Part 2 - High cost of Toronto housing: Elephants in the room

Wednesday, April 03, 2019 ​| Published in The Lawyer's Daily

In my first article on this subject I offered some reasons why housing is so expensive in the Greater Toronto Area. Here are some more elephants in the affordable housing room.

Demise of OMB

Ontario is unique in most western democracies in that a municipality’s ability to control zoning and use of property within its boundaries can be questioned and appealed by landowners, the city, or residents to an independent body previously known as the Ontario Municipal Board (OMB), now renamed as the Local Planning Appeal Tribunal (LPAT).

The OMB served an admirable and independent purpose of keeping municipalities honest by balancing municipal goals and “nimbyism” with good planning principles. In Toronto it was especially needed, due to the fact that the political system is based on a ward system.

This effectively means that every councillor is, in essence, the king/queen of his own castle. Because the councillor relies on the votes of his local constituents, she or he must put their “nimby” concerns above any broader municipal goals or planning principles. And all other councillors usually respect local councillor’s wishes so they will return the favour when the shoe is on the other foot.

This is not the case in Vancouver where councillors are elected at large and are not subject to the same parochial pressures.

There have been many complaints that the OMB was a developer-biased body, based on the success ratio that developers historically have when they actually go to an OMB hearing.

The reason for this high degree of success is not that the board is “in developers’ pockets,” but rather that developers only seek the tribunal’s final decision when rational compromise is no longer possible either with the City or ratepayer groups, and their case from planning principles is very strong.

Most OMB appeals were settled without a hearing, based on compromise from all parties.

Under the new legislation passed by the Wynne government as an election goodie, the appeal process can now be stretched out to over five years, as the LPAT has no decision-making power at the first hearing. It can only send a rezoning application back to the municipality for reconsideration if it disagrees with the municipality’s decision at the first hearing.

Only if there is a second appeal of the municipality’s subsequent decision, can LPAT overrule and substitute its own decision.

So, how does this affect costs?

Quite simply, time and delays add significant costs to housing. The longer that a builder needs to carry the land (continue to incur costs without making any money) without developing it, the more those carrying costs must be incurred and passed on to purchasers.

Similarly, with the powers of the LPAT significantly reduced, zoned lands will have an even higher premium to be paid to avoid the uncertainty and length of time in an LPAT hearing, resulting in even higher land prices to be passed on to the ultimate consumer.

Rising construction and supplier costs

Construction costs have gone up at least 20-30 per cent over the last three or four years and in some cases, even higher.

But the bigger issue is the soft cost increases such as government charges including development charges, etc. It used to be that soft cost made up 30 per cent of the project budget. They now make up closer to 60 per cent.

Much of that is due to government charges.

Development approval delays and red tape

Government after government since Mike Harris has consistently promised to cut red tape and improve the process of government approvals for developing low-rise and high-rise projects. Notwithstanding the promises of many governments and the establishment of numerous committees and think tanks, development delays continue to grow and expand with ever increasing regulations.

The Liberals during their 12 years in power enacted a plethora of laws and regulations on the residential housing industry that both restricted land supply and buried the approval process under a huge weight of regulatory processes.

Even worse, no development has one quarterback on the provincial or municipal side to push through a development and deal with the many agencies that have input on development approvals.

As a result, every developer must be his own quarterback, negotiating with each different department, trying to sort out the irreconcilable differences of opinion, which often arise between one department and another.

Unfortunately, government departments are process driven and not goal driven. There is no incentive for a civil servant to find creative and efficient ways to expedite the approvals process.

Further, they are understaffed which means that they do not have the personnel, particularly in Toronto, to handle the ever-growing development approvals and development applications.

Again, time delays add significant cost to a housing project which ultimately has to be recovered from the purchaser. It now can take over 10 years to get low-rise greenfield land approved and ready for new home construction.

There has to be a balance between regulations to protect the public and those which simply grind development to a halt. There are places in North America where development approvals take a fraction of the time (Houston and Nashville, for instance).

Why can’t this happen in Ontario and the GTA?

A whole subway system can be built in China in eight years. In Toronto, in the same time, we can only build three stops on one line, with huge cost overruns.