects with 10 or more homes)
No/lower development charges
No parkland dedication fees
No required parking
No required amenity spaces (the city is the amenity)
Curbside garbage collection (as opposed to internalized collection facilities)
Reasonable servicing connection costs (I'm specifically looking at you Toronto Hydro)
No Record of Site Condition, or a streamlined process (Ministry of the Environment, Conservation and Parks approval)
Single egress stair
Flexible elevator sizing
No rental replacement
Predictable financing terms from agencies like CMHC
There's a lot on this list. But there isn't just one thing standing in the way of more fine-grained development. If you think I missed anything (or you just disagree with my line of thinking), feel free to leave a comment below.
What Toronto has demonstrated with its efforts to expand housing options in its neighbourhoods is that, when it makes economic sense to do so, people will actually build small. Today, the market is building single-unit laneway houses, and increasingly, it is building things like fourplexes and sixplexes.
So, what's standing in the way of more 10-, 20-, and 30-unit projects? It's the barriers and hurdles we have erected.
High Art Capital recently announced the launch of a new fund called the Greater Toronto Area (GTA) Rental and Affordable Housing Initiative. It has been anchored by a $300 million mezzanine debt commitment (and a "nominal equity investment") from the Building Ontario Fund (BOF) and is expected to be capitalized in total with a minimum of $1.3 billion.
The objective is to acquire approximately 2,200 rental homes in blocks within newly completed, unsold condominiums across the GTA and convert them into long-term rental housing. Included within this will be approximately 550 affordable rental homes that are expected to be title-protected at rents set at the lower of 25% below local market rent or 30% of median gross household income.
This is interesting, but it's certainly not the first example of investors buying, or wanting to buy, excess condominium inventory. However, it may become the largest in Toronto and, as far as I know, it's the only one to partner with the public sector (BOF is a provincial Crown agency).
The way it is intended to work is as follows:
Condominium developers are sitting on unsold inventory and maybe on inventory they took back after purchasers defaulted (and which may be subject to legal action). What High Art will do is say to developers, "Hey, if you give me a really awesome deal, I'll take 50 of those condominium units off your hands." And if the developer is desperate enough, they will say, "Sure, that sounds good. Let's do a deal and then go for a nice closing dinner."
But at what price?
As we've talked about many times before on the blog, developer pricing is typically based on a cost-plus model. We take our costs, add a margin, and there's the final sticker price. The reason prices haven't fallen as much as one might expect on unsold units is because they're hitting the "cost floor"; developers don't want to lose money, unless they are given no other option.
But for this rental fund model to work at reasonable costs of debt, I suspect that, in many/most cases, deals will need to be struck below a developer's cost basis. So, it'll be very interesting to watch how this fund deploys capital and who the winners and losers are in this market.
Regardless, I think it is good that we are seeing this sort of activity. The faster we deal with the pain, the faster we'll get to the other side.
Cover photo by Patrick Boucher on Unsplash