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Daryl Keleher, Senior Director in Altus Group’s Economic Consulting practice, joins Marlon Bray and Raymond Wong to discuss a very recent GTA municipal benchmark study Altus Group undertook on behalf of BILD. In this episode Daryl, Marlon and Ray walk through some of the more eye-opening findings from the study which draw connections between housing affordability and municipal processes and policies.
Welcome to Altus Insights Podcast Series. This podcast brings together some of our leading brainiacs at Altus Group to discuss, debate, and on occasion complain about the evolving state of Canada's residential and commercial real estate. Join Ray Wong, Marlon Bray, and Avi Zelver for monthly podcasts covering the latest market and construction cost trends across major markets in Canada.
Welcome to Altus insights podcast series with Ray and Marlon hosted by me Avi. This podcast will cover monthly market updates and construction cost impacts across major markets in Canada. So we're going to talk about the greater Toronto area municipal benchmarking study, second edition, which is great because now we can compare it to the first edition. And I believe Rescon did something about five, six years ago, which came up with similar conclusions. So we got Daryl with us from our economics department that are going to maybe introduce yourself and then just give a little background maybe to the report as well for everybody so they know what we're talking about. Sure so I'm senior director at Altus group and the economic consulting team or division or whatever you want to call it. I've been with Altus for about 15 years now. So the first version of the study we did was in 2020 for BILD. The second version is out now kind of idea behind the studies is to put some metrics and put some objective data behind things like government charges as how they compare across municipalities approval timelines, but also the things that help get applications to the complete application stage quicker. So things like putting out terms of reference for studies that you have to submit with your application, all the other things that help get applications through the system as quickly as possible to kind of show where the path of least resistance might be in the GTA. And as I was saying just before this, I think it's a fantastic report. It basically says everything I've been posting on LinkedIn for the last year or so is definitely accurate. So approvals, impact and affordability. So I think the best way to walk through this podcast is actually the executive summary is absolutely great, fantastic. And you have key findings. I think it's the best way to do this is maybe we'll wander through the key findings. Myself and ray, we can add some color to them and I think then that way someone can go download the report. But I think the key findings really just drive right of the issues and there's a handful of them. So it gives us the perfect length of time. So I know the first one was the affordability concerns and regional demographics. And essentially I read this and I saw a chart online somewhere else from Stats Canada and it really surprised me, the gta, how many people have been moving around and then how many areas are in Toronto that are just completely stable or shrinking, but then other areas are growing rapidly. So maybe if you want to just sort of expand on that a little bit because I think that's pretty much where the key findings were heading with this. Yeah, the entire chapter 2 of our report looks at the outcome of all of the affordability issues that the other chapters are trying to objectively measure. But the reasons why there's an affordability crunch in the region or supply crunch. So yeah, we look at all sorts of different movements of people and demographic movements of people both within the region, so into or out of the gta, into or out of Ontario, into or out of Canada. And there's like you said, Marilyn, there's been some data just dropped yesterday, which is maybe why you saw some charts posted on Twitter or the like. Yeah, we had outmigration. Net outmigration anyway from Ontario to other parts of Canada has accelerated. It was already accelerating kind of prior to the pandemic. But the pandemic seems to have made it a perfect storm and the net outflows are growing significantly, which is and they're going to places like Alberta, Quebec, for the first time had a positive inflow of people from Ontario rather than out to Ontario from Quebec for the first time in 50 years. That's a massive change from the historic pattern of people coming from Quebec to Ontario for jobs. Now it's the other way around. People are going from Ontario to Quebec, maybe even just gatineau, but they're going to come back for affordable, more affordable housing. Yeah, and that's what surprised me is the drive around the populations, but all a lot the immigration obviously massive portion of further South comes into Ontario and then basically realizes you can't afford to live here. And now that everyone's getting pushed out and I know even the demographics as well, it's the 25 to 44. So the people that probably providing the most economic input into the province are the people leaving just to get a house. Yeah and those are people from people who work at McDonald's and no judgment. I used to work out of McDonald's, but people who work at McDonald's all the way up to your doctors. So the 25 to 44 is a massive. It's about half of the labor supply. And they're the young professionals you should be investing in keeping in your region. Because the doctor today, if you keep them in the region as a doctor 20 years from now, if they're 45. So, hey, Darrell, is that also because of the whole job flexibility? I know we talk about demographics and ages, but with the pandemic, I know you mentioned it, but it allows people that type of flexibility to keep their job in Toronto, but then move to Nova Scotia and other places. And certain provinces are taking advantage of that every day. You see all these signs or hear on the radio about moving to Alberta on based on affordability and the employment