Finding Solutions to Maintain Toronto’s Densest Affordable Housing

Aging high-rise residential towers in the city of Toronto are home to nearly 13 percent of the current population, but are falling behind on maintenance. A ULI Advisory Services panel was invited to evaluate a range of solutions.

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ULI Advisory Services panelists tour one of Toronto’s residential towers.

Aging high-rise residential towers in the city of Toronto are home to some 400,000 residents—around 13 percent of the current population. Given this building stock’s age (often 60 or more years old), the city’s rental vacancy rate (a paltry 1 percent), and current growth trends, there is a vital need for renovation and expansion while maintaining the affordability of these older structures.

A ULI Advisory Services panel, hosted by the city of Toronto in partnership with the ULI Toronto District Council and the ULI Foundation, provided a wide variety of recommendations centered on how the public and private sector can work together to unlock the necessary investments and drive sustainable retrofits of Toronto’s towers while maintaining affordability. The panels’ findings were presented in February at a public forum.

Access the report on Knowledge Finder.

Deputy Mayor Ana Bailão opened the panel’s discussion and noted a recent source of alarm, the 2018 fire at an older high-rise at 650 Parliament Street, the result of an electrical malfunction, which displaced 1,500 residents. She cited the city’s 2020–2030 Housing Plan, which aims to build 40,000 new rental homes, assembling C$24 billion in city, provincial, and national funding. She also cited the Housing Now initiative, which aims to build affordable housing on 11 city-owned sites. Some of the older towers are already being renovated, with Bailão mentioning one at 1011 Lansdowne that was 60 percent vacant just 10 years ago, now renovated and fully occupied.

Proud to open the joint @ULIToronto and @cityoftoronto Advisory Service Panel public discussion, focused on the resilence of our towers. Over 500,000 Torontonians live in older high-rise rental towers and it is important we preserve safe and affordable living conditions for them. pic.twitter.com/kBlutlEYpg— Ana Bailão (@anabailaoTO) February 28, 2020

Graeme Stewart, a principal with ERA Architects who works with the Tower Renewal Partnership, explained that there had been some progress since 2009, but that funding remains a pressing issue: “We’re talking $10 to $50 million a pop” for a deep retrofit at each building. He noted that many residents in these towers are low-income, and options for their relocation are not simple. “When I started this work 10 years ago, it was a theoretical notion that some of these buildings might go offline. Now they’re starting to go offline. We lost one building; it was a thousand people; they haven’t gone back yet. What happens if we lose 10? What happens if we lose 20 [buildings]?”

Jim Heid, founder of Urban Green and the panel chair, explained ULI’s methodology, a four-day sequence of site visits, stakeholder interviews, and deliberations. “The first thing we heard kind of a lot about anecdotally was that [the city of Toronto has] a 1 percent vacancy rate.

“Our takeaway on that is that is not a sign of economic success—it’s actually a failure of the market—it’s leading to disinvestment in towers. It skews where landlords put their money. It is actually a breakdown and really not a sustainable situation in terms of building your economy, sustaining your economy, and finding a range of housing for everyone who wants to live here.”

Heid observed that the 650 Parliament fire was not an isolated incident but “the tip of the iceberg.” He said, “We feel like you’ve been living on borrowed time with your towers.” The need is pressing and “the time to act is now—the time actually to act was 10 years ago.”

Today ERA is joining a panel of experts at a @ULIToronto discussion on retrofitting our city’s towers, which have largely become the “de-facto” affordable housing option for many Torontonians. Learn more: https://t.co/iILj0FV7jI pic.twitter.com/YD0TzzqbpH— ERA Architects (@ERAarch) February 28, 2020

He stressed the need for a comprehensive reevaluation in “the way we measure returns; the way we measure success.” The panel examined a few questions including the following: just who owned the city’s towers; whether tower renewal was a de facto affordable housing strategy; how some fixes might involve “software” and not just “hardware” improvements; and how all these goals could be achieved without raising rents.

If there is clearly plenty of work to be done, “the towers as a resource in the region in terms of architecture, space, and place and housing stock is pretty phenomenal.”

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The panel identified four kinds of tower ownership in the 986 buildings, as Heid explained, because they have “very different motivations, very different reasons and ways to measure success.” Larger private investors own the majority ofthe buildings, while “Legacy owners” (generally long-term single-building owners) owned roughly a quarter. The Toronto Community Housing Corporation (TCHC) has 133 buildings, and other nonprofits own 25 buildings. And each has slightly different interests.

