Rebuilding Toronto’s non-profit housing development industry

This post was written by Yinnon Geva.

Everybody loves non-profit housing

Canada is experiencing an unprecedented housing crisis and is rapidly becoming one of the least affordable countries in the Global North. Housing costs have far outpaced wages over the past decades, and especially so since the COVID-19 pandemic, placing the crisis at the forefront of the public discourse. In Toronto, Canada’s largest city, approximately 20% of all households (and over half of all low-income households) pay unaffordable rents or live in overcrowded conditions.

Policy responses to the crisis have been largely focused on increasing supply to meet the purported need for 5.8 million new units by 2030 (1.5 million of which in Ontario alone), but at the same time, the need for non-market affordable housing is immense. According to some estimates, approximately one million deeply affordable housing units are needed, and their construction costs would amount to at least $400 billion (excluding required operational subsidies). Addressing a challenge at this scale will require interventions that go beyond the much-needed injection of public funding, and would likely involve all levels of government and all sectors.

As the public debate over appropriate solutions ensues (focus on supply or curb demand; boost rental options or support homebuyers; and so on), there has been a surprising agreement across the political spectrum regarding the need to revive a once-crucial actor in Canada’s housing market: the non-profit sector. Non-profit housing was hailed by competing candidates in the last mayoral election; featured in reports from policy experts and major banks; and adopted by both critical housing scholars and supply-side YIMBY activists. Each side may have focused on different benefits of non-profit housing (e.g., community control for the left; minimizing direct government provision for the right), but it seems like in Toronto today, everybody loves non-profit housing.

In practice, however, the Canadian non-profit housing sector is small by international standards and is reeling from several decades of underinvestment. If, indeed, governments are willing to reinvest in the sector, what would a new age of non-profit housing look like? In a recent research project, we addressed this question by studying the development strategies of 13 housing providers in the Greater Toronto Area (GTA) that have pursued development in recent decades. Our aim was to understand how have non-profits survived years of divestment, adapted, and scaled up.

This work builds on a growing body of research, much of which conducted by UGoveRN members, that argued for the importance of understanding the internal varieties of real estate industries (See some recent examples). Much like their private sector counterparts, we found that non-profits act entrepreneurially, using their assets and risk-taking capabilities to grow their portfolios. However, unlike non-profits in other countries, such as the UK, that were forced to adopt a neoliberal mindset, Toronto’s non-profits were able to grow without compromising their social mission.

But first, a very brief history of social housing in Canada

The “golden age” of non-profit housing in Canada saw 300,000 units built by non-profit organizations and co-ops between 1973 and 1995. Following a brief and contested phase of public housing development after World War II, the federal government delegated social housing delivery and management to local organizations. Over two decades, federal grants and low-cost loans were offered to multiple co-ops, faith-based organizations and community groups. The result has been a proliferation of small-scale housing providers: In Toronto alone, around 400 separate organizations developed housing projects.

In the 1990’s, facing financial pressures and underpinned by a political shift to the right, the federal government delegated responsibility for social housing to the provinces and funding eventually stopped. The sector went into stagnation, as few new units were built and many others were lost when the operating agreements that guaranteed their low rents expired, or when their small operators lost their management capabilities.

In 2017, the Liberal government announced a new National Housing Strategy, which re-introduced incentives for rental housing development. Yet contrary to previous funding schemes, it was intended for a mix of market-rate and affordable housing and was much more competitive. Organizations were now required to shoulder the risks of starting up a project up to the construction phase, and often relied on private loans. Operating subsidies were not included, and remained the responsibility of provincial and municipal governments.

A different hybridization story

The new policy environment was an improvement, but left non-profits responsible for much of the development process. This meant that non-profits seeking to grow had to act like developers: leverage their equity (mainly real estate assets) to access loans, operate at scale to increase efficiency, and hone various developer-like capacities, such as identifying and evaluating opportunities, negotiating loans, acting decisively, and maintaining relationships with potential funders and partners.

