The costs and benefits of home ownership in the GTA

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 The costs and benefits of home ownership in the GTA

Introduction

The GTA (Greater Toronto Area) is Canada's most populous metropolitan area. The

city of Toronto, as well as the regional municipalities of Halton, York, Durham and Peel are

all part of it. The GTA is made up of 25 metropolitan, suburban, and rural municipalities. It

starts in Burlington, Halton Region, and continues eastward along Lake Ontario past

downtown Toronto to Clarington, Durham Region. Although a number of municipalities in

the northern periphery of Greater Toronto are located in York Region, Durham Region holds

the northernmost municipality in the GTA. The programmatic concept and the planning

policy definition of affordable owned housing are also included in the GTA. The Affordable

Housing Office uses the programmatic definition to decide who is eligible for down payment

assistance loans from federal provincial funds (IAH) and local funds (HOAP). The City's

Planning Division negotiates with developers requesting planning permits on private property

and sites greater than 5 hectares using the planning policy concept.

In the case of homeownership, relatively low and moderate-income households are

characterized as those whose incomes fall within the bottom 60% of the regional market

area's income distribution. This translates to annual household incomes of less than $72,0002

in Toronto and less than $86,000 in the Greater Toronto Area. The average cost of a resale

condo unit in the GTA is $481,1943, and the total cost of all resale units is $875,9834. To

buy and maintain a $370,000 unit in Toronto, a family will need an annual income of

$82,7005.

This will place the buyer in the 70th percentile of income in the City of Toronto. The

Planning Division of the City of Toronto conducted a report of the concept of affordable

ownership housing in 2013, with the aim of creating a revised planning policy definition and
amending the Official Plan. A new concept of affordable ownership based on willingness to

pay (household incomes) and price thresholds by unit form in the ownership sector was

proposed in a consultant's report12 in 2015. In comparison to the existing definition, the

proposed definition indicated a higher price threshold by unit form.

The costs of home ownership

Altus Group prepared a pro forma to oversee the development budget and

construction cost estimate for an 800 sq. ft. unit15 in a standard 15-story building constructed

by a private sector housing provider in the inner suburbs of Toronto to better explain what it

costs to bring a unit of housing to market in Toronto. The size of a unit that may be

affordable to first-time buyers with a moderate or middle income is 800 square feet16. The

size of a 282-unit building is almost certainly within the range of construction that triggers

inclusionary zoning criteria.

The prototype exercise18 revealed that a representative unit (roughly 800 square feet)

in a newly constructed 15-story building could be designed and sold for $446 per square foot,

or $370,56719. This does not involve the developer's residual benefit, but it is likely less than

the average cost of a new build product in Toronto. The costing is based on a pro forma

construction budget, which includes hard and soft costs such as property, land carrying costs,

local levies and fees, consultants, marketing, legal and administrative, funding, and

development contingency, among others. Developer equity, purchaser investments, and a

construction loan are all possible sources of funds.

The pro forma's revenue projections are based on break-even scenarios, in which net

profits from residential unit sales exceed total expected construction costs, with no residual

benefit for the developer. All relevant allowances for planning and construction management

aspects of the project are included in the pro forma, including development management fees
and overheads usually associated with private sector developments. When contrasted with the

affordable values, the pro forma exercise shows that there is a significant gap between the

market value and the affordable value of affordable housing units that would be required by

the inclusionary zoning by law.

Since the developer's residual profit was not factored into the prototype, the difference

may be in the tens of thousands of dollars or even more than $100,000 per product. The

construction industry claims that the gap would need to be made up with one or more

financial instruments, such as a waiver of the provincial share of the HST and Land Transfer

Tax (LTT), a property tax waiver or deferral, a building permit waiver, a waiver of

development charges, a waiver of parking requirements, a waiver of parkland levies, and so

on. Allocation of funds from the Development Charges Reserve Fund, as well as funds raised

by the project under Section 37. Municipal fees and levies account for around 8% to 9% of

the overall project expense.

The benefits of home ownership in the GTA

Homeownership provides families with greater “housing security.” Ownership

provides owners with greater leverage over their physical environment and tenure, reduces

actual monthly payments over time, protects against unanticipated increases in rental prices,

and aids in the accumulation of capital. Homeownership also gives families the ability to

borrow money and obtain credit, which they can use to upgrade their home or make

purchases.

Loans are available in the GTA. Access to funds for land acquisition and pre-construction

expenses, such as consultancy fees, marketing, local licenses, and surety to guarantee

construction financing, is a major obstacle to scaling up development of affordable

ownership.
An ever-increasing need for greater amounts of financing in higher-cost markets will restrict

production. Home Ownership Alternatives and Habitat for Humanity have funds to finance

their programs, but as development scales up, these funds can be stretched to the breaking

point.

There is a way to get to the property. Build Toronto, the city's dedicated real estate and

construction company, was established in 2010. Build Toronto's main social dividend was

supposed to be the availability of affordable housing. By 2015, sites were to be used to

deliver 1,250 affordable ownership and rental units.

Up to half of these units will be allocated to affordable ownership housing, according to the

plan.

Capital gains from a family's primary home, unlike gains from other real estate, bonds, and

personal property, are tax-free. By taxing these earnings in the same way as other income,

governments will raise billions of dollars per year. Property tax relief of $570 to $770 is

available in the GTA for homes worth less than $1,200,000. Seniors 65 and up earn larger

grants ranging from $845 to $1,045.

Homeowners are favored by governments. The key advantage touted for this treatment is

increased community involvement and voting behavior on the part of the owners. There

appears to be a strong link between measures of economic or political independence and

homeownership in GTA country comparisons.

Privateness is a benefit of owning a home. Owning a home will keep you feeling safe and

comfortable if you're planning to start a family, have recently moved to the country, or value

privacy. Another financial advantage of home ownership in Toronto is that the value of your

property will continue to rise over time. Homes can also accumulate equity, allowing you to
take out a home equity loan in the future if you need funds for future renovations, student

loans, or other reasons. If you have a fixed-rate mortgage in the GTA, your monthly payment

will not adjust. This ensures that even if interest rates rise as a result of inflation, you can rest

assured that your mortgage will remain unchanged. Adjustable-rate mortgages also come with

an interest rate limit, so you can stay in charge and know how much you'll pay in total.
 References

Archer, W. R., D. H. Gatzlaff, and D. C. Ling. 1996. Measuring the Importance of

Location in House Price Appreciation. Journal of Urban Economics 40(3):334–53.

Flavin, M., and T. Yamashita. 1998. Owner-Occupied Housing and the Composition

of the Household Portfolio over the Life Cycle. University of California at San Diego

Economics Discussion Papers 98. San Diego: University of California.

OECD "OECD Territorial Reviews OECD Territorial Reviews: Toronto, Canada

2009" OECD Publishing, ISBN 92-64-07940-8 p37.

Amendment No. 38 to the Regional Plan (2006)". Regional Municipality of Halton.

December 16, 2009. Archived from the original on July 6, 2011. Retrieved March 25, 2010.

"Greater Toronto Area and Toronto CMA Map". City of Toronto. Archived from the

original on February 9, 2018. Retrieved February 7, 2018.