Here's the blueprint for making Toronto's homebuilder program a success

Building highrise multi-family housing projects in Toronto can be risky business. Regulatory delays, supply-chain snags, labour shortages and high interest rates all conspire to make housing construction difficult and expensive. The city has no recent experience in building its own housing projects, so there will be a steep learning curve.

Toronto starts with some significant advantages. It owns all of the land for its housing projects, so it has zero land acquisition costs. The city does not intend to make a profit, so it doesn’t need to build a profit margin into its construction budgets. City housing projects should also be eligible for concessionary financing under various federal and provincial affordable housing programs, as well as relief from development charges and planning application fees.

However, the city also faces some unique cost pressures. There are rules that require the city to use more expensive construction methods, such as employing union labour, and adopting enhanced “green” construction methods. Toronto also has a complex internal bureaucracy, which can make completion of essential “back-office” tasks, such as procurement, legal review, and budget management very cumbersome, slow and costly.

But the city’s biggest danger is “mission creep.” We saw it first-hand in the council meeting that approved the mayor’s housing plan. A councillor introduced a motion that all housing projects built on city land must include "low-carbon, fossil-fuel-free primary HVAC systems, and all-electric appliances in individual units.” There was no opportunity for city staff to analyze whether this mandate was practical, or how much it might add to project costs. Other politically driven objectives are sure to follow as these projects move through the regulatory approval process.

Despite the challenges, a number of steps can be taken to ensure Toronto’s new “public builder model” succeeds. First, the city should recruit a panel of seasoned development experts from both the private and non-profit sectors. They would act as a type of board of directors to supervise the city’s housing projects. These professionals could ensure the budget models, development assumptions and construction processes are affordable, practical and in line with industry standards.

The “public builder model” would also benefit from strong internal city staff leadership. One individual should be mandated by council to have sole responsibility for the housing construction program, and be given the authority to manage the budget and require deliverables from other city departments.

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Lastly, council should enact strong financial “guard rails” when approving housing projects. It should insist that any approval contain a detailed financial pro forma (which has been blessed by the expert board of directors), and that the development must be completed within the approved budget. Post-approval change orders must be strictly limited, and any last-minute motions from councillors to mandate project details must be deferred unless fully analyzed and costed by staff.

With a seemingly intractable budget deficit, Toronto can ill-afford to suffer significant financial losses in developing its own affordable housing. There are just too many current examples of government-led construction projects gone wrong, such as the Eglinton Crosstown, Queen’s Park renovation and ballooning costs of rebuilding the front gates of the Toronto Zoo.

By establishing a proper governance model and exercising a relentless focus on financial prudence, Toronto could be a shining example of how governments everywhere can build affordable housing projects efficiently and cost-effectively.