How to Fix Toronto’s “Revitalization” Program: Leveraging land value to redevelop social housing

Prepared by Gary Gerbrandt • CP 260/Professor Carolina K. Reid • May 13, 2019

Introduction and Problem Context

With almost 3 million residents, Toronto is North America’s fourth-largest city. Like many of its major-city counterparts, Toronto faces a housing affordability crisis, with 47% of renters considered cost-burdened. Cost-burdened, in this case, means they are spending 30% or more of their income on rent. Real estate values have risen roughly 400% since 2000, spurring a development boom that has produced more than 200,000 condominium units sold to a hungry market. 

At the same time, Toronto lacks access to tools used to fight housing crises elsewhere. The city has no inclusionary zoning policies, due to a lack of enabling legislation from higher levels of government, and Canada has no long-term structured capital financing sources for new affordable housing—only piecemeal support for specific projects. Purpose-built rental buildings are rare; new affordable rental buildings are far rarer. Despite significant production, only 2% of housing units built in Toronto over the past five years are considered affordable.

While all parts of society grapple with the high costs of shelter, lower-income Torontonians face a disproportionate burden. Toronto Community Housing manages North America’s second-largest social housing portfolio, with 60,000 subsidized rental units in 2,200 buildings around the city. TCH units provide a safety net for thousands of low-income families, most of whom pay rents set at 30% of household income. However, they are aging quickly, with a majority of buildings over 50 years old. Like many American public housing agencies, TCH faces structural capital financing challenges; the agency says up to 7,500 units may be “boarded up” by 2023 without significant investments to address a $2.6B funding gap for repair and replacement.

TCH’s “Revitalization” program has been devised as a partial solution to the problem. Revitalization leverages the development value of underlying land to replace legacy social housing units on a given property, working with private-sector developers to cross-subsidize construction by adding market-rate units and increasing density. To date, 5,000 social housing units have been designated for replacement via Revitalization. Drawing on the story of Regent Park, the largest TCH community to undergo the program, this memo lays out how the process works—along with its significant problems.

Toronto has found in Revitalization a creative, if imperfect, way to address long-term capital financing gaps. This memo explores the program in detail, to highlight how similar agency-developer partnerships could be a means to address capital financing challenges elsewhere. It concludes with two sets of recommendations: first, for Toronto, as it looks to future Revitalization projects; and second, for policymakers, cities, and social housing agencies interested in bringing a Revitalization-like program to their jurisdictions.

Policy Mechanism

What Revitalization does

Revitalization is essentially a financial mechanism to support the replacement of aging housing stock, in the absence of significant redevelopment funding from government sources. In its 2017 annual report, Toronto Community Housing describes its portfolio as “a $10-billion public asset,” and highlights Revitalization as a way to maximize its value. Properties selected for Revitalization go through a design process that involves current residents to determine what should change. The program aims to address legacy design issues and add public amenities. Subsidized housing units are replaced 1-for-1 through the program, and current residents are relocated to other units in the city, with a right to return after construction is complete. Roughly 2.4 market-rate units are built for each social housing unit on site. 

A 2012 capture of a since-deleted TCH webpage about Regent Park, the largest Revitalization project to date, describes the program, highlighting an emphasis on Revitalization as a financial strategy, in conjunction with physical change and improvement goals for the portfolio (and notably excluding discussion of social benefits):

Revitalization is the most viable business strategy to replace or repair poor quality housing in Regent Park at the lowest cost to taxpayers. This approach benefits tenants living in Regent Park and elsewhere in our portfolio, as it enables us to direct our limited capital repair money to other communities that don’t have the opportunity for revitalization.

Revitalization is transforming Regent Park into a successful, mixed-income, mixed use neighbourhood, like many others in Toronto, offering residents a mix of rental buildings, market condominium buildings, townhomes, commercial space and community facilities.

