May 25, 2017

Where Has All the Low-Rise Gone? Understanding Ontario’s Missing Middle Market

That there’s not enough supply to go around has long been a culprit behind unsustainable real estate price growth in the Golden Horseshoe. However, a new report out this week indicates the province doesn’t just need more housing – it needs the right kind of housing.

It finds the GH – and especially the Greater Toronto Area – is suffering from the “missing middle” or a lack of “gentle density” home types – think townhouses, row houses, and courtyard apartments. These traditionally bridge the gap between the luxury detached and high-rise segments, offering more space than a typical condo but at a friendlier price point than a stand-alone single-family home.

The Missing Middle Market: A Space Imbalance

A missing middle means the majority of people in the province are either over or under housed, says the report, which was compiled by the Canadian Centre for Economic Analysis. Titled “Understanding Ontario’s Housing Affordability Challenge: A Big Data Evolution”, it finds there are five million empty bedrooms in the province, while one in eight Ontarians have too few to suit their needs.

A full 2.2 million of those bedrooms are within the City of Toronto, where half of all residents have too many compared to the 20 per cent considered “shelter-poor”. According to the report, only 350,000 bedrooms are needed to close the city’s gap.

CEO Paul Smetanin says it’s a clear imbalance between haves and have-nots, yet not widely realized by the public. “If this was happening to our food chain or water supply, we would have a visceral reaction,” he stated. “But because it’s happening in a very slow-burning housing market, it’s like heating up the frog very slowly in the pan – it doesn’t notice until it’s too late.”

But it’s not as though those with too many rooms can, or are willing to, return them to rental stock – more gentle density must be built to meet Ontarians’ needs argues Smetanin. “You’ve got the missing middle – townhouses, triplexes, duplexes… When you have a look at what’s been produced, that’s always been squeezed for preference of single-detached or mid- to high-rise,” he says.

The report suggests $150 billion will need to be spent over the next decade to accommodate Toronto’s housing needs, and that the majority should be purpose-built rental to improve affordability; total rental stock has decreased 30 per cent in the GTHA since 1990, with new condo builds outnumbering them 10 to one.

Related Read: Could Laneway Housing Be the Answer to Toronto’s Hot Housing Market?

The Hurdles Facing Gentle Density

Toronto’s market suffers from a perfect storm of steep land prices and highly restrictive zoning. Similar to the “green belt” that limits outward development in the province’s agricultural lands, much of the city is cinched by the so-called “yellow belt” – large swaths of the city designated only for residential detached homes. New homes built within these zones must be detached, cannot exceed 10 metres in height, and can only be for residential use.

Gentle density also isn’t particularly profitable; not only does it require larger quantities of high-priced land, but it doesn’t offer developers as much opportunity to recoup their costs. Why build a few units at ground level when thousands can be built vertically, within the same footprint?

It’s becoming more of an emerging issue even in ‘burbs of the 905, traditionally the territory for detached homes with spacious lots. According to a report by the National Post’s Garry Marr, condos are trumping ground-oriented housing as far as Hamilton.

“Hamilton didn’t even have a condo market eight years ago, you couldn’t recover your costs,” stated local builder Jeff Paikin to Marr. “Now there are a few projects that are planned or are being built. It’s even hard to get the land for townhomes. Detached homes? Forget it.”