Should Toronto “Force” Developers To Build 3-Bedroom Condos?

This has been rumoured now for quite some time: the City of Toronto has contemplated amending the Official Plan to essentially “force” condominium developers to construct 10% of units in buildings with 100+ units as 3-bedroom condos.

While this is meant to address a glaring problem – that of affordability, and lack of options for growing families, a lot of people, myself included, don’t believe that the results would be anything near what was intended.

Take a look at a 3-bedroom condo downtown, and you’ll see that it’s better suited for three International students, renting and making a landlord money, than an actual family of four…

3-Bedroom

Remember 2009?

I do.

Boom Boom Pow” by the Black Eyed Peas was the #1 ranked song on BillBoard Top 100.

Obama was just starting his first term.

I was still in my old condo.

My wife was nothing but a fantasy back then too!

A lot changes in six years (except the crappy music…), and I’ve spent the last two days looking over a City of Toronto Staff Report from 2009 on the development of condominium units for households with children.

Hindsight may be 20/20, but when I look at this 2009 report, I wonder why the City of Toronto was ever so naive to think that they could enact meaningful change.

If you’re really ambitious, then print off the Staff Report, and read it on the TTC on the way home tonight.

Here it is: “Final Report – Official Plan Amendment To Encourage The Development of Units for Households with Children.”

The idea was simple enough: Toronto needs more properties suitable for families, and developers aren’t building them, so the City of Toronto needs to step in.

Sure, that makes sense.  In theory.

But the city seemed to forget, or willingly ignored, the free market that we live in today.

The city seemed to live in this fantasy where every family of four who wanted to live in a nice downtown Toronto condo could do so.

As I said, hindsight changes things.  But I just don’t understand what they were thinking.

Let me first summarize the key points of the Staff Report, then we’ll discuss.

Here is my own condensed summary of the Staff Report:

 


 

SUMMARY

At its meeting of June 4, 2009, the Planning and Growth Management Committee considered a draft Official Plan Amendment to encourage the development of dwelling units suitable for households with children.  The Committee directed City Planning staff to circulate the staff report containing the amendment to stakeholders and other respondents for comments, and hold a community consultation meeting on the matter.

CURRENT PROPOSAL

The proposed amendment involves two changes to the Official Plan.  The first is a general amendment to the Housing Policies, to include the term “dwelling units suitable for households with children” as part of a full range of housing.

The second, more specific amendment is to the Site and Area Specific Policies of the Official Plan.  This would require that 10% of all dwelling units in larger developments (with 100 or more dwelling units) in the downtown area to be built with either three or more bedrooms, or offer the potential to be easily converted to contain three or more bedrooms.

ISSUE BACKGROUND

It is clear that few new housing opportunities are being developed for families with children.  In recent years, fewer than 2% of dwelling units in high-rise condominiums have been constructed with three or more bedrooms.  The downtown area, in particular, is seeing a lack of family oriented housing being produced.

SUMMARY OF ISSUES RAISED IN SUPPORT OF AMENDMENT

  • Vibrant communities require a variety of residents, including a mix of families, singles, and seniors
  • Too few units and buildings are available for families downtown.
  • Seniors are becoming more isolated because their children are not able to stay downtown
  • Children are enriched by the city experience (multiculturalism, the waterfront, museums, art galleries, special events, festivals)
  • Proposal would encourage families with multiple children to consider high density apartment dwellings as a feasible option by providing more private spaces within each unit.  This may lessen the desire of families to purchase homes in the suburbs, and therefore function as a sustainable alternative to urban living.

SUMMARY OF ISSUES RAISED IN OPPOSITION OF AMENDMENT

  • Concern raised about the implementation of the policy, in particular how the policy will affect developers providing market rental housing.
  • The vast majority of market rental with three-bedrooms is rented by students, not families.
  • Affordability is the greatest barrier to most families wishing to purchase housing downtown.  Current downtown condominium construction and development costs dictate a sales price for such a unit of about $600,000.  Based on CMHC guidelines and assuming a conventional mortgage, household income would need to be a minimum of $120,000 per year.  This is out of the range that most families can afford.
  • The city will be forcing developers to build units that they will not be able to sell under normal market conditions.  The units will be sold at a loss.  This means that the remainder of the units in a project will need to sell at a greater price to make up the loss, or more projects will not go ahead.