The revitalization plan includes diverse architecture, expanding and reconnecting the road networks and adding new pedestrian-friendly streets maintained by the City. It also means adding new parks and open spaces and new retail and community facilities.

From this Wayback Machine archive.

Phases of Revitalization

Toronto Community Housing has followed a roughly similar phased approach in each Revitalization to date. While these steps are not formally listed in any TCH communications material, and the 7 Revitalization projects to date have varied significantly in scope and approach, the six phases described below represent the general trajectory of a Revitalization process, highlighting the roles of TCH and other stakeholders. 

1. Identification: TCH designates a property for Revitalization, selected with consideration to development value and unit condition. Revitalization’s reliance on private-sector developers necessitates the potential for attractive returns from development of the underlying land, making that more important than the urgency of repair or replacement.
2. Design: TCH consults residents and community stakeholders to devise a vision for the post-Revitalization project, typically including significant urban design and amenity changes. The process includes an initial sense of the number and locational distribution of market-rate units needed to make the site attractive for a developer partner.
3. Partnership: TCH selects a developer via a tendering process to execute the vision laid out in its initial design. This step includes a more robust formalization of the design, including cost and revenue estimations to size the amounts TCH needs to pay, and how much revenue to expect to offset said costs. This step can take several years as designs are refined and detailed construction plans are developed.
4. Construction: The selected developer begins building market-rate and replacement social housing units, including any added amenities or changes in urban design. Construction is often, but not always, phased to minimize the need for offsite relocation of current residents, depending on the scale of the project. TCH pays for the construction of any replacement units, while the developer pays for market-rate units. 
5. Relocation/Return: Residents are temporarily moved to destination units within the TCH portfolio, and given the opportunity to return to their community once a replacement unit is ready. TCH has elected to rely on a lottery, followed by choice ranking, as the process for both relocation and return unit assignments. The following TCH graphic lays out the process. This step repeats with each phase of the construction process, as more occupied units are replaced.
6. Completion: As market-rate units are sold, the developer pays a majority share (often 55-60%) of profits from the process to TCH. Amenities are constructed and occupied. Returned residents and new market-rate residents live together in the new community. This step repeats with each phase of the construction process, as more occupied units are replaced, until eventually the Revitalization process is fully complete.

Financial considerations

TCH pays developers full construction costs for replacement social housing units, and receives financial consideration for the value of its land. This has taken two forms: a fixed one-time purchase payment for the land’s value, or a majority share of profits from the sale of market-rate units. While fixed land payments were common in early Revitalization projects, profit-sharing appears to be the primary financial mechanism in use. 

Profit-sharing arguably aligns incentives between developers and TCH to de-risk and expedite the development process. However, a case can be made that this is more favourable for developers, who benefit from the time value of waiting to sell the units before paying TCH, and whose management of construction means they lead the estimation of cost or revenue. Underestimation of profit will reduce financial benefits for the developer, but TCH will suffer more, thanks to its majority share of profits. This makes Revitalization’s success reliant on the alignment of actual costs and real estate value with pro forma developer projections—and  thus more vulnerable to the ups and downs of the Toronto real estate market. 

A description of Revitalization on TCH’s website highlights the variety of financial stakeholders directly involved in the process:

By working together with the City of Toronto, our residents, our neighbours, and our private development partners, we are transforming aging housing infrastructure to build better homes, better neighbourhoods, and a better Toronto for all.

From this TCHC page.

However, it excludes the provincial and federal levels of government, who have provided a primary source of financial support for the agency. Debt and grant funding by governments have covered construction costs developers were due for replacement units. In addition, much of TCH’s operating funding also comes directly from these levels of government in the form of rent subsidies. Without consistent long-term capital financing programs from any level of government, TCH is reliant on the piecemeal capital support it does receive.

