Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
I am positive that it had absolutely nothing to do with this post about fourplex feasibility, but I was happy to receive this notice in the mail yesterday:
It is a public meeting notice for the City of Toronto’s proposed multiplex policies (defined as duplexes, triplexes, and fourplexes). And as you can see from the highlighted section, they’re looking, among other things, to make this form of housing exempt from floor space index maximums.
Good.
I don’t like this “where applicable” business, but I’m going to conveniently ignore that for now and just say that this is positive. Removing density maximums is a mandatory ingredient for helping to make this type of housing feasible.
No FSI maximums. No DCs. And let’s modernize how HST is charged on new rental housing.
This is an oversimplification that won’t apply to all markets, but typically the decision tree for urban parking looks something like this:
Do I need to build parking?
If no, great. That’s ideal!
If yes, how many levels of below-grade will I need?
If below-grade parking doesn’t work because it’s either too expensive or because the soil is bad, try above-grade parking.
And if above grade, how can I “wrap it” with occupiable space or, at the very least, treat it in such a way that it doesn’t look ugly and the city doesn’t get mad at me?
What I’m getting at with this is that above-grade parking is generally frowned upon. It is done in lots of places, like in Miami where you can’t go underground, but if you ask your average urbanist they will probably tell you that above-grade parking is ugly and that said ugliness should be mitigated to the fullest extent possible.
But here’s a counter argument. Let’s assume that we believe any one of the following:
We should design new buildings to be adaptable (i.e. easily convertible to other uses in the future)
We should design and build in a way that reduces carbon to a minimum
Lower construction costs are good for end-users of space
In the future, people will be less, as opposed to more, reliant on privately owned cars
In this case, the ideal solution is actually “unwrapped” above-grade parking. It’s less intensive to build, and both below-grade parking and wrapped above-grade parking result in large windowless spaces with very little utility other than for storing inanimate objects. Your options are parking, self-storage, and maybe a large gym for people who don’t like natural light.
Judging by the above poll, which was still in progress at the time of writing this post, this is not how most people think about urban parking. But I think it’s time we start changing the discussion.
“Your local self-inflicted housing criss ouroboros” tweeted this chart out over the weekend, showing the number of new rental suites completed in Toronto since 1900. The data is from Open Data Toronto and it does not include any condominiums. It also only includes apartment buildings with 10 or more suites (which would be most of the supply anyway).
Housing became rightly viewed as a basic human right. But because of this, the policy landscape shifted away from facilitating the private sector, to intervening and regulating the private sector. This included tax changes which negatively impacted new housing development and, yes, rent controls.
Ironically, but not unexpectedly, this dramatically lowered the overall supply of new rental housing. To the point where we had effectively shut off the taps by the late 1990s. Thankfully, the condominium sector stepped in and started meaningfully delivering new housing — both for sale and for rent (via individual private investors).
The supply of new condominiums in Toronto is not shown above, but there is no question that this (shadow rentals) has formed the vast majority of our new rental stock over the last two decades. But in my view, this shift was largely the result of policy decisions. We decided that we didn’t want the private sector building so many new purpose-built rentals, and so we told them to stop.
There are lots of ideas out there for how to improve the supply of new rental housing. But it is important to remember, at least here in our market, that the playing field is not level between new condominiums and new rental homes. We have spoken about this before, over here, where I compared the (per square foot) revenue generated from your average new condo against that generated by your average new rental home. Of course, since I wrote that post in 2020, we have seen upward pressure on cap rates (meaning downward pressure on values). So feasibility has gotten even more challenging.
Land is not the factor preventing rental these days 1. Upfront equity requirements 2. Cost escalation: construction, interest rates, DCs, HST 3. Revenue uncertainty (build first lease later) & lease-up risk 4. Take-out financing availability 5. Better investment alternatives
The important thing to remember is that developers do not have some philosophical aversion to building more rental housing; it is that the math is challenging. You generally need economies of scale (really big projects), patient long-term capital, and a belief that rents will continue to exhibit meaningful positive growth. If you want to negatively impact new supply, cap rental growth. But if you want to encourage new supply, somebody needs to pull out a development pro forma and make the call to improve the cost structure for new rental housing.
