This week, RBC Economics published a study on Canada's rental market where they argued that the pace of new supply needs to at least double in markets like Toronto in order to meet future housing demand and balance the market. Similar things, I'm sure, could be said about many other housing markets around the world.
The report pegs the current rental housing deficit in Toronto at about 9,100 units:
This week, Google announced a $1 billion investment in housing across the San Francisco Bay Area. Here is the blog post announcement by CEO, Sundar Pichai. And here are a couple of paragraphs from the post explaining how this is expected to work:
First, over the next 10 years, we’ll repurpose at least $750 million of Google’s land, most of which is currently zoned for office or commercial space, as residential housing. This will enable us to support the development of at least 15,000 new homes at all income levels in the Bay Area, including housing options for middle and low-income families. (By way of comparison, 3,000 total homes were built in the South Bay in 2018). We hope this plays a role in addressing the chronic shortage of affordable housing options for long-time middle and low income residents.
Second, we’ll establish a $250 million investment fund so that we can provide incentives to enable developers to build at least 5,000 affordable housing units across the market.
In addition to the increased supply of affordable housing these investments will help create, we will give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement. This builds on the $18 million in grants we’ve given to help address homelessness over the last five years, including $3 million we gave to the newly opened
On February 1, 2017, an inclusionary zoning ordinance came into effect in Portland, mandating that all new residential projects with 20 or more units dedicate a portion of the building to affordable housing. For the first year, the requirement was 8% of all units for households earning 60% of the Area Median Income or 16% of all units for households earning 80% of the AMI. I'm not sure if it was or is possible to do a blend of the two income levels. After the first year, the requirement was supposed to step up to 10% and 20% of all units, respectively. But that step up was never enacted, which had many industry analysts arguing that it was a clear signal the ordinance was not performing as intended. According to Joe Cortright of City Observatory (which is based in Portland), the new ordinance largely resulted in 3 things happening: (1) Developers rushed to get new applications in during the transition period so that they would not be subjected to the new IZ rules; (2) applications increased for projects with less than 20 units (avoid the rules by building smaller); and (3), following the initial transition surge, building permit applications, as a whole, dropped off. This last point is what usually comes up in debates around inclusionary zoning. Does the requirement to build affordable housing actually reduce overall housing supply? I've written about this before, but the math is pretty simple. Inclusionary zoning policies are a drag on revenue and a direct cost to the project. What that means is that something else will need to give in order for the numbers to balance. That could come in the form of lower costs (such as an impact fee abatement) or in higher rents on the balance of the units. But this latter approach is easier said than done. Sometimes you need to wait for the market to "catch up", which could be what some developers in Portland are doing. They're waiting for housing to get more expensive -- overall -- so they can then offset the pro forma drag from the affordable units.
This week, RBC Economics published a study on Canada's rental market where they argued that the pace of new supply needs to at least double in markets like Toronto in order to meet future housing demand and balance the market. Similar things, I'm sure, could be said about many other housing markets around the world.
The report pegs the current rental housing deficit in Toronto at about 9,100 units:
This week, Google announced a $1 billion investment in housing across the San Francisco Bay Area. Here is the blog post announcement by CEO, Sundar Pichai. And here are a couple of paragraphs from the post explaining how this is expected to work:
First, over the next 10 years, we’ll repurpose at least $750 million of Google’s land, most of which is currently zoned for office or commercial space, as residential housing. This will enable us to support the development of at least 15,000 new homes at all income levels in the Bay Area, including housing options for middle and low-income families. (By way of comparison, 3,000 total homes were built in the South Bay in 2018). We hope this plays a role in addressing the chronic shortage of affordable housing options for long-time middle and low income residents.
Second, we’ll establish a $250 million investment fund so that we can provide incentives to enable developers to build at least 5,000 affordable housing units across the market.
