Canadian Property Management - GTA & Beyond

F O R B U I L D I N G O W N E R S , A S S E T A N D P R O P E R T Y M A N AG E R S

VOL. 24 NO. 3 • JULY/AUGUST 2017

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TABLE OF CONTENTS

CONTENTS

COVER STORY

04

PRECARIOUS EMPLOYMENT TARGETED Building services get special attention in Ontario's proposed labour legislation

IN THIS ISSUE

08

SUPER EXEMPTIONS

14

ONTARIO NARROWS THE SCOPE FOR PLANNING APPEALS

Ontario law leaves working conditions to multi-res landlords' discretion

Bill 139 introduces changes to the approvals process

8

10

SUPPLY CHAIN SWEET SPOT

16

FINDING THE MISSING MIDDLE

Demand ramps up for warehouse/distribution space with prime highway access

Computer simulations confirm a role for gentle-density housing options

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BUILDING SERVICES

PRECARIOUS EMPLOYMENT TARGETED Building services get special attention in Ontario's proposed labour legislation

BY BARBARA CARSS

C

leaners, security guards, parking attendants and building-specific food service workers could attain union certification through a streamlined onestep process if proposed amendments to Ontario’s Labour Relations Act are adopted.

Building services are also among a handful of sectors subject to a special measure that would uphold collective agreements and bargaining units when contracts are retendered, while, more generally, proposed changes to the Employment Standards Act would apply to the vast majority of workplaces in the province.

A relatively fast-tracked schedule to raise the provincial minimum wage to $15 an hour

by January 1, 2019 captured much of the attention when new legislation to address employers’ responsibilities and workers’ entitlements was tabled in the Ontario legislature in early June, but the envisioned overhaul of the two Acts — known as Bill 148 — encompasses dozens of revisions and

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additions to the rules. This follows the report and recommendations of the government’s appointed review panel, which consulted widely on the state of Ontario workplaces over a two-year period. Its final report was released a week before Bill 148 was introduced.

Some proposals, such as those related to overtime, holiday pay, emergency and medical leave, cover employees at all levels of the wage scale. Other measures are directed at people in low-paid, part-time and/ or less stable positions, commonly defined as precarious employment, and Premier Kathleen Wynne did not shy from naming the source of many such jobs as she outlined highlights of the legislation.

“We will modernize rules around creating a union. That includes the extension of cardbased certification to three vulnerable sectors — temporary workers, building services workers and home and community care workers,” she announced in a May 30 speech.

UNION CERTIFICATION Workers in the designated sectors would gain the same flexibility that the construction trades already have to unionize without a formal vote. Under these rules, which have been in place for much of this decade, union organizers can submit an application to the Ontario Labour Relations Board (OLRB) for certification once they believe that at least 55% of the potential membership of a bargaining unit has signed up. Employers have two days to respond after they’re notified of the application.

If there is no response, the bargaining unit is certified. If employers dispute the application — typically contending that it does not represent the required percentage of prospective members — the Labour Board can either order a formal vote if it’s determined that at least 40% of prospective members of the bargaining unit have signed up, or dismiss the application for having too few signatories.

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Recent research from Social Planning Toronto notes the obstacles to organizing workers such as cleaners, who move through multiple jobsites, often on erratic schedules where they interact with few colleagues.

Although card-based certification requires a higher commitment threshold, at 55% versus 50% in a formal vote, it avoids the potentially contentious lead-up to that vote.

“Generally speaking, it’s easier for the union for two reasons: 1) the union has control over when and how they obtain the cards to be signed, and when they file the application with the Ministry, so they can wait until they have the numbers they need; and 2) the certification could happen without the company even knowing there is a certification effort underway,” explains Michael Horvat a partner who practices with Aird & Berlis LLP’s labour and employment group.

“For employers, it can be challenging to respond within two days, particularly if the application is submitted at 4 p.m. on a Friday.

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BUILDING SERVICES The timelines are extremely tight and very unforgiving,” says Andrew Pariser, Vice President of the Residential Construction Council of Ontario (RESCON). “You do see a lot of certifications where there has been no response or submission from an employer.”

