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The development cluster-fudge in Toronto

The public would be utterly shocked if they knew the length of time it takes for a building development to get approval from the City of Toronto planning department. The 9-month window that government has designated as the appropriate window of time for project approval never gets met. A report done by the C.D. Howe Institute shows that municipalities ignore this time window. In Toronto developers were forced to take projects to the Ontario Municipal Board (OMB) in order to get city planning to respond to them. Even with the OMB approval, most projects still took between 3 and 4 years to work their way through the planning department.

With the disbandment of the OMB, developers are scratching their heads and wondering who will hold municipal planning accountable to a time frame. No longer can they appeal to the OMB for help. With no accountability the approval process will likely climb to 6 or 7 years.

The provincial government announced the formation of the Local Planning Appeal Tribunal (LPAT) but their power is limited to issues around conformity to local or provincial plans. The goal was to give more power to the local municipalities, but decision makers seem to have ignored the fact that planning departments have ballooned in scope without the extra investment by local governments.

Like any government agency the planning department constantly fights the urge to expand their reach into the public sector, and haven’t had much success in Toronto. The planning department has inflated their authority far beyond the role of ensuring buildings are safe and built to code. Unbeknownst to taxpayers the planning department has taken on the role of architecture and design supervision – a role that belongs in the private sector. Few city planners have a full education in architecture or design and yet they have spread their authority to a point where they can completely change the architectural designs of a building. The amount of time spent by Toronto’s planning department doing work that should be done by the private sector is costing Toronto taxpayers millions of dollars, not just in wages, but in housing costs.

Another problem with this expansion of authority is that when a public servant starts choosing the shade of beige they want for a wall (yes, they do this in Toronto) or imposing the shape, size and design of a building (they think it should match everything else around it) they go beyond the scope of their education or ability and no one can stop them. They literally dumb down architecture in the city and truly magnificent buildings never get built.

In Toronto the process of getting a building development approved is a complete cluster-fudge of repetition, with the plans moving between so many city divisions and external agencies (building, roads, parking, water, heritage, etc.) with each having their own silo of authority.

The problem with this overreach of authority is that it adds time (years) to the building approval process, and time has a direct cost that is added to the cost of housing.

The more time a developer has to put into upfront planning the more expensive the overall cost of a building

As more time gets added the more likely it is that developers will choose not to develop. Add to this the fact that development charges in Toronto have nearly doubled over the past year and the cost of housing dramatically increases. Now add in the fact that property prices in Toronto have skyrocketed and it is easy to see why housing prices have increased so dramatically.  Time is the real culprit. Toronto planning must refine the process a development application goes through, and city planners need to curtail their desire to weigh in on design and architecture (which they are not educated in) and focus on the job of ensuring buildings are safe and built to code.

The bottleneck of development applications at city planning today is increasing and slowing down construction of new homes all across Toronto  Toronto’s new Chief planner, Gregg Lintern, has quite a challenge ahead of him. Not simply because the approval process needs a complete overhaul, but also because there is a “closed-door” culture running rampant at the planning department. It breeds an “us against them” mentality that pits city staff against the city’s development industry. It will be interesting to see if Mr. Lintern is able to change the culture, reach out to stakeholders, and make the changes that will impact housing affordability. If he simply carries on with the status quo and allows even more time to be added to the development approval process, he will push the cost of housing even further out of reach for average families.

INVESTMENT BUG: The pros and cons of purchasing an investment property

We’re nearing the end of the second quarter now, and the real estate market is holding steady! And with more and more people looking at ways to invest their money and get the most for their return, I’ve had a few calls from clients considering investing their money in investment properties. I know from personal experience that the return on this type of investment can be great, and is definitely a great way to diversify your investment portfolio with an investment that will likely increase over time and pay for itself in monthly rental income, but I also know firsthand that the process isn’t as glamorous as it may come across on all our favourite real estate reality TV shows.

Firstly, let me make the difference between flipping properties, which has been popularized in the last few years, and owning an investment property. “Flipping” a property refers to the common practice of purchasing a “fixer-upper” property below market value with the intention of fixing it up to raise the value and re-selling in a relatively short period of time for a profit.

Owning an investment property that you plan to hold on to long term can be anything from purchasing a condo, duplex, triplex, building, etc. with the intention of renting out the unit or units on an ongoing basis.

If you’re looking at purchasing an investment property for the first time, it may be worth noting that most lenders won’t approve financing for properties of more than four units. So purchasing a triplex to rent out may be a good start, but maybe save the three-story low rise until you’re a little more experienced. Most lenders will require a minimum of 20% down, and if you’re looking to avoid mortgage insurance premiums, it might be worth it to put down more. Throw in land transfer taxes and closing costs, and you’ll see why it becomes super important to know your numbers and be sure of what your upfront expenses are going to be.

When it comes to tenants, I have one golden rule for all of my clients: you need the RIGHT tenant, not a tenant RIGHT NOW. In Ontario, the laws are usually on the side of the tenant, so do your background and pay the $29.99 for a credit check to cover your bases. If you don’t have a thick skin, develop one, quick! Complaints will come and you’ll need to know your tenants’ rights and your rights as well.

Be prepared for maintenance costs and repairs. Be prepared to put in work. Get yourself an agent who has knowledge of the type of investment property you’re looking to get into and who knows the area enough to work with you through area rental rates and capitalization rates. If you arm yourself with the right team and proper guidance, it could be the best financial decision you ever make.

 

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