 


 

So, what do you think?

The report is 18 pages in total, including the draft of the changes to the City of Toronto’s Official Plan.

As we all know by now, the proposed changes have been debated for years, but the Official Plan was never altered to the extent that was discussed.

We also all know by now, that a large majority of new 3-bedroom condos are either:

1) Penthouse units, priced well over $1,000,000
2) Miserable, awful, laughable layouts of 800 square foot, 3-bedroom units

So where, exactly, was the City of Toronto hoping they’d have an impact on “families living in the downtown core?”

One of the worst condos I have ever seen in my life is at 300 Front Street West – a 1-year-old building, that contains some of these 3-bedroom units that the City of Toronto was hoping for.

I have scoured the Internet near and far to find a floor plan, but alas, I cannot.

The unit is 800 square feet, containing THREE bedrooms.  If you’re wondering how you can squeeze three bedrooms into 800 square feet, along with two bathrooms, a kitchen/living/dining, halls, closets, etc., then you’re not alone.

I had to see this unit.  And in the end, I was not disappointed, because it was worse than I was expecting.

Words, and photos, cannot describe the unit, but I’ll try anyways.

The “living space” is non-existent.  If you put a couch in this room, it would be touching your fridge:

300FrontLivingKitchen

Believe it or not, that is the “living/dining/kitchen,” so have fun!

Do a 180-degree turn from where the photographer is standing in the photo above, and you see what’s below – an entrance to two very small bedrooms:

2-Bedrooms300Front

Basically this unit is a dorm room and nothing more.

It’s a great way for a landlord to charge three unsuspecting, International students about $1,200 per month, each, to get an obscene ROI on a condo that runs around $575,000.

But as for a “family” with two children living here, the idea is laughable.

Staying with this building as the theme, what other 3-bedroom options exist for families?

Well, check out Tridel’s website, and you’ll see the following:

Tridel300

Oh, sweet!

So that family of four, who clearly can’t afford a house in Toronto, now that the price of a detached house in the central core is about $985,000, is going to………………………buy a condo for $1,185,000?

Or $1,440,000?

The whole idea of “developers building condos for families” is fantasy, and nothing more.

I don’t want to come off as the troll under the bridge that scares children as they walk by (I gave up that gig years ago….), but the City of Toronto’s best intentions ended with exactly that: intentions.

There was no way this was ever going to actually work as intended, unless the city started to subsidize these units, or force developers to build 3-bedroom units at a certain square footage and price point.

Because even if a developer was forced to build a certain percentage of units as 3-bedrooms, they might elect to make those the jaw-dropping penthouses that cost $2M, and would be sold to rich jet-setters, rather than Toronto families with $80K combined incomes.

Maybe the problem isn’t what is being developed (or not developed, as in 3-bedrooms), but rather what’s going on around it.

During the “consultation” phase of that 2009 Staff Report, Howard Cohen, the president of Context Developments (think Radio City, Spire, Tip Top Lofts, Mozo, etc.) wrote a letter to the City of Toronto, which contained the following:

On the cost side of the equation, the City should look at the charges it imposes (Land Transfer Tax, Parks Levy, Development Charges, Public Art Contribution, etc.) on all new sale housing, generally in the range of $25,000 per unit for larger units.  It should ask the province to get involved a well.  For example, the new HST will add at least $16,000 to the price of larger units.”

I don’t disagree at all.

I know that’s coming from a condo developer who clearly has an agenda, but you can’t argue that the costs the City of Toronto imposes are massive.

In the end, most of these costs are charged back to the consumer, by the developer (one of the many, many reasons I don’t advocate the purchase of pre-construction condos), and it doesn’t exactly help with affordability!

Mr. Cohen goes on to say, “the goal of encouraging family housing is a challenging one, but it will not be realized by simply mandating its supply.”

Again, I can’t disagree.

I don’t think the solution is to mandate supply, since as we’ve seen many times before, developers will work around the rules, and the results as they were intended will never be achieved.

If “lack of 3-bedroom condos” is the problem, then “affordability” goes hand-in-hand.

And while you can change the city’s Official Plan to mandate more 3-bedroom condos, you can’t change the free market that results in the lack of affordability.

