By Mike Millar
[Originally published on May 3, 2021, in Feature section of Building.ca]
Several articles have appeared in the media recently attempting to dissect the cause and the cure to the “missing middle” in the Toronto housing market. It is the same culprits that typically come to the fore such as too much regulation and red tape, too little inclusionary zoning, and stagnant demand. These are certainly partly to blame, but they miss the mark in identifying the fundamental problem with the planning and development process in Toronto and many other jurisdictions. I contend that a dangerous cocktail of uncertainty coupled with irrationality is the source of the problem. Neither of which are insurmountable on their own, but taken together serve as an overwhelming impediment to filling the void of the “missing middle” and are linked to many other planning ills affecting our cities.
Let’s start with defining the term “missing middle.” The term itself originated by Opticos Design founder Daniel Parolek in 2010 to describe the lack of “a greater mix of housing types to meet differing income and generational needs…building types, such as duplexes, fourplexes, cottage courts, and courtyard buildings, provide diverse housing options and support locally-serving retail and public transportation options.”[1] These housing types are “missing” as they no longer appear in abundance as they once did in the middle of the 20th century, and “middle” as they sit in the middle of the densification spectrum between low-rise detached homes and mid-rise to high-rise apartment units. From a socioeconomic perspective, the missing middle is an important and attractive housing option for many middle-income households where low-rise single detached dwellings are too expensive and high-rise apartment units too small. In this way, some view the missing middle as an affordable housing issue.
In January of this year, the City of Toronto announced a pilot project for Ward 19 – Beaches-East York to implement its solution to the missing middle conundrum. The direction from City Council was for staff to focus their efforts on broadening and safeguarding the housing supply primarily by implementing more inclusionary zoning within Ward 19. Planning staff are to look specifically at those lands designated Neighbourhoods in the City’s Official Plan, and where necessary, expand the range of permissible low-rise housing types to include such forms as semi-detached houses, duplexes, fourplexes, stacked townhouses, accessory dwelling units and low-rise apartments. If successful, the City will look to expand this approach to other neighbourhoods throughout the city.[2]
This is not a new, made-by-Toronto solution. It was prompted by findings and specific recommendations contained in a 2018 report by Evergreen and the Canadian Urban Institute.[3] The authors noted that two-thirds of Toronto’s residential land is zoned to allow only a detached or semi-detached house. Making matters worse, many of these areas are well connected to public transit and well served by municipal services making them ideal candidates for intensification and a diversification of housing types. The report called for the greater use of inclusionary zoning (among other tools) to address the problem. The Evergreen report reinforced the findings of a 2015 report by the Pembina Institute which stated that “many zoning bylaws in GTA municipalities have not been updated in decades, so they don’t reflect the evolving nature of our cities or the provincial goal to build upward and inward.”[4]
One need not look too far or too hard to find examples of the missing middle in Toronto. Castle Frank, Rosedale and Dupont TTC subway stations, along with most other stations along the TTC Danforth Line in eastern and western Toronto are just some examples. But certainly, the area around Glencairn TTC subway station has to be in contention for the best example of planning policy gone astray. Within a 200 metre radius of the subway station, the entirety of the lands are zoned Residential Detached (RD) of which only ultra low density, single detached dwellings are permitted. This type of built form is completely devoid of TOD’s (Transit Oriented Development) most basic characteristics: higher density and a mix of uses. This location has the not so enviable distinction of being best known by Torontonians as a great place to drop off or pick someone up from the subway station as there is nothing around.
Now that we have resolved the “what” of the problem, let us now tackle the “why” and the “how”. Let me put forward my hypothesis that it is uncertainty and irrationality that is at the core of this and many other urban built form problems. First, a word on uncertainty.
When I was responsible for kicking off Metrolinx’s first TOD program back in 2011, much of the corporation’s real estate portfolio looked a lot like the Glencairn example described earlier—minimal intensification around transit stations. Even today, Metrolinx has a vast portfolio of underutilized real estate. When most people think of a GO Station the image that likely comes to mind is that of a surface parking lot, or one of the many new structured parking facilities built over the past decade. It usually is not of TOD.
Many of us wanted to move the needle, sort of speak, to have the Province think more seriously about ways in which it could better mobilize TOD to drive transit ridership, promote city building initiatives, and generate new sources of revenue to Metrolinx and the Province. It was this last point where we spent most of our time consulting with developers. During my years leading the Transit Oriented Development program, I had the privilege of speaking with many real estate developers from small boutique companies to the largest public and private real estate development corporations in Canada. I wanted to know how we, as a quasi-government entity, could best monetize the value of our real estate through the sale or lease of our properties. More often than not, the response I received back was create more certainty in the planning process and we will pay more for your land. What they meant by certainty was all the contributing factors that allow developers to be reasonably confident as to what is, or will be, permissible to build in the future. Articulating Metrolinx’s vision for future development is one way to increase certainty. Obtaining consensus from the various government entities involved in the planning and development process is yet a better way. And taking it forward and putting into place the appropriate planning entitlements necessary to implement the vision is probably the most effective way to reduce uncertainty. In Metrolinx’s case, increasing certainty in the planning and development process would translate to a higher selling price for its land and a better return to the taxpayers of Ontario. Interestingly, creating more uncertainly can also increase land values, but often results in unintended built form. More on that later.