Purnima Kapur, founder of Urbanism Advisors and formerly the executive director of city planning for New York City, pointed out a dramatic lag of housing production compared to population growth in the era of much tower construction. Said Kapur, “A 1 percent vacancy rate in a city like Toronto is really a dire situation. In a city that wants people to live, work, and make their way up, that is full of immigrants, a rental housing unit is the first stepping stone into a good future.

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“I know you’ve embarked on a housing plan for 10 years; I think the ambitions need to be much wider; I think that really planning is a 40- or 50-year horizon.” Kapur stressed that this window is rendered clear by current talk of tower renovation: “You are today reaping the benefits of something that was done 60 years ago.”

Kapur also urged that parking requirements be reduced and permissible built density increased near transit lines. Land banking around future transit expansions also could be a useful strategy for the future.

She extolled inclusionary zoning but noted that, while this should also be transparent, it needed to “respond to the different market conditions and to the different built-form conditions across the different neighborhoods.” This will necessarily work differently in different sorts of locations: “There are markets that can cross-subsidize affordability and there are other markets where the city can step in and subsidize affordability.” Ideally, this would be permanent but guarantees covering several decades can also be a great help.

Elizabeth Propp, a senior vice president with New York’s Community Preservation Corporation, spoke to tax and finance issues that favored the local condo market at the expense of rental construction, saying that even if many condo units end up being rented for a time, it’s not a safe bet to rely upon them as affordable housing stock. Said Propp, “The panel feels strongly that rental units in condos are not a substitute for dedicated rental units,” saying that these can be sold at any point, are often too small for families, and are generally expensive.

It is no surprise that condo construction prospered, given a greater ease of financing these projects, with a shorter payback interval. “Condo developers are allowed to use the downpayments as part of their financing sources and their equity requirements are much lower,” said Propp. She pointed out that the Harmonized Sales Tax paid by rental developers is at a higher rate than that paid by condo developers. Condo developers can also often immediately pass the cost on in full to buyers, which rental developers obviously cannot do.

A key aid would be reducing equity requirements for rental developers by any means, said Propp; this could entail parties guaranteeing portions of loans.

She also pressed the need for a comprehensive inventory of all potential sites for more affordable housing, including transit-oriented sites, but also empty plots near existing towers and underused land owned by nonprofit groups or houses of worship.

Laura London, associate director of Arlington Partnership for Affordable Housing in Virginia, spoke about “software” improvements that could be undertaken, advocating for “reclaiming and animating disused space between the towers and animating the public realm to create a structured, proactive, and positive approach.”

The creation of Tower Enhancement Districts could also provide a useful structure for working to improve given developments. These would draw upon residents, owners, planning professionals, city staff, and local businesses. Models for this effort included both business improvement districts and residential associations. Funding could be achieved through city grants, tower owner parcel taxes, and nongovernment organization and philanthropic sources. They could create community multipurpose spaces and amenities, locations for small businesses, and fund general aesthetic improvements.

Billy Grayson of the ULI Center for Sustainability and Economic Performance acknowledged the challenge of working on many fronts at once. “There is an opportunity to have it all with this retrofit program; it’s going to take some creative thinking about how we look at returns on investment for the investments we make in these towers.”

He pointed out that increased energy efficiency may not bring very substantial returns to owners, and that rent control inhibits that ability to fund a number of these.

“We think a better calculation for ROI for owners will include the cost reductions they’ll see over the next 20 years including maintenance, the cost of insurance, and other expenses that come down from these investments, including the risks of a catastrophic incident that may not be completely insurable like the one that happened at 650 Parliament.”

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A pilot program might be an effective way to start, with Grayson saying, “If you pick 10 buildings that are willing to invest in multimeasure projects that have the biggest impact on resilience and the deepest improvements in energy efficiency, they can be a cohort.” The initial building owners could share best practices, and would also serve as a prominent advertisement for the full undertaking. “It’s important to brag,” said Grayson. “It’s great to keep mentioning tower success stories because it encourages people to check them out. “

A comprehensive and coherent renovation campaign provides opportunities for workforce development. “We also think that this is an amazing jobs program,” said Grayson. “It would require thousands of employees in diverse building trades. . . . And these towers provide a lifetime career opportunity: for better or worse, you’re going to be upgrading these towers for the next 50 or 100 years, so that’s great job security.”

