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
It is well known that the majority of Singaporeans live in public housing (that is, housing provided by the Housing and Development Board, or HDB). However, what you may not know is that the majority of residents obtain their housing through a model that shares some high-level similarities with the way we deliver new condominiums in Toronto.
In 2001, the HDB introduced a program known as Build-to-Order (BTO). The way it works is fairly straightforward: the HDB announces a new project, prospective buyers apply and are assigned a queue number, and then, if they're selected, they get to buy. Once a sufficient number of "pre-sales" have been obtained, the project begins construction, and buyers get a brand-new, subsidized apartment in 3 to 5 years.
Singapore also mandates that the apartments must be owner-occupied and so, in this carefully controlled delivery model, supply very closely mirrors demand. This is different from traditional condominium pre-sales where some buyers might be end users, some might be planning to rent out the home, and some might want to sell immediately upon completion. In those markets, the risk of overbuilding and speculative volatility is greater.
HDB classifies the apartments themselves into three groups: Standard, Plus, and Prime. This classification is meant to reflect the locational value of certain projects; but importantly, the intent is that they're all equally attainable to citizens. The difference is that "choicer" locations (their vocabulary — now you have a new Scrabble word) require greater subsidies to make them affordable, and so they come with additional obligations.
For example, in the case of Prime flats, there is a subsidy recovery upon any future sale (I'm told it's between 6-9% of the first resale price), the minimum occupation period (MOP) is 10 years (versus 5 for the Standard class), and you can never ever rent out the whole home, even once the MOP has lapsed. Once again, this is about strictly matching new supply to end-user demand.
It's a lot of rules. But in Singapore, the majority of people accept them in exchange for affordability.
Cover photo: Tengah, Singapore via Monocle