side. But do you think that sort of really accelerated before? It was bad before, but now there's a little bit more flexibility in the workplace, especially the hybrid model. It certainly contributed. I'm not sure how much it's affected things. I think the housing affordability is. Probably the primary driver. And then people find jobs when they get there. It's probably a household by household case basis as to understanding why people are moving. But the numbers are showing that people are moving much higher to much higher rates than they had been. And then certainly more than are coming in from other places of Canada. So it with a net attractor now they're kind of repelling people away. Yeah so perhaps it's not a big leap to, say, Alberta and Quebec. And I know we're going to talk about fees in a moment. We know especially Quebec is very attractive from a municipal fee point of view, perhaps that their housing policies might actually be a bit better than Ontario. And Ontario not only needs to change the housing policy around the affordability for people here, but if we want to carry on attracting the top talent and the business, this is actually much bigger than just how much does a house or apartment cost. The whole economy is going to get affected if they don't do something quick. Yeah, housing is a labor supply issue and labor is a housing issue that's all interconnected. So you can't have one without the other, for sure. And then the other bit, that's my favorite bit was that the next key finding was around municipal processes and requirements, long approval timelines. And I have to say, I looked at the chart. And when I was looking at how much longer things have got over the last few years, I was amazed at how high it was. Like official minimum. It was 51% more zoning bylaw 43% And this was just the averages. This wasn't even the worst person. This was the average. Yeah and we took out a lot of outliers from that. There's some that are eight, 10 years old. What we tried to do was balance the median to get at as close to the average as possible. So we didn't have those outliers kind of skewing the results too much. So this is netting out a lot of long range, sometimes cursed applications. Every municipality has some first applications that just sit there forever. But yeah, and part of this, there could be some delay associated with the pandemic where councils shut down in March and April, maybe kind of caught up in May. So there's maybe some of that baked into the numbers. But on the other hand, there's also the work from home and people have reported improved productivity. So there could be some of the gains from the work, from home productivity baked into these numbers, too. It's hard to know where they kind of shake out, but nonetheless, I don't think it's anyone it would surprise anyone who works on files and applications like do. Marlin and I do. I do a lot of the technical studies. Yeah, it's very rare that I get an approval. In my inbox from a happy client. They almost all get raked over the coals or through council or appeal processes. So it's not a surprise to me, and I don't think anyone in the industry or even municipalities would be surprised because a lot of the data we have was from municipalities where they volunteered data to kind of assist in our study process. We got data from six or seven municipalities and high and low. And so I think a lot of them know where they stand. So I don't see a lot of controversy with some of those numbers. They kind of are what they are. No, it didn't shock me to see the GTA was amongst the worst in Canada. If you've heard some of the podcast before on your hands, seen some of my rants I do on LinkedIn, I call Toronto the worst in the whole of North America almost when it comes to approvals, and that's mostly just on a consistent basis. It's a hard place to do business, I find. So who was the actual worst? Because I in the key summary it doesn't have it, but I in the report you have who was the worst? It was caledon, I think it was. Let me just get the exact so. So they win the gold price for the slowest. So maybe Toronto needs to send some people out there to learn how to do it even worse than they do it right now. Toronto is not. Toronto's at 32 months and 34, so it's probably close, probably within the margin of error. Probably true. And the other thing I saw highlighted and again, it's something I have seen both on Twitter and LinkedIn is a lot of developers and also talking to them, complaining about how many different types of studies you need to do and how complex. It's got right now to actually do an application. Yeah, we spent some time going through just a couple of municipalities just to kind of get a flavor for the range of types of studies an application might have to submit, along with the actual planning applications and the drawings from the architects and the planners. We found 42 different technical studies. Some of them are the drawings from architects, but things like wind studies and noise studies and odor studies and archaeological studies and air quality studies. There's a long list in our study just from 3 minutes of please, brampton, oakville, Toronto. There's 42 different studies that we found, and each one of those for a single application, they may need 10 to 20. That kind of depends on the planner, on the file and what they think they need to see. But each one of those studies, you submit, is a pain point for a potential appeal that a local citizen can appeal based on the studies that get submitted with the application. So if I do a fiscal impact study, which I do a fair number of, that's essentially opens up that application for appeal on that basis. Same for the odor study or the noise study or the shadow study, which is a particular topic of interest for most planners these days, whether they're even necessary or not. So the time and money, that's time and money. My understanding of the appeal is basically 200 bucks and someone can walk in off the street and put an appeal in time like it's not even complicated to do. I think it's $400. 