In my opinion, two obvious line items to focus on are development charges (as well as the other government levies) and HST (our harmonized sales tax). The point of development charges, as we always talk about, is for growth to pay for growth. They are intended to pay for municipal services like roads, transit, water and sewer, and so on. In the other words, they’re supposed to capture of the cost impacts of new housing. But what about the impact of not building enough new rental housing? Are we thinking about this the right way? Especially if you consider the possibility of more new rental housing in our existing transit nodes.
The HST charged on new rental housing is also significant. There is a new residential rental property rebate available to builders (not tax advice!), but the thresholds have not been indexed and so it’s grossly out of date compared to where values sit today. In any event, if the goal is more homes, why not make new rental homes exempt? Developers are simple. If the math works, they will build. If the math doesn’t work, they will not build. And these two line items, alone, would go a long way to helping the former.
On the exact same day last week, the Toronto Star published two articles about housing. The first one, this one here, is about how “Toronto has protected huge parts of the city from anything denser than detached or semi-detached houses” and how this has resulted in an “uneven city.” The second article, this opinion piece, is about the “many repercussions to replacing little bungalows.” And one of the implied repercussions is that 3-storey sun blockers that invade privacy might actually kill people. Hmm.
In effect, these are the two sides of this debate. If you zoom out and look at Toronto, you will largely see a contrasting and uneven city of tall buildings and low-rise housing. Instead of building like Paris, which is consistently mid-rise — but also far denser on average than Toronto — we have chosen peaks and large plains to constrain new housing. And if you zoom in across those plains, you’ll find many areas without sidewalks, along with people, such as the author of the second article above, who believe that nothing more than a single storey is appropriate for human health.
All of this has persisted because it has been politically popular. But time continues to show us that it actually runs counter to our goals of building an inclusive and globally competitive city region. Thankfully, it feels like we are finally reaching a tipping point.
I tweeted the above photo on Saturday morning with the following text: “No sidewalks. Towers in the distance. Welcome to the inner suburbs of Toronto.” What I, of course, wanted to highlight is the contrast between the rural-like street with no sidewalks in the foreground, and the high-density towers built on top of Kipling subway station in the background. It is a perfect example of the kind of Toronto we are building, by design, all across the city. And it also exemplifies one of our great philosophical divides.
If you look at the responses on Twitter, you’ll see that there are a few opinions. Generally speaking, though, there are probably two main ways to think about this scene. One way is to look at the transit-oriented housing and think of it as urban progress. We are adding new housing and we are doing it in a way that hopefully results in more walkable communities. With this in mind, you might now see the three humans on the street (one of which is in a stroller) and think it’s a shame that they have been forced to walk on the road.
The other main way to look at this is that not having sidewalks is actually a feature and not a bug (indeed, a lack of sidewalks can be a pretty good indicator for rich people/wealthy households). From this lens, not having sidewalks means uninterrupted driveways (more parking), less through foot traffic, and a more quaint small-town feel. Also with this lens might be a view that the rural-like street was there first, before the transit-oriented towers. And it was doing just fine before people like me drove through their neighborhood and pointed out the lack of sidewalks.
A lack of affordable housing certainly feels like a global phenomenon. Companies are trying to 3D-print homes for under $100k. Berlin froze apartment rents back in 2019 because things were getting too expensive. And today, Hong Kong is working on building some sort of “light public housing” in an effort to reduce its massive wait times for new homes.
But depending on where you are in the world, it might be somewhat comforting to remember that this problem seems to be particularly pronounced, here, in English-speaking countries. Whether it’s restrictive zoning rules or a general distaste for apartments and urban density, the English-speaking world has fallen behind on housing supply compared to places like continental Europe.
Forty years ago, the UK, US, Canada, Australia, New Zealand and Ireland had roughly 400 homes per 1,000 residents, level with developed continental European countries. Since then the two groups have diverged, the Anglosphere standing still while western Europe has pulled clear to 560 per 1,000.
And this shows in our home prices:
One argument is that continental Europe is simply more culturally accepting of apartment buildings, and that allows more new homes to be built. Seems right:
According to this chart, the average person from the UK or the US would not be happy unless they were living in a detached house. When you get to the continent, people start to become increasingly more positive around missing middle-type housing (something in the 3-4 storey range). Though, anything more than that and things get divided.
All in all, it doesn’t seem to really matter where you’re from, there’s a clear preference for detached housing. But maybe liking apartments even a little bit is all you need to help with overall housing supply.