There also are possibilities for economies of scale in large purchases of high-efficiency building technologies, windows, HVAC systems, and more.

Bradford Dockser, CEO of Green Generation, explained that some practical steps were needed to propel renovation. “In addition to what we would call carrots, sometimes we need to use sticks; sometimes we need to use the regulatory levers that we’ve got.” Dockser said that building owners or their representatives need to be given timelines to meet the code or face real consequences. Said Dockser, “This would be an important first step in addressing ‘disasters waiting to happen.’”

The panel also recommended the creation of a public energy benchmarking program, following the example of about 20 North American cities. Another desirable requirement would be for each asset to create and file an annual asset maintenance plan that would detail “how they are going to address insufficiencies of their building; how are they going to invest going forward.”

Mandatory audits at frequent intervals could also “help asset owners identify where investing will drive the value of their assets.”

Dockser pointed out that some renovation costs are prohibitive to require for building owners, but that “anything that has a five-year payback or less should be required.” He explained that “regardless of the lease structure, regardless of how recoveries work, a five-year payback in an environment that has cap rates of 5 percent or less will almost always be accretive to the value of the asset. This is not something that should be thought of as a cost.”

But Dockser said that this will not be a one-time fix. “This will continue to evolve. This is a continuous process of renewal and investment in the assets. We don’t just wake up one day and say, ‘Aha, we have reached this 10-year goal, this 20-year goal.’ We have to have a process of every day, every year, making continued incremental progress.”

Bill Lashbrook, formerly a senior vice president with PNC Real Estate, emphasized the great value of Toronto’s arsenal of towers. “You have a gift, you’re incredibly fortunate. Who would have thought you have a 60-year-old gift and it’s incredibly valuable to you. You have poured concrete high-rise buildings—absolutely fantastic.”

One useful model and stepping stone is the TCHC’s extant evaluation of its own properties. “TCHC has diligently gone to a lot of work to inventory their properties against their mission and has come up with a game plan to improve those properties and to serve that mission.”

There are obviously differences between these public properties and private ones, but a number of those similarities are useful. “Is that a private game plan? No. But are the buildings essentially the same? Yes. You’ve got a fully funded game plan ready to kick off.”

One essential effect of new construction would be spurring landlords to make improvements that would naturally occur in a market with more vacancies. “Landlords should be encouraged to compete for tenants: at 1 percent you do not.” Short-term space can be an important portion of this process. “There should be swing space that allows a landlord to know that when they’re going through a deep retrofit there are places for people to go as they’re upgrading their housing.”

Questions followed this theme, quickly probing how best to balance public and private interests in this undertaking. Grayson explained the panel’s thinking. “Fundamentally, our recommendation is when the public sector is putting dollars into a private-sector retrofit project, it should be focused on things that the private developer is not able to get a return on: things like accessibility and affordability and some elements of safety and resilience, things that create a social benefit that’s quantifiable but may not be able to be recouped by an owner in terms of energy savings.”

He continued, “Owners should be smart about identifying things with a five-year payback and monetizing that effectively to enhance the value of their buildings. The public sector should step in with supplemental capital to support some of those other goals that may not have a direct return on investment for the building.”

Dockser pointed out that simple awareness is often a key part of making this a success. When it comes to such projects, “not every owner knows how to access capital” or that financial support for renovations might exist.

Questions also concerned population growth, risks of gentrification, and regional planning. One nexus of all of the above is the significant level of immigration to Toronto, a population unlikely to ebb and one that is uniquely reliant on rental housing. As Dockser explained, citing the 2018 tower fire, “If there’s another 650 Parliament in a building with lots of immigrants who’ve not been here as long and don’t have the established roots and family here, the cost to the city and public sector for new housing, emergency housing, emergency services is much greater. They don’t have the family members to bring them in. They’re looking to the city to solve their problem. They’re not looking to their friends, cousins, people they’ve known for a long time where they can disperse much more easily into the community.”

Anthony Paletta writes the Spaces column for the Wall Street Journal and contributes to The Guardian, Bookforum, Metropolis, The Daily Beast, Architectural Record, and a variety of other publications.
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