Nor are there necessarily set parameters for defining a bargaining unit and, accordingly, what 55% of it might be. In addition to employees of contractors providing third party services, building owners/managers’ in-house maintenance and security staff would theoretically qualify for card-based certification.

“It will be interesting to see how it works out in building services. The requirement is only an appropriate unit, not the most appropriate unit,” Horvat adds.

SUCCESSOR RIGHTS Bill 148’s move to extend successor rights when building service contracts are re-tendered is likewise uncharted territory. Under current law, existing collective agreements remain in place when a business is sold because it is a transaction between the vendor and the purchaser, but they do not have to be honoured when a contract is re-tendered because there is

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no exchange of value between the outgoing and incoming contractor. The proposed amendment would specifically require building services contractors to take on the obligations of their predecessors.

“This is a significant change. This is now creating a connection that the law didn’t previously recognize,” Horvat says. “Effectively, the building location could be unionized for the service. It’s going to become an element of disclosure in transactions.”

It could also provide more stability for incumbent contractors. Looking to the construction sector, the highly unionized labour force serves as something of an equalizer.

“In competitive settings, you can’t compete on the price of labour. That’s just the industry reality,” Pariser observes.

OPERATING COST IMPACT Full-day public hearings on the proposed Act occured in 10 Ontario cities and written comments could be submitted until July 21. Potential flow-through repercussions for building operating costs are part of the discussion.

Industry insiders expect a higher minimum wage will increase costs throughout the supply chain. Even where employers are already paying hourly rates around $15 there will be pressure to preserve a differential above the minimum wage for workers with more seniority — perhaps as part of the strategy to appease those who might contemplate unionization.

For the workers themselves, this should be welcome. Social Planning Toronto’s analysis reveals a divide even in sectors where wages are low and shifts are irregular. Data for 2,754 workers between the ages of 25 and 64 shows that 54% of unionized workers earn at least $40,000 annually, compared to just 43% of non-unionized workers. More notably, 59% of unionized workers have a pension plan and 45.5% have benefits versus 20% of non-union workers with pension plans and a mere 13.3% with benefits.

Yet, the legislation hits one of commercial real estate’s big-three operating costs at a time when the other two — utilities and property tax — are also under pressure.

The Ontario government’s recent electricity cost adjustments largely benefit residential ratepayers, while May’s Global Adjustment of 12.31 cents per kilowatt-hour doesn’t exhibit any discernible discount for Class B commercial electricity customers. Simultaneously, many Ontario municipalities are phasing out property tax rebates for vacant commercial and industrial space.

“I’m hearing that some managers are actually beginning to modify their cleaning specifications because of continuing rising

BUILDING SERVICES

“EFFECTIVELY, THE BUILDING LOCATION COULD BE UNIONIZED FOR THE SERVICE. IT’S GOING TO BECOME AN ELEMENT OF DISCLOSURE IN TRANSACTIONS.” electricity costs,” reports Peter Willmott, a facilities management advisor at Ryerson University and a long-time instructor in real estate finance, management and operations with the BOMI Institute. “After landlords have done as much as they can to maximize energy efficiency, labour becomes the next cost-cutting option. Spiralling electricity costs along with new labour costs will likely lead to shrinking staff sizes.”

INVESTOR PRESSURE From a real estate investment perspective, there is some tentative momentum for disclosure and transparency relating to workforce conditions. The Global Real Estate Sustainability Benchmark (GRESB) primarily tracks the environmental performance of portfolios, but survey participants are also asked to report: if they have policies regarding workers’ rights and labour-management relationships; whether their employees are trained on workplace and supply chain health, safety and well-being; and if their external contractors are subject to business ethics, human rights and health and safety requirements.

The Vancouver-based Shareholder Association for Research & Education (SHARE) is working with a UK-based non-governmental organization on a new workforce disclosure initiative, thus far signing on 18 Canadian institutional investors with $70 billion in assets under management for the inaugural survey and report. Although these entities are largely in the public equities asset class, more institutional investors in Canada and the United States are calling on their real estate arms or asset managers to consider social conditions for all who are employed somewhere in their portfolios.