Today, let’s look at the numbers in a bit more detail.
If you look at a zoning map of Toronto, you’ll see that many neighborhoods across the city have a maximum floor space index (FSI) of 0.6. What this means is that if you have a piece of land like this:
Lot width: 20′
Lot depth: 115′
Site area: 2,300 sf
Your total allowable gross floor area would be 1,380 square feet (0.6 x 2,300 sf).
If you build a laneway suite in this city, that won’t count towards your total allowable GFA (otherwise they’d be very challenging/impossible to build). But if you want to build something like a triplex or a fourplex, it counts.
The one important caveat is that if you’re building a residential building — that isn’t an apartment building with 5 or more homes — you can deduct the floor area of the basement:
This, of course, helps the situation. But it doesn’t solve all of our problems.
If you assume that the basement can be one home, that still only leaves 1,380 square feet for the other three, technically permissible, homes. This equals: 3 homes x 460 square feet.
Another option would be 2 homes x 690 square feet. But still, we’re not exactly making it easy to deliver more “family-sized homes” in the city.
And herein lies one of the problems (plural, because there are others). We can say that fourplexes are allowed across the city, but it may not actually be technically feasible or practical to build them.
Note: I am not a planner. If you are, leave a comment below.
The University area is one of 53 community planning areas in the City of San Diego. And this one, as the name suggests, houses the University of California, San Diego (UCSD), which is at the northern end of the blue transit line.
The last time the University Community Plan was updated was in 1987, and so it’s an old plan and it is currently being redone to better align with the City’s current strategic plan — which includes things like “creating homes for all of us” and “championing sustainability.”
The final draft community plan won’t be available until later this year, but there are two draft scenarios available for download. Here’s what Scenario A looks like:
The “T” circles are transit stops on the Blue Line (which runs south to downtown and then to the Mexico border), the olive green areas are institutional (UCSD, hospital, etc.), and the purple areas are “urban villages” with densities that go as high as 218 dwelling units per acre (darkest purple). For the other areas, please refer to the legend.
Now let’s put this residential density into some sort of context. One acre = 43,560 square feet. So we’re talking about 218 homes on every 43,560 square feet of land. For context, our mid-rise Junction House project is 151 homes and our site area is approximately 22,000 square feet (about 0.5 acres). That puts us at roughly 302 homes per acre — more than what is proposed here.
In total the revised plan could allow for somewhere between 35,000 to 56,000 new homes in the University City area. Not surprisingly, the community has reacted by organizing rallies, such as this one, here, called “Honks against housing”:
(I used a screenshot because embedded tweets don’t seem to show up properly in my email newsletter.)
This is, again, not unexpected. And all of the typical things could be said about incumbent residents opposing new homes on top of an existing transit line, next to a major university. But what stands out to me about this protest is its format.
These residents are worried that high-rises will destroy their community. So presumably they are looking to get the word out to as many people as possible. And one of the ways they have decided to do that is stand on the side of a busy road and appeal to people in their cars.
Ironically, I think this actually reinforces the need for an updated Community Plan. Because it speaks to the car-oriented nature of this community and the need for better land use planning around its existing transit stations.
In my view, the line of thinking here should not be, “this is going to destroy our community. How will our roads ever accommodate 35,000 new homes?” It should be, “how do we better plan this community so that our next generation of residents have the luxury not to have to drive everywhere?”
If you’d like to offer constructive feedback on this plan, I’m told that you can email Nancy Graham at nhgraham@sandiego.gov.
The desire to add more housing to single-family neighborhoods will continue to pick up steam across North America. How exactly this plays out will be market specific, but in Toronto I expect to see new planning policies put in place, as well as supportive building code changes.
And this continues to happen. Right now, the City of Toronto is working on making fourplexes permissible in all low-rise neighborhoods across the city.
This is exciting. But it’s not done yet. And it’s not perfect.
The biggest change that I think still needs to happen is around maximum densities. If we actually want to encourage more missing middle housing, we need to increase the permitted FSIs or, better yet, remove them all together.
Urban planner Sean Galbraith does a good job of explaining this in NRU:
I responded to the city’s multiplex survey last night and this was one of my main comments. If you’d also like to voice your opinion, you have until March 10, 2023. Here’s the link.
