When we go to the Committee of Adjustment or TLAB to oppose severance applications, we regularly hear the Planners hired by the builders say that their clients are increasing the supply of housing available to “young families”.
It sounds good, doesn’t it? The builders are helping young families get into the housing market.
You might think this post was going to address affordable housing in the sense of increasing the supply of affordable rental housing or housing for low-income families. Instead, we’re talking about housing that an AVERAGE family can afford.
If you follow the real estate listings in Long Branch, you’ll find that the average price of a home is $834,000. This reflects a mix of house sizes as well as condos and single detached homes.
If you narrow this down to single detached houses, you’ll see listings in the range of $1.1 million to $1.7 million. From what we see, the lower end of this scale represents resale homes – a mix of bungalows and modest 2-story homes with 3 or 4 bedrooms.
The upper end of the scale represents homes that have recently been built. Usually, these are larger (approx. 2500 sq ft.), which is what builders say the market wants. And many of these homes are built on smaller lots – often 25-foot frontages – that do not leave much room for gardens or playing area for young children in the back yards.
This begs the question of whether these newly-built homes are within reach of “young families”
The Central Mortgage and Housing Corporation helps first time buyers get into the housing market by offering insurance on mortgages.
According to the CMHC, if you want to buy a home with a down payment of less than 20%, you’ll need mortgage loan insurance. This protects your lender in case you can’t make your payments.
CMHC mortgage loan insurance lets you get a mortgage for up to 95% of the purchase price of a home. It also ensures you get a reasonable interest rate, even with your smaller down payment.
Mortgage loan insurance helps stabilize the housing market, too. During economic slumps when down payments may be harder to save, it ensures the availability of mortgage funding.
However, if the home you want to buy is worth over $1 million – which is more the rule than the exception in Toronto – CMHC does not offer mortgage insurance.
Many mortgage lenders use a CMHC tool called the debt service ratio to determine if potential house buyers represent an acceptable risk. This means looking at the total household monthly income relative to expenses such as heat, hydro, gas, vehicle payments, loan payments as well as the projected mortgage payments to determine just how much house people can afford to buy.
To illustrate, let’s look at an example.
Assume a couple want to buy a home that’s on the market for $1.5 Million – about the middle of the range for newly constructed homes in Long Branch. Let’s also assume they are moving from a rental apartment into their first home and are able to come up with $300,000 as a down payment. This represents 20% of the value of the home.
They want to take out a 25-year mortgage, which would be at 2.5% per year. This would result in monthly payments of $5,383.40.
Now let’s look at their monthly expenses.
Property taxes in Toronto average about 0.45% of the assessed value, which we will assume is the $1.5 million they expect to pay. Their monthly property taxes would work out to $563.75.
Both husband and wife have credit cards and their combined balance each month is $600. Heating their new home could be expected to cost of the order of $200 per month for gas or oil.
When we add up all these expenses, we get monthly expenses of $6,747.15.
The threshold lenders use when determining if a client is credit-worthy is that monthly expenses not represent more than 40% of the combined income.
Using this, for our couple wanting to buy a $1.5 million home, their household income before taxes would have to be at least $202,414. We’ve been very conservative on our estimate of credit card debt and we haven’t allowed for a car loan or lease.
In Toronto, the average household income is $102,721, based on 2015 census data. However, households with incomes over $200,000 represent less than 10% of all households. Household incomes over $200,000 are the exception, rather than the rule.
Such high income levels are not characteristic of “young families”. They represent the elite, not average or typical small families.
So, it doesn’t sound like our young family could afford one of the new homes being built. They might, however, be able to afford something closer to the average in Long Branch. It might be more modest than one of the newer homes, but it most likely will have character and be well-built. And it would be affordable for them. And an entry point into the housing market.
So, a message to planners: please don’t insult our intelligence by trying to pass off developments that will be sold at the high end of the price spectrum as being a way to help “young families” participate in the housing market. The numbers just don’t add up!
Young family here and I believe you’ve missed the mark.
Affordable housing is the single biggest issue facing our city today, absolutely. We have one of the fastest growing metros in North America, adding more than 100,000 new people every year. This isn’t slowing down. We all recognize that a strong housing plan is needed. But using the affordable housing argument against lot splits is a red herring.
Lot splits, where appropriate, provide two new, modern homes, for the modern young family. I’m one of them. So are our neighbours. I know many more – I’m sure we all do.
The increase in supply provided us the opportunity to enter Long Branch and become part of an amazing community. It was one of the best decision of our lives. I understand that these homes may not be ‘affordable’ for everyone, but that is not the point.
Using your math, an unsplit lot with an aging bungalow would cost roughly $1.2M, easily. For a young family to upgrade and modernize the home, let’s add another $250K or more. This puts the house in the exact same cost position as before, except there is only one house versus two.
That is one less house for a young family to move into.
And there are many young families that can take on that responsibility of home ownership.
Long Branch is a desirable neighbourhood. Great neighbourhoods attract a variety of people.
That is why there are real solutions and actions we can highlight and get behind to increase proper affordable housing in our city. These include understanding Toronto’s new inclusionary zoning policies, the problem of the second egress (www.secondegrees.ca – super interesting, learn more!) and expediting Toronto’s vacant home tax. Let’s focus on those.
Lot splits increase the supply of housing options for all, young families included.
Presenting lot splits as something that shouldn’t happen because it doesn’t create affordable housing is off. I’m not buying it.
Thank you.
But the lot-split houses are listed at $2 million plus so I can’t agree with your math. And so many are now vacant in Long Branch. However, Happy that you are a new young family here, that’s what Long Branch needs!!
Hi Matt:
Thanks for taking time to express your views. We’re glad you chose to come to live in Long Branch.
One reason we’re so negative about the builders is they consistently lie to us and the Planning people.
We’re told they’ve moving into the houses when they’re built. We’ve been told the houses are for their children, their brothers/sisters/cousins. I can only think of a few examples in which an owner of a property actually moved into a house they built as a result of a severance application. WE also have over a half-dozen approved severances in Long Branch where they have yet to break ground – after as long as 6 years. No improvements. No renovations. Nothing to add value to the property. Surely, if there were a crisis in housing supply, they’re be rushing to get homes built. But that’s not the case. We see these as speculators who are not helping the housing industry and who are serving only to inflate house prices for their own pockets.
BTW, we’re now seeing 50-foot lots on the market, with a 40s-era bungalow, going on the market for $1.8 million.
They try to justify building these houses to portray themselves as doing something for the good of the neighbourhood, not for their own profit. I recently spoke with a builder who had bought a property with the intention of severing it. He was honest about it. He said the only way he could make a profit was by severing the property and building 2 homes. I respect that. But that shouldn’t be the only option open to builders, and it puts them in opposition to the residents.