Michael Cooper, the president of a Canadian real estate empire that controls more than $26 billion in assets, says the city of Toronto may be on to something with its latest policy to increase affordable housing.
The executive says a plan adopted by the council of Canada's largest city to create tax breaks for 7,000 rental units, including 1,400 affordable units, has him ready to bite and commit to residential projects on two parcels of land in a city where Dream Unlimited and its various public entities control enough land to build 10,000 units in the city of Toronto.
"The position we are in now is the result of 30 years of lack of supply of affordable housing. Let's not look who is responsible on this, but let's try to fix it," said Cooper in an interview with CoStar News.
Under Toronto's new program, 5,600 purpose-built rental units would receive an indefinite deferral on development charges, estimated at more than $37,636 per unit. This deferral would stay in place as long as the unit is used for rental housing.
The city would also offer owners a 15% property tax reduction for 35 years, estimated to be worth more than $20,396 per rental unit, on those same units.
Cooper did not identify the two parcels where his company is considering new residential projects or say when Dream Unlimited might start them. The company would have to apply and get approval to receive the incentives.
What is affordable?
On the affordable unit side, the city says the complete package of tax breaks is worth $97,264 per unit in loss revenue to Toronto. It also includes exemptions from development charges, parkland dedication fees, community benefits charges if not already exempted by provincial legislation, and the waiver of planning application and building permit fees, according to the city.
The need for more supply comes as the city's vacancy rate is near a historical low of 1.1%, according to Canada Mortgage and Housing Corp.
With the federal government reducing targets for immigration, rents have started to fall in Canada's largest city, with rentals.ca reporting October asking rates were down 9% in Toronto from a year ago for all categories of housing. But at $2,642 per month, Toronto is still the second most expensive place to rent in the country.
As a rough guide, Dream's Cooper calculates affordability as half of the market rent. For a one-bedroom in Toronto, that would mean $1,000 per month, a rate that developers can only afford to build at with government support.
"It is less costly to build affordable housing because the federal government will lend you the money at their cost," said Cooper.
The executive said that means borrowing at 3.25% today, and that would cost close to 6.5% for a construction loan at market rates, but the loan is also for a decade so that the rate can be fixed during the building of the apartment and the first number of years you own it.
"It reduces a lot of risk about financing on completion, and it doesn't cost the government money because they get paid," said Cooper, adding the risk of default is low because the government would get the building back. "In the scheme of risk, this is small."
Feds change programs
The federal government said last week it was enhancing the Affordable Housing Fund and the Apartment Construction Loan Program.
With the changes, the Affordable Housing Fund has been extended three years to end in 2028-2029, and the Apartment Construction Loan Program will be extended four years to end in 2032. It will also be amended to include on- and off-campus student housing and independent senior housing.
The Affordable Housing Fund will be divided into a Rapid Housing category to help build shelters and transitional housing. A Community Housing category will offer support to create affordable housing, as well as projects that have a mix of affordable and market rent housing, the city said.
The minimum requirements for accessibility and energy efficiency will be removed, although projects with those elements will still be prioritized, according to a statement released last week.
Established builders will be recognized through a Frequent Builder framework that promises faster loan approvals and more flexibility.
The changes take effect Friday and aim to “make it easier for housing providers to build housing for these specific groups in the communities they serve,” according to the press release that also instructs those interested to contact the Canada Mortgage and Housing Corp.
The Affordable Housing Fund offers $14.6 billion in low-interest loans to developers that build for those “most in need.” The fund has seen $10.34 billion committed to create 40,000 units built and 166,000 renovated, according to the statement.
The Apartment Construction Loan Program is a $55 billion fund also offering low-interest loans, to build standard rental homes and senior and student housing. The fund has committed $206.65 billion in taxpayer money to support the construction of 53,000 homes.
Sales tax removal
Those moves followed the federal government's removal of the Goods and Services Tax/Harmonized Sales Tax (GST/HST) on all new qualifying rental housing constructions to help with the rising cost of living, effective Sept. 14, 2023.
"That was a big deal because we paid HST on inputs, but we are not allowed to charge HST on rents," said Cooper, referring to the tax, about 13% in Ontario. "It never made sense to charge on apartments."
Cooper said "nothing is getting built" in Toronto because of the higher interest rates, and developers don't want to take on the risk. He said the Toronto changes will save 5% for Toronto builders, but combined with federal initiatives, they will help get housing built.
Cooper does caution that with condo sales now stalling, many of those cranes will go away with presales now at 30-year lows. He said average fees of $100,000 associated with condos, not impacted by the latest announcements, are not helping.
"My view is commencing a project now makes sense. The returns are tight, but it's better than just holding land. It is not a windfall for anybody," said Cooper. "There is still lots of risk."
The company started 1,200 apartments in Canada in 2024 but zero in the country's largest city. With changes, Dream says it will go ahead with two buildings in the next 18 months if the city grants the company a waiver on taxes and fees.
"That is if we qualify," says Cooper.