Mar 25, 2019
Real reasons for high cost of Toronto housing
Published in The Lawyer's Daily | Monday, March 25, 2019
The last 12 years in the Greater Toronto Area (GTA) have seen a massive restriction of land supply with corresponding skyrocketing prices for land and both low-rise and high-rise homes. The housing situation is similar to Vancouver’s, resulting in double digit price increases.
The situation has now finally caught the attention of policy makers and legislators: “affordable housing” is now the hot topic in all political campaigns and public announcements.
When we talk about “affordable housing,” the term has a number of connotations. This can include housing for homeless people who cannot afford any type of housing and effectively live on the street, under bridges and viaducts, and in encampments in Toronto’s many ravines. From 2016 to 2018, ballpark 7,000 people used Toronto’s emergency shelters each night, an increase of 60 per cent, according to the Feb. 2019 cover story of Toronto Life magazine, “No fixed address.” Total estimates of all Toronto homeless are about 10,000 people.
Sadly, the people who live on the street are just the thin edge of the wedge.
According to Stats Canada, more than one-third of people who live in one-bedroom apartments in Toronto and Hamilton live in overcrowded conditions, providing housing to more than just one or two people. And it is difficult to find numbers for people who are couch surfing with family and friends.
According to the same Toronto Life article, Toronto has a 98,000-person waiting list for social housing. That’s about 10 years’ worth — and likely more.
Next on the list comes housing for those with incomes that cannot match market rents in the city and need assisted or subsidized housing, where rent can be $1,600 for a bachelor. A recent listing for an upscaled garage studio in Little Portugal was asking $2,700 per month for a 600-square-foot space. And then there are those in the “middle class,” whose children someday want to own their own home or condominium but cannot scrape together even the down payment to buy one in this expensive housing market.
There are many factors impacting the high cost of housing in the GTA.
The general public seems to feel that it is the greedy developers who drive around in fancy cars that are to blame. Being a real estate lawyer and condo developer for more than 20 years, I am going to challenge that assumption.
Developers create and build housing with no assistance whatsoever from government grants, loans, handouts like other industries, neither in good times nor in bad ones. Harken back to 2009-2010 when the auto industry and others went cap-in-hand to Ottawa and the provinces for major financial assistance when car purchasing demand dropped to minimal amounts. “Demand for cars has plummeted; bailout, please!”
Housing sales dropped to similar minimal amounts during that one-year period. Yet no one from the housing industry sought a government handout.
Allow me to offer some insight into the affordable housing problem and the perennial question: “Why is housing so expensive in Toronto?”.
Here are some of the real elephants in the affordable housing room:
- The 2005/2006 provincial growth plan;
- The demise of the Ontario Municipal Board;
- Rising construction and supplier costs;
- Development approval delays/red tape;
- The new mortgage stress test;
- Cost of government charges and taxes.
Interestingly, five of the six reasons are due to government policies, legislation activities.
Let's delve deeper into some of them.
First, there is the 2005/2006 provincial growth plan. In 2005, the Liberal government in one of its most major land supply initiatives in the 12 years it was in power, implemented a whole new growth plan that was supposed to stop urban sprawl. As part of this, it removed over two million acres of agricultural lands and put them in the protected greenbelt.
It designated another large section of lands around urban centres for future development, but only when development within the built-up urban areas reached a very high prescribed density test of 40 persons employed/residing per hectare.
As a result, the available land supply for low-rise and greenfield housing was shrunk dramatically, with municipalities being forced to find and re-designate neighbourhoods and lands within built-up areas for medium and higher density.
Dwindling low-rise land for development just got very expensive. Low-rise housing (one- and two-storey dwellings) are now reserved for the rich and famous in Canada. Essentially, the Liberal government made the decision that everyone other than the rich should be living in apartments as they do in Europe and Asia.
As a result, the historical split between low-rise and high-rise of 70:30, has been turned on its head to the point where the ratio between low-rise and high-rise sales in 2018 was 15:85. As a further result, landowners who owned lands in areas available for development saw their values double or triple because of the lack of other available developable low-rise land.
This is part one of a three-part series.