Toronto’s hot real estate market puts affordable housing at risk

YorkRegion.com
May 24, 2017
Dominik Kurek

The builders of affordable housing in the Toronto area are concerned that the region’s hot real estate market could put their ability to offer homes to lower-income residents at risk.

Options for Homes primarily builds condo apartments within Toronto that it sells below market value, and offers down-payment support to help buyers get into the market. Historically, about five per cent of its units have been sold to families and individuals with annual household incomes below $30,000.

“We were able to sell to people with quite modest incomes. That’s a game changer for them,” Options CEO Heather Tremain said.

“That is going to be more difficult for us without some significant other support in place.”

The nonprofit organization is currently building two projects, one at Danforth Avenue and Main Street, and another Danforth Road and Eglinton Avenue. It also has plans in Cabbagetown and Weston, the latter of which is generating great interest, Tremain said. While still below market value, those projects are expected to sell at a higher price to individuals with higher incomes than Options’ previous developments, she said.

The cause of this rise in prices is primarily the result of rising land costs.

“It’s a very competitive environment to source and acquire land,” said Habitat for Humanity Greater Toronto Area VP of Land Daniel Ger. “Land values in general are increasing at a similar rate to the housing market.”

Habitat GTA is feeling the same pressure as Options. Both organizations have a selection process for their homes so there is no bidding from buyers.

Habitat GTA is currently building or planning to build in 2017 four projects in Brampton, one in Caledon, one in Georgina in northern York Region, and is completing its largest development ever in Scarborough’s Malvern neighbourhood.

The Malvern project, with 50 stacked townhouse units, could be the last of its kind, the organization worries.

Bidding on land has become very competitive, the organization said.

“Because the housing market is so strong, you get a greater pool of developers or people that would like to enter into the development world. It’s just a very competitive marketplace right now,” Ger said.

Land values in Toronto have risen so high that a single-family home lot in an inexpensive neighbourhood sells for approximately $500,000, Ger said. A similar lot in Georgina sells between $100,000 and $150,000.

Coupled with land values, development charges (fees developers pay to governments to build) have risen. Toronto’s development charges are fairly low, approximately $25,000 per townhouse unit. Other municipalities charge much higher than Toronto, Ger said. Other costs, such as prices for concrete and labour have risen recently too.

Tremain said Options for Homes will continue selling affordable housing, but affordability is relative to the market. The organization also looks to build in areas with lower land values but with some upside, primarily in Toronto’s suburbs.

“Our Weston site is a great site in an up-and-coming area, so the upside of an area like that, people will also, hopefully, experience some good appreciation in those units,” Tremain said.

While bidding for land against developers is becoming tougher, those developers are also integral to the nonprofit sector’s ability to offer homes.

Both organizations get support from for-profit builders. Options partners with Tridel, which offers labour at a reduced price, and Habitat GTA gets support from the Daniels Corporation, which has donated land, provided labour at-cost and has partnered with Habitat to sell units within a development at below-market value.

Both organizations say governments play a key role in their ability to offer homes to lower-income individuals.

Ger said Habitat GTA welcomes buying publicly owned land, but without having to bid for it against other developers.

“What would be very helpful for us is if municipalities, or the province or the federal government would be able to provide access to land for not-for-profits who provide affordable home ownership without going through a public bidding process,” he said.

Luckily, governments have listened.

The City of Toronto is allocating $100 million worth of city-owned land to be sold to nonprofit developers, said Davenport Councillor Ana Bailão, chair of the City’s Affordable Housing Committee.

“This is a great way to bring some equity into a partnership that can be successful in building affordable housing with the nonprofit sector,” she said.

Toronto’s Open Door Affordable Housing Program was approved in 2016 to speed up affordable housing construction. It includes financial contributions including capital funding and fees and property tax relief, fast-tracked planning approvals, plus the offer of surplus lands.

In 2016, the province passed the Promoting Affordable Housing Act, which allows municipality to enact inclusionary zoning bylaws (bylaws that would require developers to make a certain portion of units within a development affordable). Toronto has yet to pass an inclusionary zoning bylaw, which, when enacted, has the potential to be a game-changer for the nonprofit sector, Bailão said.