Fuelled by a booming tech industry, Toronto’s economy has produced an all-too-familiar problem: soaring housing prices beyond the reach of the middle class. That’s also plagued Vancouver where prices have gone even higher than in Toronto.
Now, Canada is embarking on an ambitious plan to create more moderately-priced rental units. With land handouts and tax incentives provided by the city and provinces, one group hopes to bring 50,000 affordable apartments to Toronto and Vancouver in just 10 years.
The project, to cost at least $10 billion, is at a scale never before seen in Canada, both in its size and speed. And it’s raising questions about whether or not the country will be able to address its affordability problem before it’s too late.
At stake, proponents say, is the continued growth of Canada’s biggest cities. Last year, Toronto ranked first in UBS Group AG’s annual list of major cities worldwide with the greatest risks of a housing bust. That has made even property developers who have reaped big profits fretful that critical workers will be priced out of housing.
“If we don’t deal with this issue of housing, we’ll hit a ceiling where we can’t expand that sector of the economy that we desperately need,” Westbank Projects Corp. CEO Ian Gillespie told Bloomberg.
The Canadian plan, run by a new non-profit called Creative Housing Society, is proposing to build units aimed at people with median annual income between $40,000 to $100,000, who would spend less than 30% of their household income (before tax) on housing costs.
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That’s become increasingly difficult now. The average annual income needed to purchase an average-priced resale condo in the city is $100,000 up from $77,000 a year earlier, according to Urbanation Inc.
On January 1, the government attempted to tame housing prices with regulations that make it harder to get a mortgage. But that has driven people to the rental market, where average monthly rents surged about 11% in the Toronto region in the first quarter, to $2,206, Urbanation said.
For property developers, building affordable housing is typically a low-margin proposition, especially amid rising construction costs, land prices, and interest rates. But the city and provinces are showering groups with incentives, including tax breaks, reduced fees, and promises of quick approval time, as short as six months. That’s spurred a host of other companies, including Canadian Real Estate Investment Trust, Greenwin Inc., and Tricon Capital Group Inc., to jump on the affordable bandwagon.
Creative Housing takes it one step further. The group’s proposed model includes a deal in which the city provides land free as long as affordable housing is built and maintained on it in perpetuity.
It’s also in talks with the Canadian Mortgage and Housing Corporation to receive financing that freezes lending at today’s interest rates for a 10-year period. With most of the equity coming from private institutional lenders, the non-profit is hoping to start building as early as next year.
“You need to add a significant amount of housing to even begin to respond to the demand and we’re so far behind in this area that it’s really hard to catch up,” Creative Housing CEO and former chief city planner for Toronto Jennifer Keesmaat said. “But if our model works, there’s almost an infinite amount of new affordable rental units that could be absorbed in the market.”
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