Unless, that is, the city wants to start buying 3-bedroom condos for families.  But that’s a topic for another day…

28 Comments

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  1. Jonathan says:

    Because high rise living isn’t actually that efficient, and condos usually have amenities that houses don’t have. Even though you’re pooling common resources, buildings typically have a lot of square footage eaten up by hallways, lobbies, and other common areas that also have to be heated, lit and maintained.

    Even something as relative simple as a 24/7 concierge costs a fortune for relatively smaller buildings. Once you add in professional maintenance staff, party room, swimming pool, and so on, it’s not surprising that condo fees are high. The math works when you have lots of people living in small spaces, but on a per square foot basis (excluding land cost) houses are almost always going to be cheaper.

  2. Karolina says:

    I really like your articles David! As a investor / real estate agent I too tried to find a large, affordable condo near the Rosedale / Yorkville area last year. Unfortunately, all the high rise condos are situated in the poor school district and that is not an option, unless, I am prepared to send my 3 kids to a private school ($$$). I rather buy a house across on the other side of Yonge street located in an excellent school district, save money on the private school and have the option to rent out the basement (in case) our financial situation ever changes. In addition, I read an article recently about a family in BC that was forced to sell their condo due to their kids making excessive noise. Now, I think we can all say that many new condos being constructed are so poorly sound-proof and having 3 little ones, I can’t even imagine how loud it would be for all my neighbours! Not only should they look at making 3 bedrooms affordable but sound-proof! After all, it is meant for families with kids…

  3. sigh says:

    I really wanted to find a 3 BDRM condo last year. Space for myself, my child, plus a spare bedroom. In a family friendly downtown neighborhood close to good schools. But there was so little choice available, and the few that I saw that might fit the criteria had exhorbitant fees. Instead I ended up buying a house. Fantastic location, more space than the condos I looked at, and cheaper. I keep wondering how it’s possible that a family size condo seems like such a lousy deal (and so few are available) compared to a house. How is it that the savings on pooling common resources together (roof, heat, etc) can’t make larger condo units more attractive relative to houses?

  4. steve says:

    Central planning …. usually good initial intentions with surprising consequences, often bad ones.
    Having said that, if you believe our market is a “free market”, then I think you are deluded.

  5. Teegee says:

    Some recent new building applications in downtown are mandating minimum size for three bedrooms (roughly 900-950 sq ft, iirc). This size is not much different than post-WWII bungalows built for families in the 50s. Families can live in this size (not easy, but possible).

    I think the efforts towards maintaining 10% 3 bedroom units is ensuring long-term viability of downtown for a wide variety of households. Not every family wants to live in a house. Not every family wants a yard for their kids. Ideally there would be a diversity of housing types in neighbourhoods across the city increasing choice for people living here.

    Are there any complaints here about government intervention today when BoC cut rates today? That too is a form of government intervention.

    1. jeff316 says:

      Yeah, one doesn’t have to be interested in the environment, efficiency or sprawl to understand that redeveloping one area of the city to have only one type of housing can have long-term effects on the economic sustainability of city planning, infrastructure and services, not to mention quality of life. I mean, we’ve lived that since the 50s and we’re living with the results now.

  6. A Grant says:

    I understand the implicit concern here is the fact that we are asking city government to interfere in the free market – effectively asking developers to subsidize the creation of three-bedroom condos because homes are so expensive in the Toronto core. And yes, I know that “government interference” and “subsidize” are the two bogeymen of the free market.

    That said, if we can’t encourage more families to live closer to the core, we are effectively asking the urban taxpayer to subsidize our ever expanding suburbs. We will be asked to pay for the costs their expanding infrastructure, including roads, sewers, public transit and the associated long-term maintenance that goes with it.

    All things considered, I would rather developers shoulder more of this burden, especially if the addition of three bedroom condos is a prerequisite before the city is willing to amend maximum density/height allowances.

  7. Jonathan says:

    One thing that might help is that Ontario now permits the construction of wood frame mid-rise condo buildings up to six storeys, but I’m not sure if that will sufficiently change the economics that currently prohibit most mid-rise construction…

  8. Jonathan says:

    It doesn’t help that the total lack of development controls (thanks to the OMB) mean that raw land prices have gone through the stratosphere on the assumption that every site can support a high-rise condo. When you add in the high cost of labour (again, thanks to the provincial government and their cozy relations with construction unions) developers have basically no choice but to build as many small 1 bed condos as they can, because that’s the most profitable type of unit.