“Reporting around employees is still framed very much as a cost for employers, but more and more funds have been adopting responsible contracting policies,” says Hugues Letourneau, SHARE’s senior environmental, social and governance (ESG) analyst. “Asset managers then embed responsible contracting in their RFPs.” ■ www.REMInetwork.com

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BUILDING SERVICES

SUPER EXEMPTIONS Ontario law leaves working conditions to multi-res landlords' discretion

BY BARBARA CARSS

L

ive-in superintendents in multiresidential buildings continue to have little protection in Ontario law. Earlier hints that the provincial government might move quickly to guarantee entitlement to the minimum wage, overtime pay, set working hours with food breaks and public holidays proved unfounded when proposed amendments to the Employment Standards Act (ESA) were introduced, in Bill 148, in June. Instead, a review of the Act's many exemptions and industry-specific rules has been promised for the fall of 2017.

For now, market demand and the goodwill of employers are still the prime determinants of superintendents' working conditions. Industry insiders affirm that they have to offer compensation in line with other positions in the labour force even if there are few formal requirements to do so enshrined in law.

"Especially in light of fierce competition for site staff from the condo industry, we typically remunerate them above what is currently required according to the Employment Standards Act," says

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Randy Daiter, Vice President, Residential Properties, with M&R Holdings.

"Superintendents have hours in the 40-per-week range. However, given the nature of the role, they also fulfill the very important requirement to be available for urgent situations outside regular business hours. They do receive holidays and days off when they are not expected to be at the building."

Employees in dozens of sectors are named in Ontario Regulation 285/01, which sets out allowed exemptions to the Employment Standards Act, but live-in superintendents, janitors or caretakers are the only non-student category excluded from entitlement to the minimum wage with no stipulated alternative minimum threshold. Nor is there guidance for calculating the value or wage equivalence of living accommodations — something the regulation does spell out for live-in workers, like nannies, in private households.

Findings from the Changing Workplaces Review — conducted by the Ontario government's specially appointed advisors, who were mandated to consult widely and

deliver the recommendations that now underpin much of Bill 148's core content — reiterate that superintendents enjoy greater regulatory safeguards elsewhere in Canada.

"British Columbia and Nova Scotia are the only other provinces that have exemptions for superintendents. However, their exemptions are narrower than those in Ontario," states the special advisors' interim report, released in the summer of 2016. "In British Columbia, superintendents are exempt from eating periods and overtime pay. They are also subject to a special minimum wage rule under which they are entitled to a monthly base wage and a certain amount per unit supervised. In Nova Scotia, they are only exempt from overtime pay."

DIFFERING WORKPLACE CIRCUMSTANCES The interim report suggested the advisors would recommend a straightforward reinstatement of superintendents' entitlements unless they heard convincing arguments for the exemptions. However, their final report, released in late May, pulls back from that position. The recommendations outline a po-

TheRoofers_GTA_May_2017_FINAL.pdf

tential a new process for the regular review of the ESA's sector-specific rules and exemptions to ensure they continue to be relevant and defensible.

The special advisors acknowledge that a multi-sectoral and steadily evolving economy needs flexibility to address differing workplace circumstances and C varying challenges that might arise. Notably, M landlords carry obligations as both employers Y and highly regulated housing providers.

"There would be backlash ifCM superintendents are not able to respond toMY tenant service requests in a timely manner.CY We view the current exemptions under the CMY employment legislation as recognition by the government of the distinct elements of the K superintendent role," Daiter observes. "Like any job, there are pluses — i.e. the housing benefits — and minuses, but, overall, I'd say the scale balances for a mutually beneficial employment arrangement."

In another industry-related example, the construction industry is also exempt from the ESA's requirements for hours in the work day and prescribed periods for eating, but it has not been issue in its largely unionized workforce.

"A collective agreement, as long as it doesn't promise less than the ESA, supersedes. It's always the dominant document," explains Andrew Pariser, Vice President with the Residential Construction Council of Ontario (RESCON).

The Changing Workplace Review's special advisors caution against occasional adjustments to the Act becoming inadvertently entrenched. For example, those pertaining to live-in superintendents are pegged to the less-than-precise date of "at least since 1969" and are among some of the 85 current exemptions under the ESA that are deemed due for critical scrutiny.