Real estate development by its very nature lacks certainty. It is one of the riskiest forms of investment in business and the reason why returns are higher than most any other form of investment. The extent by which uncertainty is removed from a business that is inherently uncertain is of benefit to buyers, sellers and those involved in city building initiatives alike.
A recent housing report by the CMHC illustrates my point even though it does not specifically mention the missing middle dilemma.[5] Mbea Bell, Senior Analyst for the CMHC, observed some interesting trends in where new housing was being built in Toronto, Montreal and Vancouver between 1990 and 2018. The author speaks to housing starts and trends within three main geographic areas. Active Cores within 5 km of the major city centre. Transit Suburbs typically built around transit stations and located within 5 to 15 km of the city centre. And Auto Suburbs comprised of low-density residential uses 15+ km out from the city centre. The findings for the Toronto and Vancouver markets are similar and may be summarized as follows: 1) a large volume of housing constructed within the Active Core in the form of condominiums and high-rise apartments, 2) a similar volume of housing starts in the Auto Suburbs, and 3) the least number of housing starts in the Transit Suburbs. Montreal was the anomaly as it saw a more linear upward trend in housing starts as one moves away from the Active Core, due to the unique challenge of redeveloping and renovating older buildings common in downtown Montreal.
The author concludes that housing starts in Transit Suburbs remain low because available land is costly and there is minimal incentive to build to a higher density. While this is true, it is somewhat misleading in that implies that the lack of housing starts is the result of natural market forces (i.e. high land cost and lack of demand for high-rise units). I would contend that it is uncertainty in our planning and development process that has led to over inflated land costs in these Transit Suburbs and throughout other areas of our cities. Transit Suburbs, in a way, are the geographic missing middle of cities.
Ironically, in uncertain circumstances, buyers and sellers of real estate behave in predictable ways. It can be very challenging, particularly in Transit Suburbs, for developers to make accurate assumptions as to what planning entitlements are achievable. The challenge is that while low to medium densities are the norm in Transit Suburbs, higher densities are sometimes achievable either based on their merit, or a lucky roll of the dice. In these situations, buyers and sellers looking to satisfy their own self-interests and limit their risk exposure will set their price expectations based on a best-case scenario. For sellers this means higher pricing based on high density development being the highest-and-best use. For buyers, this means lower pricing based on more moderate densities.
The COVID-19 pandemic is a current example of the above phenomenon in action. An October 2020 report by CBRE illustrates the extent by which uncertainty over the pandemic weighs heavy on real estate activity. The study found that 61% of buyers were looking for discounted prices on property while only 9% of sellers were offering such discounts.[6] This instability creates stagnation in the market in two ways. First, it thwarts real estate transactions and development. Second, having paid a premium for land, it forces buy and hold property acquisitions whereby investors must wait years, or possibly decades, for the opportunity to build high density development to recoup their sizeable land investment. Low and medium density developments simply do not make business sense.
The way in which uncertainty can stagnate city building is not limited to Transit Suburbs. Take the Eglinton Avenue corridor in mid-town Toronto; home to the future Crosstown Light Rail Transit (LRT). Jennifer Keesmaat, former Chief Planner for the City of Toronto, led the EGLINTONconnects Planning Study on behalf of the City. The purpose of the study was to establish a vision for future development patterns along the entire 19 km LRT route between Jane Street and Kennedy Road. The plan, approved by Council in May 2014, established mid-rise as the predominant built form within the corridor. Mid-rise is defined as heights generally no greater than 9 storeys. Tall buildings (greater than 9 storeys) would only be permitted as-of-right in two areas—Yonge Street and Mount Pleasant—and “candidates” for tall buildings would be considered upon further study within six Focus Areas being the two Mobility Hub locations at Black Creek Drive and Kennedy Road, and the four station locations at Caledonia, Dufferin, Laird and Don Mills.[7]
Planners and politicians took note of what they heard from local residents during the public consultation process for EGLINTONconnects; namely, that intensification near transit is appropriate, but that density should be limited to mid-rise buildings. Critics of EGLINTONconnects condemned the City’s position on the basis that it did not represent good planning and was merely to appease constituents and curtail NIMBYism (not-in-my-backyard). The question asked by many was, if high density is not appropriate near transit stations, where then is it appropriate?