  9. Clifford says:

    When it was first proposed I thought it was the most ridiculous thing ever. Now it looks even more ridiculous. What family can afford $1M condo along with $1500 maintenance fees? Just a dumb idea all around and one of the many reasons why I think A Vaughan is a clown.

    1. A Grant says:

      But would it possible that – in exchange increasing preexisting high restrictions – developers are required to build a certain number of three bedroom units, with the expectation that they be sold at below market rates as some sort of limited equity co-op, with restrictions on the price at which the buyer can resell the unit. Just spitballing here.

  10. Kyle says:

    “It is clear that few new housing opportunities are being developed for families with
    children. In recent years, fewer than 2% of dwelling units in high-rise condominiums
    have been constructed with three or more bedrooms.”

    Since when did it become the City’s mandate to intervene in the supply and demand of what can only be called a luxury good, in some attempt to solve the plight of the family who wants (not needs):
    – a bedroom for each child
    – an owned residence
    – in a location and house form that is beyond their means
    – where other options within their means exist

    Owning a downtown, three-bedroom condo is no more a necessity of life for a middle class family than owning a Canada Goose jacket is for a 16 year old. To me this is no different than the City trying to solve the plight of the single guy who lacks affordable exotic car options, or the plight of sushi lovers who lack affordable fugu options, or the plight of the 1%’ers who lack affordable mega-yacht options. Just plain stupid policy.

    1. jeff316 says:

      Governments intervene in market supply and demand all the time. That’s what land use planning is.

      1. Kyle says:

        Just because Governments intervene all the time, shouldn’t give them carte blanche to be doing more of it. Usually when they intervene there is a very clear justification for why (e.g. providing a necessity that is uneconomical, preventing collusion, protecting consumers, etc) as i stated above the motivations for the above proposal are vague and fuzzy at best.

        1. jeff316 says:

          But they’re not intervening carte blanche. They’re not even intervening. They’re consulting on it. They’re putting the ideas out there to see what people think. That’s what’s governments do.

  11. Joe Q. says:

    We can debate the merits of building larger condo units, but I’m not sure I understand the premise of this post in the first place. The report David links to describes a consultation process carried out by the City, and I see no evidence that the policy was actually enacted — it was merely at the proposal stage. Do we fault the City for coming up with proposals and soliciting feedback?

    (As an aside, it is worth reading the end of the report to see the comments from one irate condo-owner, who explains his decision to live and work downtown as fundamentally based on a desire to avoid interacting with children / families)

    1. Kyle says:

      “Do we fault the City for coming up with proposals and soliciting feedback?”

      We absolutely should when it is well beyond their purview.

      1. jeff316 says:

        No, this is exactly what governments are supposed to do. It is completely within scope of a municipal government, given their responsibilities for land use, planning, service delivery and housing.

        1. Kyle says:

          Agree they are responsible for determining the use of the land: how big? how tall? how dense? commercial or residential?, etc But when they start dictating how the square footage inside the building must be allocated, that to me is a pretty clear over-reach of their mandate. It would be like a food safety inspector, going into restaurants and allocating what percentage of the menu can be pork.

          My other issues are that the they have not defined or supported the issue they are trying to solve for. Nor is there any evidence that what they propose will get the outcome they seek. They hint at it: “There is concern that most young families in the downtown are outgrowing their current apartments and choosing to move to the suburbs”. But where is the evidence, or the impact study? So what if families are moving out of downtown? What exactly are these “concerns”? Look at other large cities, is 10% of the apartments in New York, London, Hong Kong comprised of 1000+ sq ft 3 bedroom units? Are their downtowns hollowed out?

          Frankly the wording they use, sounds more like they are conducting a social experiment, rather than fix an issue: “Proposal would encourage families with multiple children to consider high density” – so they don’t even know if it will work, they are just hoping it encourages people to consider. “This may lessen the desire of families to purchase homes in the suburbs” – or maybe it won’t, but clearly they haven’t done any homework to determine that.

          1. jeff316 says:

            It depends on what you’re arguing.

            Is it that you disagree that the government should require 3 bedroom units? That’s totally fine, you’re welcome to your opinion. But the municipal government is not overstepping its mandate in any way, shape or form.

