Making room for Amazon is Canada's and Toronto's housing challenge: Don Pittis

Ever since Canada made the short list for Amazon's second headquarters, the majority view seems to be that the company would never choose a non-U.S. location.

But whether Amazon comes or not, the idea has raised a crucial issue for Toronto and other Canadian cities hoping to attract high-tech employers. Where are all their high-tech workers going to live?

"I think that's our Achilles heel," says James McKellar, who is part of a movement trying to transform Toronto's and Canada's property market to permit higher density in the inner suburbs where people want to live.

Downtown boom, suburban sprawl

Bizarrely, despite a downtown building boom, as urban concentrations sprawl out from the hub to overtake nearby farmland, the population density of our metropolitan areas is actually declining.

McKellar, director of the Brookfield Centre in Real Estate and Infrastructure at York University's Schulich School of Business, says expanding the sprawl is exactly the opposite of what modern cities need to cope with the new industrialization based on high-tech brainpower.

• The good jobs are all downtown

By solving the problem, Canada could get out in front of other high-tech cities including San Francisco, Boston and Seattle, which face a similar housing shortage for similar reasons.

Socialism for the rich

"In the long term, our biggest competitive advantage to attract these smart people is good housing," says McKellar. He cites the "socialism for the rich" argument proposed by University of British Columbia economist Tom Davidoff, which sees single-family housing protected by municipal laws as an unfair consumption of public wealth. 

While Vancouver may face a relative shortage of building space due to its mountainous setting, cities like Toronto have plenty of land in the most desirable areas. The shortage is purely a creation of restrictive zoning rules.

That creates a characteristic pattern — a concentration of soaring highrises in areas such as downtown where zoning restrictions are weak, and low-density sprawl in the outer suburbs. Most of the city's land in the inner suburbs and outer core is used up by the low-density single family homes that got there first.

"Here is a city protecting old neighbourhoods for whatever reason and it's shutting out all of the people that we need to drive our economy," says McKellar.

Blanket restrictive zoning that treats every lowrise residential neighbourhood as if it were a precious historic relic creates perverse incentives for developers.

The enormous effort required to overturn zoning rules means they are motivated to build extreme highrises rather than more moderate five- to 10-storey buildings that would better fit the residential ambience.

Just this month California lawmakers attempted to solve that conundrum with a new bill lifting many zoning restrictions on high-density lowrise buildings near major public transit corridors.

Zoned for economic growth

That may be what cities like Toronto need. There is nothing wrong with preserving small blocks of the city with truly extraordinary or unique historic character, goes the argument.

But for other areas, especially those best served by expensive transit systems funded by all taxpayers, zoning would be changed to allow the right to build high-density lowrise to anyone who can assemble blocks of property.

Screams of protest from single-family homeowners might be muffled when they realize that newly zoned land would shoot up in value. But whether NIMBY protestors like it or not, McKellar says, the economic health of Canada's biggest cities depends on the change.

One Canadian city that has successfully merged higher density into its housing mix is Montreal, says Royal Bank of Canada economist Robert Hogue. But that may partly be because landlords who own so much of the property are more agreeable to densification. That could give the city an advantage in the next round of technology expansion.

"Montreal has been a tenant city for just about forever," says Hogue. It makes finding good housing easier for young people starting their careers.

But that historical difference is just one reason cities like Toronto and Vancouver, where people tend to buy instead of rent, can't easily change.

Boom to glut

There is recent evidence that a concerted building boom can catch up with property demand, as downtown Los Angeles follows parts of New York into an apartment glut. But, barring a severe outside shock to the economy, Hogue doesn't see that happening anytime soon in Canada's biggest cities.

According to RBC's latest quarterly report on housing affordability — the ratio of housing costs to income — Canadian homes are getting harder to own, and Toronto is one of the places most affected. Yet condos prices continue to rise with demand. With the economy strong and unemployment at a two-generation low, that won't change.

"This increase in the immigration target nationwide shouldn't be underestimated in its impact for the economy at large, but particularly for the housing market and for markets like the GTA which attracts a large share of immigrants," says Hogue. "I think it does put pressure on the housing stock."

So if Amazon or other high-tech firms do come and their high-priced talent starts bidding up Toronto's undersupplied property market, the important question may not be where they will live.

If Canadian cities don't change the way they build new housing, the question will be: Where will the rest of us live?

Follow Don on Twitter @don_pittis

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