Yesterday, the City of Toronto announced that it would be “unlocking” 7,000 new rental homes — including 1,400 deeply affordable homes — by doing two key things:
- Waiving development charges on rentals
- Providing a 15% reduction on property taxes
And by their estimates, the value of these benefits would be roughly $58k per new rental home:
Great news, right?
But wait, there’s a catch. If you read the details, you’ll see that in order for a project to be approved under this program, there is also a requirement to deliver at least 20% of the homes as affordable rentals.
So let’s look at what this could mean.
Here is a chart comparing a market rental suite at $3,000 per month to a more affordable one at $1,500 per month:
| Market | Affordable | Variance | |
| Face Rent | $3,000 | $1,500 | ($1,500) |
| Suite Size | $600 | 600 | 0 |
| PSF Rent | $5.00 | $2.50 | ($3) |
| Annual PSF Rent | $60 | $30 | ($30) |
| NOI Margin | 70% | 70% | $0 |
| Annual Net Rent | $42 | $21 | ($21) |
| Cap Rate | 4.50% | 4.50% | $0 |
| PSF Value | $933 | $467 | ($467) |
| Per Unit Impact | ($280,000) | ||
| 20% of Units | ($56,000) |
Both are assumed to be 600 square feet. In the case of the market suite, the per square foot (PSF) value is estimated at $933 psf, and the affordable suite is estimated at $467 psf. This represents a halving of the value (which makes sense because I halved the rents).
On a per unit basis (again, we’re assuming 600 sf), this is a loss in value of about $280k. But since only 20% of the units would need to be “affordable”, I multiplied this number by 0.2. The result is a per unit loss of approximately $56k.
What this means is that we’re basically doing a whole bunch of stuff to get right back to the same place. Like, hey, we’re not building enough rental housing and we’re certainly not building enough affordable housing — because the development margins are so dangerously thin — so here’s a credit of $58k per unit. But at the same time, here’s a bill for $56k per unit.
What’s the point, besides making it sound like we’re doing something to create more housing? This program will do absolutely nothing to spur the creation of new rental housing.
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