Toronto’s best chance to solve the housing crisis might be to copy the British rowing team.
At the 2000 Sydney Olympics, one simple question led the men's eight rowing team to an unexpected gold — “Will it make the boat go faster?” This single question determined almost every training decision:
“Should I do this workout for 70 mins?” Will it make the boat go faster?
“Should we go to the pub tonight?” Will it make the boat go faster?
“Should we change this routine?” Will it make the boat go faster?
It gave them the clarity and focus needed to achieve the unachievable.
I came up with my own "Will it make the boat go faster” question examine Toronto's housing strategy.
Will it make housing meaningfully more affordable for the most people possible?
This ought to be, I think, the North Star guiding Toronto's housing strategy. It's not the only question we should ask; nor will answering it solve all of our housing problems. But housing is upstream from other hard problems like inequality, economic segregation, and climate change.
Answering this one simple question can act as a simple reminder of the direction in which we need to be headed. A focus on improving affordability for the most people possible makes solving other problems easier.
This post examines how effectively two recent housing interventions can improve affordability for the most people possible. Last month, city council greenlit two different approaches to housing affordability:
Expanding Housing Options in Neighbourhoods (EHON) proposes more flexible land-use rules in low-rise residential neighbourhoods (Neighbourhoods). EHON will promote new market-rate housing and more multi-family housing types to increase housing density in areas mostly reserved for single and semi-detached homes.
Inclusionary Zoning (IZ) changes the rules around major transit stations by requiring developers of new market-rate housing to set aside a percentage of the new units as affordable subsidized housing.
How do EHON and IZ work?
Central to EHON is creating optionality in low-rise residential neighbourhoods. Optionality, at a basic level, means having lots of options with low downside cost and high potential for upside benefit.
The success of EHON relies on flexible land-use rules that make neighborhoods more responsive to changing housing needs without needing to predict the future. EHON will work best if it develops new rules that give neighbourhoods optionality.
EHON has a ton of upside potential. Adding more homes and new housing types across low-rise residential neighbourhoods can provide better access to transit, jobs, services, and amenities; it can release growth pressure on high-density areas; make better use of existing infrastructure; and make the single most important contribution that Toronto can make to the fight against climate change.
One downside risk of EHON is that new rules raise the price of existing homes without increasing the likelihood they're redeveloped into multi-family housing.
We can maximize the upside potential of EHON and limit its downside by applying the most flexible land-use rules that we can across all neighbourhoods. Half measures won’t work. New rules shouldn’t just permit redevelopment, they should prioritize the conversion of single-detached homes into multiplexes, townhomes, and low-rise apartments.
Key to the success of IZ is predictability. Policymakers must make assumptions on behalf of different interest groups when writing the rules for IZ. These assumptions include things like who will build the new subsidized housing, who will pay for it, where it will be located, who gets to live in it, and how much they’ll pay to live there.
If the underlying assumptions of IZ are incorrect, the cost of building new subsidized units makes new development unprofitable and less housing gets built. It’s also possible, at least over the short term, that developers will cross-subsize the costs of affordable units by raising the prices of the market-rate units.
IZ can limit the downside risk of incorrect assumptions by incorporating offsets such as waiving fees or permitting additional density. Offsets that contribute to the viability of new development help cover the costs of new subsidized housing.
What do EHON and IZ actually do?
EHON can improve housing affordability through the indirect effects of new market-rate housing. New market-rate housing channels affluent people away from older housing. This can indirectly improve housing affordability through diversion and filtering.
Diversion is the process in which a new home diverts affluent people away from older homes. This slows the rate at which the prices of older homes appreciate. Many people buying an expensive new home will move out of an older less expensive home. This move loosens demand for older homes creating space for new occupants; many of whom will move out of even less expensive homes.
Filtering occurs when a new home starts out expensive but gradually becomes more affordable as it ages. Filtering is the process in which the expensive housing of today becomes the affordable housing of tomorrow. Tenure change, where a single-detached home gets subdivided into multiple units, is another common method of filtering.
EHON can leverage indirect effects by facilitating a significant increase in housing density and promoting a full range of low-rise multi-family housing types in Neighbourhoods including townhomes and low-rise apartments.
IZ can improve housing affordability through the direct effects of new subsidized housing. New subsidized housing can target people at higher risk of displacement and preserve housing for low income people in specific areas over the long term.
The case for IZ is not that it will produce enough affordable housing to satisfy the demand. The strength of IZ is the ability for policymakers to set the criteria that determines who benefits from new subsidized housing and where new subsidized housing will be located.
Maximizing the direct effects of IZ requires carefully considering where we need to preserve affordable housing and income diversity as well as determining which groups are at highest risk of being pushed out of these expensive or quickly changing areas.
Why does this matter?
EHON and IZ can be counterintuitive. An incomplete understanding of how they work can lead to prioritizing the wrong interventions or developing interventions that don't live up to their potential.
It may seem that EHON mostly benefits affluent homeowners and developers. In which case any density increase should be nominal, new housing types should be limited to those that resemble existing homes, and additional housing should be subject to affordability requirements.
This well-intentioned perspective gets EHON all wrong. By encouraging much more new market-rate housing and a wide range of housing types, Neighbourhoods can respond to changing housing needs at different price points. Each new home can also improve housing affordability through the indirect effects of diversion and filtering.
IZ may appear to be an opportunity to make developers pay for lots of new affordable housing. IZ should then maximize the amount of affordable housing required, impose deep affordability requirements, forgo government offsets, and apply the intervention city-wide.
This perspective puts enormous faith in our ability to predict future outcomes. Most importantly, I think, it misunderstands the strength of IZ. It mistakes IZ as a tool that can provide lots of new affordable housing instead of one that’s best calibrated to protect space in specific areas for specific people.
In 2022, we have an opportunity to reorient Toronto's housing strategy. As we begin public consultation for EHON and finalize the implementation guidelines for IZ, we should ask ourselves — are we making housing meaningfully more affordable for the most people possible?