This type of entrepreneurial behaviour is seemingly the opposite of de-commodification. Organizations that go down this path is sometimes referred to as hybrids of the non-profit and private sectors. Housing Associations in the UK are an oft-cited example of hybridization that was imposed by consecutive governments to reduce public expenditure on housing. As a result, the UK sector saw some associations lose their community-led nature, while others’ search for revenues came at the expense of their commitment to social housing.

The findings from Toronto, however, tell a different story. Indeed, some organizations fully adopted an entrepreneurial growth strategy. They have good relationships with funders, apply innovative financing and partnership structures, and have often absorbed the assets of less capable or defunct non-profits (a practice that one executive director defined as scavenging). However, the individuals leading these growth efforts have mostly acquired their real estate skills during the sector’s “golden age” and are still driven by its ethos of de-commodification.

But not all organizations were able to fulfil their development potential. Most notable were organizations that offer medical and social supports to people coming out of homelessness. New federal funding only covers capital costs, meaning that such high-cost services are not covered. Despite also having in-house capabilities, entrepreneurial development can come at the expense of their mission. Some organizations have instead built strategic partnerships with community land trusts and other non-profit real estate entities, allowing them to increase operations without merging service and development roles.

Scaling up versus gatekeeping: the newcomer problem

So far, we’ve shown that the modest entrepreneurial revival of Toronto’s non-profit housing sector did come at the expense of its social mission. We were also interested in understanding how this model could be scaled up to include organizations with no prior development experience.

Through our work at the University of Toronto’s Infrastructure Institute, we met many organizations that acknowledged development as way to overcome Toronto’s competitive land market. The lucky ones already owned their properties, which created opportunity for leverage. But most commonly, organizations saw the housing crisis compound the challenges of their clients, including refugees and victims of domestic violence, who struggled to find stable and affordable housing.

Newcomer organizations mostly relied on specializing agencies to initiate and go through the development process. However, their efforts were met with some suspicion from the old guard. Leaders of more experienced organizations decried the resources invested in small-scale projects; treated them as unnecessarily risky; and in some cases, said that it would be best to hand over projects to experienced developers.

In other words, newcomers faced not only the inherent challenges of acquiring development skills, but also the skepticism of gatekeepers. The tension between the diversity of the sector and the scale needed for development was a recurring theme: How can the sector grow if all the knowledge is concentrated in a few organizations? And who will take over as the old guard retires?

Recent high-profile scandals, which involved prominent housing non-profits in Ontario and British Columbia, also highlighted the problem of accountability and risk-taking in larger organizations. One executive director summed it up by saying, “There’s a sweet spot where you’ve got [enough] economies of scale, but you’re not so big that you can’t hold people to account for the crap that they do”.

Lessons learned?

This project joined others in demonstrating the value of acknowledging and studying varieties within and across development industries. Like their for-profit counterparts, non-profit developers have varying abilities, interpretations of risk, and alignment with policy. The broad strokes of the federal government’s funding mechanisms often missed these differences, leading to limited implementation.

The variances in entrepreneurialism across contexts are no less important. Much of the literature on hybrid housing organizations has focused on the mission drift and growing financialization of non-profit housing in Europe, while surprisingly, Canadian (and American) experience has been different. In fact, much of the development capacity of the sector was acquired and institutionalized during the sector’s strongest years, and it helped hedge its decline during years of disinvestment.

The future of Toronto’s housing sector is unclear. Rising capital and construction costs, as well as a likely federal election that may lead to policy changes, are contributing to this uncertainty. But it has also experienced some notable wins recently, with some valuable municipal support. For example, the city has partnered with two teams of a veteran non-profit provider and a community land trust to develop housing on city-owned parking lots; and a large transit-oriented project will include, for the first time in years, 600 cooperative housing units. Hopefully, these projects signal a trend of more development for social good in years to come.