"We received no submissions [following the interim report] from residential property employers with respect to residential building superintendents, janitors and caretakers," the final report notes. "Rather than eliminate the exemption on the basis that no submissions were received from the employers, we recommend an early review of the regulation applying to this group of employees because of its breadth and the resulting anomalous treatment compared to others similarly situated in the rest of the country." ■

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MARKET TRENDS

SUPPLY CHAIN SWEET SPOT Demand ramps up for warehouse/distribution space with prime highway access

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MARKET TRENDS

T

here are fewer route options for freight traffic traversing the Greater Toronto Area than in most other large North American regions. Analysis from Colliers International points to something of a divergence between the region's inventory of industrial space, which ranks as the fourth largest in Canada and the United States, and the scope of its highway network, which falls much farther down the list of major warehouse/distribution hubs.

Colliers' recently released Strategy for the Last Mile looks at the demand for real estate through the lens of supply chain logistics, as transport trucks carry a steadily increasing share of products to market and the rise of online retailing sharpens business operators' focus on the final leg of delivery to consumers. Rent is estimated to account for 4% of supply chain costs versus transportation's 50% contribution — an imbalance that flows through to real estate decisions.

"The underlying factors from a real estate standpoint that then become critical in the operating cost model are: where the product comes from; where it is going; and how much it will cost," the authors maintain.

"Choosing an industrial facility or third-party logistics (3PL) company to house its goods has become one of the most important decisions a company can make. Competition for the right location is increasing as distributors are willing to pay higher rents in strategic locations to reduce transportation costs and improve responsiveness."

Colliers analysts peg the sweet spot at a maximum of 800 metres from highway access, and report that such locations are currently difficult to secure in almost all but the most far-flung GTA municipalities.

Approximately 42% of the GTA's total industrial portfolio, equating to about 336 million square feet, is situated within one kilometre of a highway, but there is just a 2.8% availability rate in buildings with this prime access.

LITTLE AVAILABILITY The availability rate is lower still in Toronto and Mississauga, where more than half of the GTA's supply of this preferably sited industrial space can be found. Vaughan, Brampton and Oakville, with respective inventories of 40 million to 20 million square feet of space within 800 metres of highway access, also post low availability rates in

GTA NET RENTS UNDERPERFORM NATIONAL AVERAGE More than one million square feet of new industrial supply was added to the Greater Toronto Area market in the second quarter of 2017, but the availability rate still dropped due to overall absorption of nearly 3.3 million square feet. CBRE's recently released Canada Q2 2017 Quarterly Statistics highlight the GTA's healthy performance.

Its 2.7% industrial availability rate is the lowest among the 10 major centres surveyed, while average net rents rose to $6.10 per square foot, contributing to the 9.7% increase in rents since June of 2016. "This is the fifth consecutive quarter wherein annual rental growth has exceeded 5%," the report adds.

That said, Toronto net rents trail the national average of $6.78 per square foot and are well below Edmonton's $9.68 per square foot and Vancouver's $9.19 per square foot average. Across Canada, six of the 10 surveyed cities recorded higher net rents than Toronto's, with Montreal and nearest neighbour markets in Waterloo Region and London, Ontario, lagging.

More than 5 million square feet of new space is now under construction, but CBRE analysts don't foresee much exit from existing facilities. "A lack of available opportunities will encourage tenants to consider renewing existing space, which will further increase rents," the report speculates. "Long-term leases continue to decrease in length; lease terms now average between 60 and 72 months."

The national industrial availability rate fell to 4.7% — the lowest since 2003. Toronto accounted for the major share of the approximately 4.2 million square feet of absorption during the quarter, but only Edmonton and London saw space empty out.

Both Edmonton and Calgary continue to post availability rates above the national average, at 9.3% in Calgary and 8.5% in Edmonton. That represents an improvement of 50 basis points over Q1 for Calgary and average net rents of $7.02 per square foot still surpass the national average, despite dropping $0.02 from Q1.

A modest 75,000 square feet of new space came onto the market in Q2, while another 357,000 square feet is under construction. Supply chain logistics play a role in the quarter's slight upturn, but CBRE analysts project Calgary's industrial availability rate won't drop below 9% this year.

