Last Updated on November 15, 2024 by CREW Editorial
On the surface, an ambitious plan passed by City of Toronto council to support the construction of 20,000 new rental homes, consisting of 16,000 new purpose-built rental and 4,000 affordable rental units, seems like a good idea. However, the devil is always in the details.
The program, if successful, would help the city reach its own target of building 41,000 affordable rental homes, meet goals under the federal Housing Accelerator Fund and the provincial Building Faster Fund, and achieve the city’s pledge of 285,000 housing starts by 2031.
It all sounds very significant – to a point, that is.
The initial cost to the city would be $325 million for 5,600 of the purpose-built rental units. It would be paid for via a 15-per-cent property tax reduction over a period of 35 years and a deferral of development charges for as long as the proposed development “maintains a rental tenure.”
However, to qualify for the incentives, projects will need to include at least 20 per cent of the 20,000 units, or 4,000, as affordable rental homes which meet the city’s new income-based definition of affordable housing, for a period of up to 99 years and for at least 40 years.
Finally, projects would also have to start construction by the end of 2026.
Plan is overly ambitious
But here’s the rub.
The 20-per-cent affordable component will probably negate any reasonable prospect of a development being financially feasible under this program. Other conditions to ensure construction of the rest of the units are also elusive at best and will likely impact the success of the initiative.
To build the full 20,000 units, Toronto requires that the province come to the table with $1 billion in funding via a Build More Homes rebate and the federal government kick in $7.3-billion. It is highly unlikely that the province and feds will cough up $8.3 billion in funding for the project.
The proposal, called The Build More Homes: Expanding Incentives for Purpose Built Rental Housing initiative, is therefore an overly ambitious undertaking.
Last time I checked, there are considerable financial requests already on the table to the senior levels of government. It would be a stretch, to say the least, for the funding to ever come about.
Taxes must be cut
To stimulate housing construction, the City of Toronto would be better off curbing the exorbitant fees and levies imposed on new housing. Residential construction is suffering and housing starts have been put on hold in large part because of the government-imposed charges.
A main reason the developments are stalled is the city’s policies. They’re creating situations where construction is just not economically feasible. For example, development charges have increased 24 per cent this year. With such hikes, it is not viable for developers and builders to put shovels in the ground.
Presently, municipalities in Ontario are already sitting on billions in unspent development charges while the housing crisis continues to escalate. In 2022, they held more than $10 billion in unspent development charge funds, despite collecting $4 billion that year and spending less than $3 billion, according to housing expert Mike Moffatt of the Smart Prosperity Institute.
There are, of course, other issues stymieing construction of new housing, namely land transfer taxes, exceedingly slow and cumbersome development approval processes, unreasonable and outdated zoning regulations, impractical urban design guidelines and ill-advised policies with respect to municipal green development standards that are adding significant costs.
On one hand, it is admirable that the braintrust and politicians at the City of Toronto realize there is a problem and are thinking about solutions. Unfortunately, this is not the one to bank on.
The initiative will not move the dial substantially and encourage purpose-built rental project starts. Some builders have already indicated this publicly.
As builders, we are supportive of initiatives at any level of government that will help make it economically feasible to build homes, condos and rental units that people can afford. But to achieve that, we must focus on making practical changes that will actually deliver realistic results.
This does not meet that test.
Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at media@rescon.com.