Unfortunately, a land use plan will never progress beyond the paper it’s printed on unless there is market viability for such built form. The market has spoken and has said no to mid-rise, and yes to high-rise along the Eglinton corridor.
By the time EGLINTONconnects was approved, the ship had already sailed. The market had spoken. Sellers of property along Eglinton had already valued their land based on high density development despite the fact it was not envisioned in municipal land use plans. Interested buyers of these properties either paid premium dollar with the intent to build high density or passed on the opportunity. Having overseen developer proformas for dozens of development sites along the Eglinton corridor, I can say with confidence that it simply is not financially viable to tear down low-rise buildings to build mid-rise buildings along this corridor. One need only take a drive along Eglinton Avenue today to see that whatever development is proceeding is in the form of higher density development.
The second, and equally important contributing factor to the missing middle problem is irrationality. Not so much how land use plans are prepared, but rather the way in which decisions are made throughout the multiplicity of planning and development approvals.
I would argue that the root problem with land use planning in Ontario is that irrationality is, in essence, legislated into the planning process. Take density bonusing as just one example.[8] Section 37 of the Planning Act permits a municipality to authorize increases in height and density of a development in exchange for the provision of public benefits. Section 37 agreements are conceived through mutual consent between the municipality and the developer and are a separate agreement to other planning entitlements. Commonly referred to as “density bonusing”, “community benefits agreements” or “density for benefits agreements”, they are also referred to by the less flattering term, “let’s make a deal planning.” While it is true that municipalities do not have the right to ask for whatever they want, their rights are broad. The governing Official Plan must provide a framework to guide decisions on section 37 contributions, albeit the OP policies on density bonusing are rarely, if ever, prescriptive and left to wide-ranging interpretation. What makes the process even more suspect is that it is usually the local councilor for the area that dictates, behind closed doors, what the developer will be obligated to provide as a Section 37 contribution.[9]
A great deal of time, effort, taxpayer money, and expertise is exerted by local and regional governments to develop comprehensive land use plans. These plans—Official Plans, secondary plans, zoning by-laws—are supposed to guide development for the foreseeable future. However, one need not exert too much imagination to see that the density bonusing provisions in the Planning Act create a disincentive for municipalities to adopt a realistic plan from the get-go. Doing so would only limit their ability to participate in “let’s make a deal” planning and demand developer contributions as they see fit. Even if one accepts that ad-hoc, one-off, planning decisions are not inherently bad, one must recognize that a plan—say an Official Plan—which is not followed will only serve to create uncertainty and confusion for all stakeholders involved and lead to market disruption. Furthermore, one must recognize that if an important component of a planning decision is left up to a developer and a local councilor to negotiate themselves, then there is the potential for this to lead to irrational decisions, or dare I say, self-serving decisions.
Building as-of-right is rare for any developer. They recognize that almost every development plan will require some relief from one or more planning regulations. Having spent the early part of my career working as a land use planner for the Province, a commenting agency and the planning appeal body at the time (Ontario Municipal Board), I was introduced early on to the notion that political decisions guide plans, not the plans that guide rational land use planning decisions.
In conclusion, I have pointed out just a few present-day examples of how uncertainty and irrationality in the planning process results in built form not in keeping with the good planning principals espoused by so many involved in the process. There are many, many, more. If we truly want to eradicate the missing middle and tackle the many other shortfalls of the physical form of our cities, we need to treat the cause, not the symptoms, of our housing problem.
[1] Opticos Design Inc. (n.d.). What is Missing Middle Housing? Missing Middle Housing. <https://missingmiddlehousing.com/about>
[2] City of Toronto. (2020, July). City Planning Division. Report to City Council on July 28th, 2020: Expanding Housing Options in Neighbourhoods (PH15.6 Attachment 1).
[3] Evergreen & Canadian Urban Institute. (n.d.). What is the Missing Middle? A Toronto housing challenge demystified.
[4] Burda, C. and Collins-Williams, M. (2015, May). Making Way for Midrise: How to build more homes in walkable, transit-connected neighbourhoods. Toronto, ON: Pembina Institute.
[5] Mbea, B. (2021, February). Housing Market Insight: Toronto, Montreal & Vancouver. Canadian Mortgage & Housing Canada.
[6] CBRE Research. (2020, Q3). U.S. Cap Rate Survey Special Report Q3 2020.
[7] City of Toronto. (2014, April). EGLINTONconnects City of Toronto Planning Study. Volume 2: The Plan. Recommendations and Implementation Strategies.
[8] Moore, Aaron A. (2013). Trading Density for Benefits: Section 37 Agreements in Toronto (IMFG Perspectives: No. 2/2013). Toronto. ON.
[9] Keenan, Edward. (2015, January 16). Section 37—What it is, and why everybody’s fighting about it. Toronto Star. https://www.thestar.com/news/gta/2015/01/16/section-37-what-it-is-and-why-everybodys-fighting-about-it-keenan.html>
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