"Leasing activity remains bifurcated by size. For example, this quarter, activity for properties exceeding 50,000 square feet was quite active, driven by transportation and distribution-type tenants. Whereas, leasing activity for properties less than 10,000 square continued to remain very limited," the report observes.

Vancouver is something of a parallel industrial hotspot to Toronto. Even though the availability rate rose 30 basis points, to 3%, between March 31 and June 30, average net rents increased by $0.51 in the same period. Nearly 4.6 million square feet of new space is under construction — rivalling Toronto's current activity, but likely to make more of a ripple as it hits an existing industrial market of 187.6 million square feet, which is less than a quarter of the Toronto market inventory.

Nevertheless, CBRE analysts attribute this quarter's availability uptick to "one significant building returning to inventory" and are predicting a further 50 bps drop in the availability rate by year-end. "A significant amount of new supply this quarter was pre-leased, or sold, thus doing little to satisfy growing demand," the report notes.

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MARKET TRENDS

the range 3.1 to 2.1%. Pickering, albeit with a nominal supply to begin with, offers no availability.

At the other end of the scale, the availability rate surpasses 27% in Halton Hills and is nearly 10% in neighbouring Milton. Looking north, Richmond Hill and Newmarket also have a more ample supply with availability rates of 6.6% and 7.1% respectively. However, all four of these nodes contribute a relatively small fraction of industrial space with prime highway access.

Even so, Richmond Hill records some of the highest net rental rates in the GTA, at an average of $7.02 per square foot in buildings within 800 metres of highway access and a still healthy $6.24 per square foot for more distant sites. Net rents in other municipalities also highlight a premium for proximity with the most noted gap seen in Oakville. There, buildings within 800 metres of a highway record an average net rent of $6.46 per square foot versus an average of $5.33 per square foot for other locations.

Market observers see this as a lasting trend. "A growing population, increasing congestion and lack of substantial highway

RENT IS ESTIMATED TO ACCOUNT FOR 4% OF SUPPLY CHAIN COSTS VERSUS TRANSPORTATION'S 50% CONTRIBUTION — AN IMBALANCE THAT FLOWS THROUGH TO REAL ESTATE DECISIONS. expansion to population centres within the Toronto CMA will continue to drive the competition for highway-accessible industrial real estate," the report projects.

"A continuing trend is also the choice of certain companies to operate out of multiple distribution facilities within the Toronto CMA. Companies locating in different consumer pockets will alleviate some traffic concerns."

INFRASTRUCTURE FACTORS The report bases the hypothesis that the GTA is "under supplied" with road infrastructure on a few different yardsticks. A combined tally of 3,641 kilometres (km) of highway lanes stretching from Durham to Halton Regions

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and from Lake Ontario to the north of York Region positions the GTA as 11th among 16 surveyed metropolises — four in Canada; 12 in the U.S. — for total coverage. However, it ranks even lower in various definitions of highway density.

A ratio of 0.58 km of highway per one square kilometre of land area places the GTA 12th out of 16, while 4.6 km of highway per one million square feet of industrial space is 14th out of 16. When measured in terms of the population, the GTA ties with Chicago in second from last at 59 km per 100,000 residents. Meanwhile, the TomTom Traffic Index, which is the generally regarded industry standard, ranks Toronto as the ninth most congested among 78 North American regions it monitors.

"If certain urbanized areas are on the lower end of the spectrum across multiple categories, it can be rationalized that transporting goods across those areas could be quite challenging," the report states.

That said, metropolises with more extensive highway coverage don't necessarily offer easy passage. The TomTom Index ranks Los Angeles and New York as the second and third most congested regions in North America (after Mexico City) and both boast more industrial space than the GTA. Chicago — ranked just above the GTA with the third largest portfolio of industrial space among the 16 surveyed regions — appears to be the most comparable. With 0.51 km of highway for every square km of land area and 3.64 km of highway per million square feet of industrial space, it places just below the GTA on the highway density scales, and is 15th on the TomTom congestion index. ■ ________________________________________ THE COMPLE TE TE X T OF COLLIERS' S P A R K R E P O R T: S T R AT E G Y F O R THE L A ST MILE CAN BE FOUND AT W W W.C O L L IE R S C A N A D A .C O M / E N / C O M M E R C I A L- P R O P E R T Y RESE ARCH.