In addition to the increased supply of affordable housing these investments will help create, we will give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement. This builds on the $18 million in grants we’ve given to help address homelessness over the last five years, including $3 million we gave to the newly opened
On February 1, 2017, an inclusionary zoning ordinance came into effect in Portland, mandating that all new residential projects with 20 or more units dedicate a portion of the building to affordable housing. For the first year, the requirement was 8% of all units for households earning 60% of the Area Median Income or 16% of all units for households earning 80% of the AMI. I'm not sure if it was or is possible to do a blend of the two income levels. After the first year, the requirement was supposed to step up to 10% and 20% of all units, respectively. But that step up was never enacted, which had many industry analysts arguing that it was a clear signal the ordinance was not performing as intended. According to Joe Cortright of City Observatory (which is based in Portland), the new ordinance largely resulted in 3 things happening: (1) Developers rushed to get new applications in during the transition period so that they would not be subjected to the new IZ rules; (2) applications increased for projects with less than 20 units (avoid the rules by building smaller); and (3), following the initial transition surge, building permit applications, as a whole, dropped off. This last point is what usually comes up in debates around inclusionary zoning. Does the requirement to build affordable housing actually reduce overall housing supply? I've written about this before, but the math is pretty simple. Inclusionary zoning policies are a drag on revenue and a direct cost to the project. What that means is that something else will need to give in order for the numbers to balance. That could come in the form of lower costs (such as an impact fee abatement) or in higher rents on the balance of the units. But this latter approach is easier said than done. Sometimes you need to wait for the market to "catch up", which could be what some developers in Portland are doing. They're waiting for housing to get more expensive -- overall -- so they can then offset the pro forma drag from the affordable units.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
And because they believe that the cost of ownership is pushing more people into rentals, the number of renter households is expected to grow at an average rate of 22,200 units per year in Toronto.
If you take 22,200 units per year over the next two years, and add in the current deficit of 9,100 rental units, you get to a total count of 53,500 rental units. This is what RBC Economics believes must be delivered to the market in order to restore equilibrium, and decrease the upward pressure on rents.
Rental units are, of course, delivered to the market in two main ways. There's purpose-built rentals and there are for-sale units that end up as rental housing. But even if you amalgamate both of these tenures, we are not building enough housing.
Against this backdrop, I find it curious that developers are so often vilified. Earlier this week, I saw Jennifer Keesmaat tweet out that -- as we ready for this fall's federal election -- any sensible housing plan must move away from our current for profit housing delivery model.
Who, then, will build these 53,500 rental units? That part wasn't clear to me.
for low income veterans and households in Mountain View.
Google is not alone in its efforts to improve housing supply in the Bay Area but, according to CityLab, this is "the single largest commitment by a private employer."
There's a lot of debate about the value of housing supply, alone. But in 2017, the Bay Area added 3.5x as many jobs as it did housing. I think most people would agree that's a suboptimal, and potentially unsustainable, mismatch.
Also, if large companies such as Google and Microsoft are making these sorts of investments, it is likely that they're worried about housing unaffordability impacting their ability to attract and retain top talent going forward.
Perhaps this is a signal for just how unsustainable this mismatch has gotten.
And because they believe that the cost of ownership is pushing more people into rentals, the number of renter households is expected to grow at an average rate of 22,200 units per year in Toronto.
If you take 22,200 units per year over the next two years, and add in the current deficit of 9,100 rental units, you get to a total count of 53,500 rental units. This is what RBC Economics believes must be delivered to the market in order to restore equilibrium, and decrease the upward pressure on rents.
Rental units are, of course, delivered to the market in two main ways. There's purpose-built rentals and there are for-sale units that end up as rental housing. But even if you amalgamate both of these tenures, we are not building enough housing.
Against this backdrop, I find it curious that developers are so often vilified. Earlier this week, I saw Jennifer Keesmaat tweet out that -- as we ready for this fall's federal election -- any sensible housing plan must move away from our current for profit housing delivery model.
Who, then, will build these 53,500 rental units? That part wasn't clear to me.
for low income veterans and households in Mountain View.
Google is not alone in its efforts to improve housing supply in the Bay Area but, according to CityLab, this is "the single largest commitment by a private employer."
There's a lot of debate about the value of housing supply, alone. But in 2017, the Bay Area added 3.5x as many jobs as it did housing. I think most people would agree that's a suboptimal, and potentially unsustainable, mismatch.
Also, if large companies such as Google and Microsoft are making these sorts of investments, it is likely that they're worried about housing unaffordability impacting their ability to attract and retain top talent going forward.
Perhaps this is a signal for just how unsustainable this mismatch has gotten.