            The government is consulting. That’s what governments do to gather evidence and feedback. If they had solved the issue and had all the facts, they wouldn’t need to consult. This is part of doing the homework.

  12. Joel says:

    I think the main issue was touched on well in this article. The cost of a 3 bedroom condo in the core is higher than or equal to the cost of a house in a near by neighbourhoods. A cheap 3 bedroom would be 700k and several hundred in condo fees each month. For this much money, one could buy a house in leslieville or the junction that is more suited to raising a family. If toronto wanted to do something for families they could approve more stacked townhomes and less high rises. Although it has been seen that the city needs/prefers to have the tax income of high rise condos.

    1. AndrewB says:

      I was just going to say that stacked towns are a good compromise and have lower condo fees. It would help also that condos have lower property taxes. Condos have been essentially subsidizing houses for year when you compare property taxes. These little breaks might help families, but still 3 bedroom condos are a rarity for families and I believe developers know these units will become investment units and price them accordingly.

  13. myeo says:

    The burden of affordable housing does not need to be passed on to developers when Toronto Community Housing has the mandate to provide affordable housing in Toronto (although TCH hasn’t had the best track record over the past decade). I think a lot of the push for affordable housing for families in downtown Toronto is made by simpleton city councillors who do not like developers making money and tend to dislike (or not understand) free market supply and demand.

    I always thought the whole point of community housing was to provide affordable and safe shelter for as many people as possible. Instead, the radicals and simpletons (i.e. The Laytons) believe everyone regardless of economic background should live in the same condo building and are determined to do this by spending far more money to house LESS people.

    Although poor people would like to live in middle-class condos along the waterfront, I think it would be far more cost effective to look to parts of Toronto or the GTA where $300,000 or less will buy nice and safe townhouses/condos that families can live in. If one were willing to leave Toronto, there are very affordable places to live (but employment is rather difficult to obtain, although this likely has never been a major issue for a portion of TCH tenants).

  14. IanC says:

    If you want to support larger condos suited for families, restructure the maintenance fees so that they are fair, or even subsidize them slightly as smaller units have been subsizied by larger units forever. Pricing based per square foot alone ignores the fixed cost per unit (legal, printouts, dryer inspection with security, etc). Annual budgets are computerized and each budget item could be weighted as to whether it was a “fixed cost” by unit or “variable cost” driven by unit size.

    It may not be a huge difference, but any reduction to that huge monthly number that’s gotta come off your paycheck each and every month might be enough to sway some people.

    And force older units condos that have utilities included in maintenance fees to meter their units. These condos already have suite sizes more suited for families who could utilize energy saving tips (blinds, using laptops instead of desktops, master light switches, LED bulbs, phantom power savings, etc).

    There’s only so much desirelable land and locations in a city, so I support a portion of your property tax being based on market value. The same house next to a subway should pay more than the same house close to a dump. But perhaps make a portion of it based on the value of the actual land. Taxing an acre of land divided up by hundreds of condo units could give some downtown familes a break.

    Developers could offer some revenue generating amenities to also cut monthly living costs that deter familes. Instead of a pool, how about the residents own a share of the commercial parking or retail. Purchase costs are higher, but long term, buyers have options.

    1. Chroscklh says:

      The Ian make the good point. I make predict that toronto condo see boom business in consolidate condo for family – like New York. But is no happen, cuz the single-family not yet THAT expense sure, but also because the condo fee and prop tax too high. When I condo live, I consider buy unit above when for sale and combine – 2,300 sf, 850k$ (at time, 3 yr ago above unit $450k, older unit)…I pay architect 2,000$ to tell me it cost 200k$ combine. So for 1,150mm$ i have 2,300 sf place, 4 bedroom, 4 parking, downtown. But combined condo fee 1,600$!! I could never sell. That and stupid guy on condo board (worse face and attitude) make me say forget – I buy house, Also, BoC just cut the rate – good luck to everyone. I guess house price no correct this month!

      1. Appraiser says:

        @Chroscklh

        Yes! Unexpected rate cut at BoC today. Several mortgage brokers now offering 5-year variable at 2.10% and 5-year fixed at 2.59% or lower. Wow!

        Home buyers and mortgage renewers rejoice!!

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