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PLANNING/DEVELOPMENT

ONTARIO NARROWS THE SCOPE FOR PLANNING APPEALS Bill 139 introduces changes to the approvals process

BY MEAGHAN BARRETT AND TOM HALINSKI

B

ill 139, the Building Better Communities and Conserving Watersheds Act, 2017, which has received First Reading, proposes to continue the Ontario Municipal Board as the renamed Local Planning Appeal Tribunal, make fundamental changes to the Planning Act approval process, and revise the Conservation Authorities Act. While the final content of Bill 139 has not yet been determined and the regulations are not available, below is a summary of the most salient changes proposed.

THE NEW LOCAL PLANNING APPEAL TRIBUNAL • New Hearing Rules. No party would be permitted to call evidence or examine witnesses in most planning appeals (official plans and amendment, zoning bylaw and amendments, and plan of subdivision).

Instead, evidence would be based primarily on the written record that was before council when it made its original decision. An oral hearing would involve only submissions by the parties to the appeal. Proposed time limits for parties’ oral submissions are to be stipulated in a regulation which has not yet been published.

• Mandatory Case Management. The tribunal would require that a case management conference be held for

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any proceeding in the above matters for purposes such as identifying the issue(s) raised by the proceeding, discussing opportunities for settlement and determining administrative details of the conduct of hearings.

• Local Planning Appeal Support Centre.

A new Local Planning Appeal Support Centre, staffed by a duty lawyer, would be established to provide free information and support, as well as representation for residents seeking to participate in the appeal process.

THE PLANNING ACT • The New Test. On an appeal of a municipally adopted/approved official plan or amendment (OP/OPA) or a zoning bylaw or amendment (ZBL/ZBLA), the appellant would have to explain how the part or section of the aforementioned instrument of concern to the appellant is inconsistent with a provincial policy statement, fails to conform with or conflicts with a provincial plan, or fails to conform with the applicable upper-tier official plan.

• The Joint Test. On an appeal from a refusal of a privately initiated OPA or ZBLA, the applicant/appellant would have to explain (i) how the existing policies/regulations of the OP or ZBL sought to be amended do not satisfy the new test and (ii) how the

proposed OPA or ZBLA does satisfy the new test.

• The First and Second Appeal Process. If the tribunal determines that the appellant has not met the applicable test (i.e. the new test or the joint test), the appeal would be dismissed. If the tribunal determines that an appellant has met the applicable test, the tribunal would have to issue a notice to the municipality that it is being given an opportunity to reconsider its decision on the matter.

If the municipality does not render a decision on the reconsideration within 90 days, the non-decision could be appealed to the tribunal. If the municipality does render a decision on the reconsideration, the municipal decision could be appealed a second time. On a second appeal, if the tribunal finds that the appellant has again met the new test or the joint test, only then would the tribunal be empowered to modify the appealed instrument to resolve the matter.

• Major Transit Station Areas. Upper and single-tier municipal official plans would be able to include policies that identify a protected major transit station area.

These policies can prescribe the land uses, heights and minimum employment/ residential densities to be achieved in the major transit station areas. Lower-

PLANNING/DEVELOPMENT

tier municipalities would have to amend their OPs to give effect to the upper-tier’s policies.

Exemption orders would not apply in the case of new major transit station area policies, so all of these policies and maps would have to be approved by the relevant approval authority (i.e. an upper-tier municipality or the Minister). If approved by the relevant approval authority, new major transit station area policies and maps would not be appealable. These new policies and maps would not be able to be amended by a private application absent permission from the municipality.

• Secondary Plan Two-Year Freeze. Once approved, no one would be able to request an amendment to a new secondary plan before the second anniversary of the secondary plan coming into force, absent permission from the municipality.

