Developers limit production to keep home prices high, Mississauga report says -- a claim the builders’ association calls ‘absurd’

The staff report casts doubt on the province’s housing affordability task force recommendation that curbing municipal permissions for homebuilders would lead to lower housing costs.

Thestar.com
March 3, 2022
Victoria Gibson

Mississauga’s top planner is casting doubt on the effectiveness of recommendations from Ontario’s housing affordability task force -- arguing that easing building permissions won’t result in enough new homes to push down costs, since developers could phase in construction.

“This premise is questionable, and staff have found that developers phase growth in order to manage any downward pressure on unit prices,” wrote Andrew Whittemore, the municipality’s commissioner of planning and building, in a report to Mississauga councillors this week.

In the report, he said city staff were neutral or supportive of dozens of the task force’s ideas -- such as permitting secondary suites like laneway houses provincewide and simplifying planning legislation and policy documents. But he raised red flags about nearly 20 of the 55 proposals, claiming some were based on the idea that letting developers build higher and denser would naturally result in more supply and lower costs.

His claim that developers phased in growth to manage downward pressure on prices is contested by some analysts and industry players, who argue the current market is so lucrative, there wasn’t any real incentive to sit on potential developments. One rental developer working in Mississauga said they did stage construction to ensure there was enough demand in the market, but also pointed to factors such as material costs and the availability of skilled trades workers.

In Mississauga, Whittemore said 20,000 potential units -- mostly condo apartments -- had been approved for zoning and sat waiting for a building permit application. More than half those units had been greenlit more than two years ago, his report said -- which he saw as “ample time,” while acknowledging potential hurdles from labour to financing.

“What we’re saying here is that developers are interested in phasing growth so that they will always command the maximum the market will tolerate for any unit,” he said in an interview.

In Toronto, top planner Gregg Lintern says the city regularly has a pipeline of residential units where zoning has been approved, but staff haven’t yet seen a building permit application.

Between 2016 and 2020, Lintern says council approved an average of 28,170 residential units per year, and built an average of 15,303. “Since projects are constructed over an average of 2.5 to 3.5 years, then there must be projects which are approved but are not advancing,” he wrote in an email, noting developers ultimately held the reins on when they applied for a permit.

The Building Industry and Land Development Association (BILD), whose president sat on the task force, pushed back on Whittemore’s suggestion that developers were staggering growth specifically to manage downward pressure on prices -- with spokesperson Justin Sherwood calling it “absolutely absurd” given the level of demand for housing across the GTA markets.

He pointed to the various steps required between zoning approval and applying for a permit, from block plans to servicing for a new development. Where phasing was used, he argued that it was more likely to deal with issues such as labour shortages or access to construction materials.

In a statement, BILD president Dave Wilkes said the task force’s recommendations had received “widespread support as a suite of tools” to address affordability.

Dana Senagama, a senior analyst with Canada Mortgage and Housing Corp., said while she didn’t have clear evidence one way or another, she doesn’t suspect many developers in today’s market are sitting on potential developments simply to avoid flooding the market with units.

“Just the reality of this market is that the numbers are so strong -- why would you wait?”

But Steve Nightingale, vice-president of development for Oxford Properties -- which is planning a development in Mississauga that aims to have 18,000 residential units phased in over several decades -- said particularly with rental buildings, they had to consider how many units to put onto the market at once, so they would still be snapped up quickly enough at the rates they wanted.

“We have to try to accurately gauge the lease-up within a reasonable period of time, at rents that make the project economically feasible,” Nightingale said, noting they’d seen rising costs for land, labour and materials.

“We have a fiduciary duty to create value, like any business, so if we get it wrong and the project is not financially successful, then we don’t do another one.” They were also limited by staff capacity to process applications and the availability of loans, he said.

John Pasalis, president of the Realosophy brokerage, agreed today’s fevered demand for housing likely meant concern about flooding the home ownership market was diminished -- but thinks even in the last five years, there were times that was likely more of a consideration.

“As a business, you may not necessarily rush and build everything at once. You also, as a company, need to phase your revenue stream,” Pasalis said. That could mean managing prices, but also managing employee workflow or making sure trades costs weren’t “through the roof.”

The problem with the task force report, in his view, was its focus on supply as the answer to affordability issues -- a concern also outlined by the Association of Municipalities of Ontario, which represents the province’s 444 municipalities, in a response this week.

The task force report is centred around a target of creating 1.5 million new homes in a decade, with 55 pitches including ending exclusionary zoning, which limits many residential areas to single-family homes, and allowing unlimited height and density near major transit stations within two years if municipal rules didn’t yet meet the province’s density targets.

It also outlined a number of potential changes to the planning process, such as exempting projects with 10 units or less that meet certain conditions from site plan approvals and public consultations, and having provincewide standards for lot sizes, setbacks and heights. Some of the proposals have been lauded by critics and politicians as key steps to address soaring prices.

While AMO saw some of the ideas as worth further exploration, it -- and Pasalis -- argued too many of its solutions relied on having more supply created through the private sector.

Private companies, overall, had an interest in maximizing their profits, Pasalis said. “They’re not really in the business to drive down the price of the product they’re selling.”