400? yeah, because we had a project where it got delayed. Some random guy just came in, apparently threw down an appeal, made no sense. But by the time you get rid of it, you've still lost time. Yeah, it could be a year or two easily just to get to the point where you understand that it was a frivolous appeal and might have been involved in a few of those. And just everyone's on hold until that goes away. Dare I get with the city of Toronto with all those reports and those appeals delaying that process but kalinda and doesn't have that same density. What's slowing down some of the smaller municipalities with the process. I think a lot of times so high density applications are very complex, especially the larger they get. But also Greenfield developments are also pretty complicated as well because you have to install the water pipes and design the roads and build pumping stations and all these other things that come along. So it's more of an engineering question when you get to the Greenfield developments, whereas I think in high density infill, urbanized environments, it's more of a design question or a when question or a shadow question. So there's complicated in different circumstances and for different reasons, but that's why we don't see much of a trend in our analysis about just the Greenfield. Municipalities are quick and the high density municipalities are slow. It's kind of a bit of a mixed bag. It depends on the municipality, it seems like. Yeah, enough really. When we started looking at the average timelines based on the high rise and you were looking at the number of units and stuff and there's no differential. But what was interesting was when someone saw that they sent me a text this morning and they saw the object because apparently the city once claimed that the reason it takes longer for certain projects is they want to get a higher quality of development. Therefore it takes longer. But how does that stand up as a reason? If every single project is relevant, the size takes the same time. That means they can't be focused on certain high quality developments or complex ones because every project seems to be a disaster across the board. Yeah if based on our data, if you apply for an eight unit building or an 80 unit building or an 800 unit building, it takes about 400 to 500 days. It doesn't seem to matter how big the application is. And so we put that on a metric of number of days for approval per unit approved. So the smaller applications on a marginal day basis in terms of how it clogs up staff time, they are hoarding staff time on a per unit approved basis. So it makes sense to spend 400 days to approve 800 units because you get a lot of supply at the end of the day and there may be more technical considerations, but if you're building an eight plex in an existing neighborhood where there should be existing capacity, it should not take 400 days to approve that development. And you only get eight units approved at the end of that same 400 day period. So the juice is not necessarily worth the squeeze for those applications unless something changes drastically. And as we see neighborhoods potentially open up for those smaller, finer, finer grained applications, they're going to clog up municipal staff and municipal planning time, which could be freed up if they were a lot quicker to approve those. Then you have more staff time for the larger applications where it may be more warranted to spend time looking at the design of the building and its impacts on streetscape and transit and the road network or whatever it may need to be looked at. And I think yesterday it was in the news about the governor of California had had enough on a similar subject with these smaller units, commercial re-use units, changing parking lots, just come out and basically told the municipalities, basically if there's a commercial parking lot retail and you want to build like a small building, it's just automatically approved, especially if it's affordable housing and you start to see as much as 800 units. Sounds like a lot. It's great. It takes a long time to build. These infill projects are the things that can come quickly, get built quickly. Yes, we can use timber, we can use stuff that's carbon friendly, goes in that sustainability thing. And that's to me having a one size fits all approach to approvals just seems borderline ridiculous. Yeah and I think also municipalities are a bit hamstrung by the provincial system. And that's one of the findings of the report is when we compare it to other municipalities across the country, they're getting things four months, five months. They use that permit system is where it's bang, bang, boom, you go. Staff can rubber stamp it in the way you go. Whereas here they have to submit even for a simple eight plex or a 25 unit walk building. You have to provide often a zoning bylaw Amendment and then sometimes a plan of subdivision, potentially a plan of condominium for sure, site plan. So you have four or five different layers and levels of application requirements that, like municipalities, are certainly slow, but they're often also just working within the system that the province is handing down to them. And they can't just skip a step. You have to kind of meet the provincial policy and the provincial statutes to be able to give the approvals. I think oftentimes it is the provincial system that's kind of hampering municipal innovation and getting some of the stuff done. Yeah, and I think that's where we start to talk about the three levels of government. They just aren't they're not don't seem to be working together at all. It's almost like the rowing in separate directions, trying to achieve the same thing, but getting each of his way in the process and actually turning it with a negative result versus positive. Yeah things like federal immigration targets should know what the housing pipeline looks like before determining what those numbers should look like. Because the housing pipeline is a lot longer than the immigration ability to kind of change gears on the immigration system. So yeah, there's all sorts of things that should be connected, but they don't really seem to be talking to each other because they are related. They have a