• Non-Decisions. The appeal period on a private OPA is proposed to be extended from 180 days to 210 days. The appeal period on a private ZBLA is proposed to be extended from 120 days to 150 days, unless the private ZBLA is accompanied

by a private OPA, in which case the appeal period for both would be 210 days. This is in addition to all of the Bill 73 amendments regarding approval authority extensions.

On reconsideration matters (i.e. second appeals), the non-decision period is proposed to be reduced to 90 days.

• No Appeals of Minister’s Decisions.

Where the Minister of Municipal Affairs is the approval authority of an OP or OPA, there would be no ability to appeal the Minister’s decision to approve. This becomes important in the context of OP reviews and conformity exercises undertaken pursuant to section 26 of the Planning Act, where exemptions from Ministerial approval do not apply.

Further, the definition of a municipal comprehensive review (MCR) has changed under the 2017 Growth Plan for the Greater Golden Horseshoe such that an MCR may only be undertaken by an upper or singletier municipality pursuant to section 26.

Because upper and single-tier decisions

under section 26 are subject to Ministerial approval, none of these matters would be capable of being appealed.

PROPOSED CHANGES TO CONSERVATION AUTHORITIES ACT • Stop Work Orders. Officers appointed by the authority would have the power to issue stop work orders halting activities done without a permit or in contravention of a condition of a permit.

• Appeals. Appeals in respect of applications for a permit in the area of an authority’s jurisdiction would be made to the Minister of Natural Resources.

• Fines. The maximum fine for contravention of the Act would be increased from $10,000 to $50,000 in the case of an individual and to $1 million in the case of a corporation.

An additional fine of $10,000 to $50,000 per day for individuals and $200,000 per day for corporations could be imposed if the offence continues after conviction. ■

____________________________________________________________________________________ M E A G H A N B A R R E T T I S A N A S S O C I AT E A N D T O M H A L I N S K I I S A P A R T N E R W I T H A I R D & B E R L I S L L P ' S M U N I C I P A L A N D L A N D U S E P L A N N I N G G R O U P. F O R M O R E I N F O R M AT I O N , S E E T H E W E B S I T E AT W W W . A I R D B E R L I S . C O M .

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PLANNING/DEVELOPMENT

FINDING THE MISSING

MIDDLE Computer simulations confirm a role for gentle-density housing options

BY MICHELLE ERVIN

T

he development of more courtyard apartments, multiplexes and town homes could be among the building blocks of better housing affordability in Ontario and the Greater Toronto and Hamilton Area (GTHA), according to big-data analysis.

Collectively referred to as the ‘missing middle,’ these housing types hold the potential to help mediate a mismatch between supply and demand, according to a report released in the spring of 2017.

Understanding the Forces Driving the Shelter Affordability Issue builds on research into the complex web of factors influencing the housing market. In this latest phase of its work, the Canadian Centre for Economic Analysis (CANCEA) used computer simulations to model the various effects of different events.

The independent study was sponsored by the Residential Construction Council of Ontario, the Residential and Civil Construction Alliance of Ontario, the Ontario Association of Architects and the Ontario Construction Secretariat.

In its initial phase of work, CANCEA produced a new measure of affordability, aimed at more completely capturing the many forces affecting the ability of households to meet their basic housing needs. The shelter consumption affordability ratio (SCAR) index represents all costs associated with shelter divided by the amount of disposable income left over after covering other necessities.

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In Ontario, one in four households have a SCAR index of more than 60, which is the threshold for non-affordability. In the GTHA, it’s one in three households.

Population growth, paired with the shrinking average size of households, has contributed significantly to the rising SCAR index in the last 10 years, the research found. Debt was also a major factor in increasing affordability pressures. At the same time, increasing average wages, diverging ownership and rental prices, and growing government transfers acted as mitigating forces.

The research found that demographic factors and diverging ownership and rental prices also have the potential to have an outsized impact on the SCAR index looking ahead. So do average wages, employment rates and the mismatch between shelter demand and supply.

SUPPLY SUITABILITY Industry groups have characterized housing affordability as a supply problem, but Paul Smetanin, president of CANCEA, cautioned that it would be a mistake to discount the demand side of the supply-demand equation.

With the region projected to require $100 billion to $150 billion worth of construction in the next decade, the research points to the importance of the suitability of supply.

