Not Just Simple Supply and Demand: Five Other Places to Look at to Understand What Prevents Us from Achieving Housing Affordability in the GTA

Not Just Simple Supply and Demand: Five Other Places to Look at to Understand What Prevents Us from Achieving Housing Affordability in the GTA

We tend to discuss the rising unaffordability of housing in our city and tend to focus on supply and demand, and how it drives up the cost of housing and developable land. But while this is the #1 reason, together with the inadequate transit infrastructure, there are other critical areas we should get more attention:

  1. Construction Costs

While construction is a very competitive business, there are factors that make it much more expensive than it has to be.

The two big factors are the result of our regulatory environment. First, mandatory parking. A garage or a parking pad is a minor expense in a large house. (Even though building and maintaining the massive public infrastructure that provides access to that garage is definitely not a small expense!) But in denser developments that require underground parking, parking is a huge expense, with construction costs starting at $40,000-$50,000 per parking space and can go up to $100,000 per parking space in constrained sites or complex soils. And yet, parking is required almost everywhere: even in the heart of downtown Toronto, there hasn’t been a single large building that was allowed to avoid building parking altogether, and elsewhere parking is required (at a reduced rate) even right next to subway stations.

The other significant factor is that high-rise and mid-rise buildings are much more expensive to build than low-rise buildings because their structure has to be concrete instead of wood. However intensification is allowed in relatively few places, and to make the most of these few places it has to be very dense – and as a result expensive to build. What is missing is a smaller scale intensification in many more areas. In the case of mid-rise buildings, the complex restrictions on their form and their small-scale relative to high-rise building make them especially problematic. We discussed that in depth in our series Mid-Rise Buildings that Work.

Another factor is the industry norm of creating fully finished interiors. While there are economies of scale for these works to be done by the developer, they deprive the owners of the ability to save money upfront and finish the spaces gradually as funds become available – a practice that was the norm in the past. The Naked House concept which we wrote about here discusses the potential for a different approach.

  1. Pervasive Single-Family Zoning

Besides the fact that in most of the region it’s impossible to intensify even at a small-scale, it is also mostly forbidden to create secondary units (basement units or freestanding suites) in existing or new houses or build or convert existing buildings to duplexes and triplexes. Allowing these types of units would be very beneficial since while they add few units, they require very little new construction, and also have a negligible impact on the appearance of the neighbourhood.

The City of Toronto has shown remarkable leadership regarding secondary units. The laneway program permits building secondary detached suites as-of-right on certain lots with laneway access. They even got another critical aspect right: parking. Parking requirements would make most potential secondary units impossible because parking spaces are impossible or very expensive to provide; the City eliminated the parking requirements for buildings that add laneway suites (in exchange for preventing the owners from asking for street parking permits if there is a shortage in parking).

Of course, this is still a tiny step. The program is limited geographically, and there are only so many lots with laneway access; more importantly, the most significant potential of secondary detached units lies in coach houses, and those aren’t being discussed at all. And of course, secondary units within the main houses are still impossible to create in most of Toronto and most of the GTA.

 

  1. Condo Fees

Condos can be much more affordable than freehold homes – but the high maintenance fees of condos can make them very expensive to own. In buildings without special amenities the fees usually start at 50 cents per square foot, and in older buildings can be as high as $1.00 per square foot. In a 3-bedroom condo of 1,200 sf, that would mean be between $600 and per month in a new building and almost $1,200 for an older building that is not in very good shape.

Of course, freehold properties also have maintenance requirements, but a 1,200 square feet house would average only $200-$300 per month. So what accounts for the difference?

There are two big reasons. First, large buildings are more complex with elevators, underground garages and HVAC systems that run through the entire building, and their maintenance and replacement are costly. Amenity areas, which are mandated by the municipalities but usually underutilized by the residents, also add to the cost. There is room to reduce those costs with better system selection and design, re-examining the need for abundant amenity spaces, and (again) the need to require parking.

However, there is another factor driving maintenance costs up. Ontario regulations require that besides the money that is necessary for ongoing maintenance, condo boards charge enough to create a reserve fund that takes into account the long-term replacement requirements for all building systems such as elevators, HVAC and the building envelope. Preparing for the future is great in principle, but the requirements are quite strict and might be unnecessary conservative.

As a result, maintenance fees in Ontario and especially the GTA condos tend to be higher than in other cities, making condo living a less appealing choice.

  1. Inflexible Built Environment

Adding density only works well with usable public transit and urbanism – otherwise, it only contributes to congestion and a less appealing environment. A small portion of the GTA already has both usable transit and good urbanism, but most areas lack both. Both transit and urbanism can be introduced –in the right circumstances.

With new transit, intensification can work in places that can be completely transformed. For example, the Vaughan Metropolitan Centre area, originally a typical car-oriented industrial and commercial zone, recently received a new subway station and it is being transformed not only with new development but also with the introduction of a new walkable street network and parks. However, it could only be transformed so thoroughly because it was made of large non-residential lots and had no immediate neighbours to oppose it.

It can work much more cheaply if the area has good ‘urban bones’. A good example is Eglinton West, where an LRT is being built and the area is being intensified with new development. It works to improve the area because this is a mid-century suburb with a street grid that makes walking easy, and there are commercial uses on the main street that can provide urban amenities.

However, most of the built-up area in the GTA was built after the fifties and were designed only for driving. The major streets are very wide and usually have residential lots backing into them, with occasional commercial lots that can be redeveloped but wouldn’t be able them to create continuous street-fronting retail. Local streets are usually indirect, making even walking to potential transit on the major streets hard – which also makes providing good transit in those areas harder. In those newer suburbs, even places where you are just a short bus ride away from a railway station, won’t accommodate intensification easily, and that will pose a big challenge in the next few decades.

  1. “Must Own a House with a Backyard” State-of-Mind

The GTA has long ago outgrown the small city phase where it was geometrically feasible for almost every family to live in a large detached house with a backyard and still enjoy bearable commute times.

While there is more openness for denser living amongst the childless, there is still a mentality that it is almost child abuse to not raise your children with a backyard. Regardless of the broader consequences, we find this mindset of preferring a house over a compact environment very selective since after a few years of enjoying the backyard, instead of becoming independent, when the children become teenagers they remain completely dependent on their parents to get anywhere.

And this idea is not only prevalent amongst the homebuyers; many policy-makers share the same mindset, which is one of the big reasons that issues 1-3 are not easy to solve. At the end of the day, no matter how many new condo units we will build and how much investment we make in transit, the region won’t become affordable for families as long as we believe that the only “proper” way to raise children is in a house with a backyard.

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