complaint. We hear a lot is staffing levels. And I think that was I think that was mentioned in the report somewhere about staffing levels. And I don't see you had a report to council recently about staffing levels in their planning department also. Yeah and they found that basically housing's too expensive to make stuff up to people so they could live in Toronto and work in Toronto. And also staff turnover and all the other things that I think a lot of companies are dealing with as well. They don't seem to be unique to the private sector or the public sector. It's kind of just an economy wide issue, but not being able to staff your planning department because housing in your municipality is too expensive for people to afford to live there, to come into work to improve the housing. It's a bit of a vicious cycle and we're seeing that in the construction industry as well, where we did a study for build as well, where we looked at how is the construction industry employment grown and it hasn't. Basically, there's been no growth in the construction sector. Even as the economy has grown, the construction sector still employs roughly the same number of people because people have to move live to move to Branford or London to be able to afford to build a house in the GTA. Yeah, a bit of a vicious cycle. It did amuse me when I saw that the city was complaining about housing affordability and that's why they couldn't hire people. It's kind of shot yourself in the foot, then you blame everyone. And then I like a few weeks later, they come out and want to increase DCS 46% after they've just said housing isn't affordable. So there's a bit of a catch-22 situation they seem to be creating for themselves that we can't employ people because housing is too expensive. But let's jack up the price of housing for everybody. And then yeah, which leads nicely because it's almost like a plan, the segway, because then you started looking at the municipal charges and how the high rise is getting disproportionately hit now. And you did were comparing the various locations. I didn't actually realize one was going to be the most expensive. That actually surprised me. I figured that the city of Toronto would be much higher up than it is. Yeah and I think a lot of the reasons we found that high rise development and we used one relatively simple scenario high rise development is paying roughly 2 times on a per square foot basis than low rise is paying. And that low rise scenario of ours is a mix of singles in town. So even that's not just a strictly single detached Greenfield development, it's a bit of a mixed, mixed, mixed product scenario. So and it's almost across the board. Every municipality has a higher per square foot incidence of charges than low rise. Some are higher than others, but the average is about 2x on a per square foot basis. And the reason is land values and in some charges are directly related to land values like Parkland. It's either percentage of your land value or one hectare per 500 dwelling units at a certain land value of the site. Community benefits charges are 4% of land value. Development charges are also indirectly related to land value, not to get too wonky, but if you understand the calculations in detail, land value is a major input into the calculation of DCS, which is why you see places like York region and Toronto with higher DCS than places like London or Windsor or even Ottawa, because the land value is higher in those jurisdictions. And it's all impacts. The rates themselves, but it also results in high density, paying about double on a per square foot basis and. It's becoming a bit of a problem in terms of Von Vonn was top four, the high rise at $152 per square foot. Again, that's partially parkland, of course, but for one example there, DC. Think about between that and the region there. DC is about $65,000 per single detached unit for roads and kind of proportionate amounts for other types of residential unit. So there's a lot of money being collected for things like roads when they don't necessarily need that much money for roads. Now I know we've mentioned this in a previous one, but there was the study that showed how much money the municipalities were setting. I think it was in the Toronto Star in December, and it was some horrendous number in the billions because they can't spend the money as fast as it's coming in. Now, I know the city of tronox, Cleveland, it's not certain $2 billion worth of Parkland. I'm not sure anyone necessarily believes that they're not certain money for Parkland because they haven't built a lot of parks in a while. But it's definitely needs some change. I think the other thing that is, it's just how quickly the rates are increasing as well. It seems to be disproportionately increasing. I looked at this the other day going back to before teachers was brought in and the increase in DCS before TGS came in, when it was down at like $10,000 a unit in Toronto, and now they're going to hit 80,000 eventually in the two bedrooms. It's insane the level of increase that they've applied to apartments versus other types of housing. Yeah it's, it's basically an indirect output of values. Yeah which is why your taxes are going up so much. And there's been changes to the DC act to allow more funding envelope for things like transit and affordable housing as well as being maximized a bit more than it used to. Yeah so rather than get through property taxes, exclude the new homebuyer. That seems to be the entire approach. Yeah property taxes are not a popular Avenue for funding when development charges are right there because development charges or people in New housing units don't even know what they're being charged and they don't vote. So it's a pretty neat tool. So, I mean, it's kind of negative. It's really positive if that came out of this. I mean, I know some of the Around the planning features and some of the municipalities seem to be doing some stuff that should be positive. It doesn't seem to have brought time round, but is it a sort of rather than go from negative, it was this some positive stuff that came out like some municipalities getting better at