“This is not about necessarily increasing the volume of what we’re currently building,” said

PLANNING/DEVELOPMENT

“THIS IS NOT ABOUT NECESSARILY INCREASING THE VOLUME OF WHAT WE’RE CURRENTLY BUILDING. THIS IS ABOUT CHANGING WHAT WE BUILD, AND STARTING TO LOOK AT THE PRODUCTIVITY OF LAND BEING USED.” Smetanin. “This is about changing what we build, and starting to look at the productivity of land being used.”

Gentle-density options, somewhere between single-family home and skyscraping condo, would give households an opportunity to ‘right-size’ their home based on their needs, he explained. As it stands, a similar scenario is playing out in communities across the GTHA, where empty nesters tend to be sitting on extra bedrooms while households of five or more tend to be short on bedrooms.

This finding was eye-opening for city councillor Ana Bailao, who chairs Toronto’s affordable housing committee and represents Ward 18 Davenport. It suggested that a provincially and federally supported city program designed to help seniors age in place might be less than constructive with respect to housing affordability.

“We’re actually incentivizing people to stay longer in their homes, paying for renovations and so on,” said Bailao, speaking on a panel following the release of CANCEA’s report. “So now we have all this data in front of us that should

tell us maybe this is not the best way to actually invest that money.”

Smetanin also noted the lack of attractive alternatives available to baby boomers who might otherwise downsize from detached homes. What’s conspicuously absent on the market is what has come to be known as the ‘missing middle.’

“One part of the community is rat, pack and stack, and the other part of the community is very flat,” he said.

The CANCEA report cites zoning as a contributing factor, with vast swaths of CANADIAN ACADEMY OF BUILDING SCIENCES INC

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TENURE MIX It’s not just about building the right size of units, but providing the right mix of tenures. A cultural fixation on home ownership has pushed ownership levels far beyond those found in most modern cities, said Smetanin, while the construction of purpose-built rentals has stagnated, until recently.

“Every time we turned down the supply of rental, we started to see frothiness, and we started to see bifurcation toward basically people in good situations and people in bad situations,” he said of the computer simulations.

The availability of attractive rental options also facilitates rightsizing by giving consumers who sell their homes the option of renting if no homes meeting their needs are on the market at that time, said Smetanin.

Renewed interest in constructing purpose-built rentals was just picking up steam when the provincial government announced plans to lift the previous 1991 cut-off on rent control.

“One of the great tragedies of what we’ve seen over the last month or so is that Greater Toronto and Hamilton Area was on the verge of a massive expansion of purpose-built rental,” said Jim Murphy, president and CEO of the Federation of Rental-Housing Providers of Ontario, speaking on a panel following the release of CANCEA’s report. “And a lot of those [units] are now at risk.”

Meanwhile, condos have outpaced purpose-built rental construction in the GTHA by more than 10 fold over the last two decades, according to the CANCEA report. As a result, condos have acted as a stopgap in the rental market, with one in three of the units in Toronto currently 11:25 AM rented.

DEVELOPMENT TIMELINES However, development timelines that stretch years cause a lag in responses to consumer demand and prompt builders to depend heavily on investors, observed Diana Petramala, economist, real estate, with TD Economics. “[Builders] are primarily selling to investors at pre-construction stage, and they’ve got to sell about 60 to 80 per cent of their units before they can actually start or get the funding for a building,” said Petramala, speaking on a panel following the release of CANCEA’s report. “That means that investors, particularly foreign investors, are determining our future supply — what the size looks like.

“Do we need to tax them and do we need to cut that off right away?

No, because we don’t have anything its place.”

The CANCEA report flagged the agility of developers to respond to demand — which hinges on timely regulatory approvals, among other things — for particular attention as well as speculation that results in empty units or over-bidding. In addition to right-sizing and tenurematching, these were identified as behaviours likelier to respond to policy intervention.

The CANCEA report projected that the cumulative effect of curbing speculation, stimulating rental supply and demand, and tempering over-housing could be to bring the SCAR index below 1990s levels. Just getting developers to deliver right-sized units and getting consumers to match their shelter to their needs could bring the SCAR index below 2000s levels. ■

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