With interest rates on the rise, a Scarborough non-profit says one of its affordable housing projects is in jeopardy — with hundreds of units now at risk of being put on hold.
It’s the kind of situation some city officials have warned about recently, as interest rates and other rising costs put desperately needed affordable rental developments on shakier ground.
The development proposed at the site of the former Malvern Emmanuel United Church would consist of a pair of apartment buildings, nine storeys apiece, with a mix of 317 subsidized units, moderately affordable homes and average market-priced rentals, some fully accessible.
But with a loan of more than $80 million required for the larger, 201-unit building alone, Brenyon Way Charitable Foundation board president Thomas Burns says the prospect of paying millions more in interest, along with the rising costs of building materials and skilled labour, has them reconsidering starting the smaller building, which is meant to have 116 units.
“There doesn’t seem to be a lot of help out there,” Burns said, noting various levels of government appeared willing to help, but answers hadn’t yet materialized. And if their second building was delayed, he said the project costs would only rise further, since consultants and contractors would have to be rehired.
In council last month, the executive director of Toronto’s housing secretariat said her team heard from affordable housing developers voicing a need for grants or other relief such as flexible financing options.
“As everyone can see right now, we’re operating in a time of increasing construction costs and rising interest rates. So, the environment for delivery on affordable rental housing is becoming more challenging,” Abi Bond said.
This year, the average market rent for a one-bedroom apartment in Toronto hit $1,446 per month. Burns said their two buildings would set aside 20 and 25 per cent of their units respectively as deeply affordable rentals, the kind needed by those on Toronto’s roughly 79,500-household subsidized housing wait-list. Another 30 per cent would go for 80 per cent of the city’s median rent costs, he said, while the rest would be listed for average market rents — which is the average across all rental units, not only those newly hitting the market.
The project has been among those supported through the city’s Open Door affordable housing program, which offers financial incentives and funding to affordable housing developments.
During last month’s city council meeting, Mayor John Tory expressed “deep concern” about the fate of Toronto’s affordable housing efforts as interest rates and other costs rise.
“If you look at the impact that rising interest rates and rising construction costs have had on the viability of projects that were kind of nailed down, in the financial sense, before all the changes took place — really, if you look at interest rates in the last six months or so — we are going to have to sit down together with the other governments,” he said, pledging to extend that invitation to higher officials.
“These projects can’t proceed if the numbers don’t work,” Tory said on June 15. “We need this housing. We know that.”
Tory’s office on Thursday said the mayor had raised the issue in meetings with Premier Doug Ford, Prime Minister Justin Trudeau and other top federal officials “over the last two weeks,” and expected to have a joint meeting “as soon as possible.”
The city, in a statement to the Star, said the issue was national as market factors changed, which it argued underscored a need for “significant federal and provincial investment” to deliver new affordable housing units.
David Amborksi, a Toronto Metropolitan University housing expert, said larger housing projects often needed long-term loans, so it was important for them to consider where interest rates are headed. Rates were still low compared to those of past decades, he said, but the speed at which they were rising was out of the ordinary.
In the past, he said, governments aimed to keep housing projects viable during periods of higher interest through efforts such as subsidizing loans.
In a statement, Canada Mortgage and Housing Corp. (CMHC) and the office of federal Housing Minister Ahmed Hussen said they were “closely monitoring” market trends and inflation.
“We know that these challenges are making the construction of new housing and the repair of existing housing more expensive and that has impacted funding asks,” they said, noting the government was extending certain “program and underwriting flexibilities” on a case-by-case basis.
The Brenyon Way team says they’ve been in talks with CMHC, but haven’t yet heard a decision.
“They’ve been very supportive and they’re doing everything to make that work. The problem is the building climate and cost climate is just getting ahead of us all,” Thomas said.
In June, their project moved one step closer to fruition, with the Scarborough Community Council approving necessary zoning changes, and forwarding them to city council for a decision later this month. Development consultant Tim Welch said they hope to start foundational work by October, but they would need to have funding and financing in place.
The development team’s treasurer, Eric Cohen, said they’d been in talks with CMHC about loans, but the cost had been creeping higher.
For the first building alone, for example, he said if their mortgage interest rate was 3.4 per cent over 50 years, their annual bill would be $3.4 million. At 4.4 per cent, it would be $4 million.
Comparing expected income from rents and other items such as laundry with their expected costs on utilities, maintenance, staff and other essentials, his calculations show the first building expected to have just shy of $3.6 million in operating income available for the annual mortgage.
“This project was very viable in January, February,” said Welch, the consultant. “It’s really … the interest rate increases in the last three to four months that have put the project in jeopardy.”
JOIN THE CONVERSATION