something? Yeah we've found since the pandemic started, there's been and it's not across the board, but in some or most municipalities, the attention to detail on their websites has gotten better in terms of could find their zoning a bit easier in a more modern interface than going to a planning desk and getting a 600 page document like I used to have to, or having terms of reference for studies available and posted on websites and development applications, status trackers where you can see what's going on in a municipality or recent approvals. That's gotten better, but relative to the cost of development or the time it takes to get approved, that that's a relatively minor, minor improvement on the overall picture, which is, as you say, not good. Hey, Darryl. You actually had three in your executive summary that saw municipalities improve. Do you know what recall what those three were and why did they improve since last study? Yeah so we saw in terms of timelines, we saw Whitby improve, Brampton improve in Bradford, West Cleveland. Barry, was there a special sauce in those disparities? I don't know. I don't know. It's hard to say. It just be that the 50 or so applications that we looked at in the 2020 study were kind of less obvious approvals than the ones that came through in the 2022 studies. They have different data sets, so there's no overlap between the two. So it could just be a bit of random chance or maybe they got staffed up. It's really hard to say what that working in those planning departments. Yeah so basically the, the reading of this, then it's got worse. It's going to carry getting on worse. And the only solution is everyone needs to move to Calgary. You see the London development, my solution was everyone's going to end up in Windsor because we're just going to get chased out for affordability and we just have all of the Canadians pinned up against the Detroit River trying to find somewhere to live until the border wall gets thrown up there to stop us crossing South. But do you see any sort of movement in the future, Daryl, on this, or is this just going to stay? Depressingly, but I there are some signs. So we did get, like I said, some voluntary contributions from municipalities where they provided us some pretty robust data sets that we incorporated into some of these numbers. And I think there's some pretty uniform agreement across the planning industry. I don't want to speak for everybody, obviously, but that we need to improve the data standards of what gets approved, how much is getting approved. Because think of like on the public health crisis. We had the last 2 and 1/2 years. If we were flying blind without data, it didn't know what vaccination rates were. We didn't know what infection rates were. Hospitalization rates, we imagine if we didn't know that. Well, now we have a housing crisis and a lot of planners are basically flying blind on how much is getting approved, what is getting approved, where it's getting approved. I don't think that should continue much longer. I think there's an appetite within municipalities to start reporting data. So on the finance side, Ontario municipalities have to provide a financial information, return to the Ministry every year where they say, here's our it's a long document, so we'll get it. It provides top to bottom financial details. I don't see why we shouldn't have the same thing for the planning side, for housing approvals. So we know what the pipeline is, that we can match the federal immigration targets or where the immigration is being allocated. If that's something we can control, but match it to where the housing supply is coming online soon, or five or three or four or five years from now. I don't see why we should have to fly blind in terms of planning our region. So that Oshawa can know what's going on. Carrington or clearing Canada, what's going on in Milton. And it feels like that should all be public knowledge and more transparently reported. Well, you'd think the province and the feds would like to know that again for doing future planning. Where can people go? Where can we accommodate them? Where do we have shortages? Where is the labor shortage? What sort of people skill sets are we trying to attract? You know, you think all of this would be driven, but I don't know. I'm always skeptical of Stats Canada. I won't go down the road when we ask them questions. We don't understand the answers half the time. But I get skeptical because I think that is just it's iffy. It's at best. At best. Iffy at best. Yeah Yeah. And then. Nothing's going to happen if everyone keeps stopping building low rise. The industrial land value is going to be higher. We're going to have everyone building warehouses instead of houses at this pace. Well and you're seeing that with the competition with Lana and pushing those prices up. And with industrial going up by anywhere from 15% to 25% in Brent's on an annualized basis with some of the newer stuff, it just adds to the issue with the land prices. And land is still the dominant activity for commercial investor activity across Canada. And there's definitely not we're not going to see a slowdown in the GTA or even the surrounding areas that are starting to bulk up as well. So it's definitely not land that is going to provide a solution here. No and that's the challenge from the entire system is based on land value and it's all interconnected. And we've got other asset types pulling prices, pushing prices to high levels. It's just it all comes together kind of in a dire situation for housing affordability, unless we all move to Texas with Johannes. So I think that covers off all the topics in the report. Again, I thought it was a fantastic report. I actually really enjoyed looking for it. It's going to start appearing in my market deck a lot. So Thanks for joining us. Darrell is a great it was a fantastic report. I think it's going to be very useful for the industry now to have some good discussions with the municipalities with something that actually backs up what I think everyone's been saying for years. So Thank you very much for joining us and we'll say good night. No, Thank you. Thank you, sir.