Revitalization thus does not directly reduce the amount paid to construct replacement social housing units; each phase of construction depends on a one-time capital investment from a higher level of government. Instead, it provides an after-the-fact cost-offsetting mechanism in the form of profit-sharing, and outsources the construction and design process. TCH gets to direct and control the property’s redevelopment, and is given a way to modernize its social housing units in the subject project without having to cover the full load of expenses and effort.

Impact and Results

Profiles of Revitalization projects to date

As of November 2019, Toronto Community Housing has launched 8 Revitalization projects, of which only the very first, a 419-unit pilot developer partnership project at Don Mount Court, is fully complete. TCH does not list Don Mount Court as a Revitalization project on its website, but the similarity of its structure—attracting a private-sector developer to subsidize the construction of replacement housing with market-rate units—warrants characterization as a pilot project. The following table contains details on the type and unit mix of these projects.

TCH has also announced the future Revitalization of Firgrove-Grassways, a mix of renovation and replacement of 386 social housing units. Estimated numbers of market-rate units associated with this project have not yet been announced. Many more Revitalization projects may be coming; in 2013, a TCH board member indicated that at least 47 properties could be part of the program.

The shift in unit share before and after Revitalization is perhaps one of the starkest effects of the program on selected properties. With 70% of future units across these properties to be sold on the market, the original residents who lived in communities composed of 100% social housing have noted shifts in climate, demographics, and civic power distribution.

Case study: Regent Park

Regent Park has been to Toronto’s public consciousness as Cabrini Green was to Chicago’s: an archetype of what public housing should not be. It was the largest property by number of units in TCH’s portfolio. Inward-facing buildings, disconnection from the surrounding street grid, and the design failures of midcentury modernist architecture all colluded to deepen the social problems of concentrated poverty in the neighbourhood. Gangs based in the area were linked to several violent crimes that attracted the attention of the broader public, including a shooting that caused a stampede in the food court of a downtown mall. When Regent Park was chosen as the city’s first Revitalization site, TCH sent a message: that Revitalization, more than just a funding vehicle, could be a powerful stone to bring down a whole flock of birds. Revitalization’s impacts to date in Regent Park break down into two main categories: physical changes to the density, design, and development of the area, and social-psychological effects on the residents who called Regent Park home long before developers came to town.

Physically, the neighbourhood is in the midst of transformation. The neighbourhood’s configuration has changed significantly, with streets drawn through the formerly cut-off central area to reintegrate it into its surroundings. A large central park has been roughly preserved, with new prioritization of access for the broader community. The City of Toronto funded a large, state-of-the-art recreation and aquatics centre for the site, and built a large, well-used adjoining playground and sports field. Daniels, the developer chosen for the site, contributed a flexible arts space for performances, practice, and production. TCH made an effort to incorporate community-serving retail to the redeveloped site; a grocery store, bank, telecom outlet, and several restaurants have been built and occupied, along with abundant space for nonprofits. Hundreds of primarily retail-service jobs have been created for local residents. At each point in the design and planning process, the community was rigorously consulted—local organizing around needs helped to spur the site’s selection as the first for Revitalization, and the results are now visible. 

Yet the most significant result of Revitalization has been a change in the number of housing units on site at Regent Park. Plans are in place to build at least 5,400 units of market-rate housing to subsidize the broader project, in addition to 448 new units of “affordable” rental housing (with below-market fixed rents that do not scale to income), and 2,083 replacement units of RGI housing, with rents set at 30% of household income. While it represents a significant upgrade in the quality and design of subsidized units, and a ~20% increase in their overall number, the project will shift the site from having 100% social housing to roughly 30% subsidized housing. This could have a significant impact on the cultural context of the neighbourhood, and the psychology of its residents. Some have gone so far as to call the results “displacement.”

Beyond the neighbourhood itself, Revitalization in Regent Park has had significant impacts on TCH’s corporate and partnership strategies. Cost overruns of at least $200M resulted in several thousand additional market-rate units being planned for the site, with an expanding cost burden placed on the city’s strained finances. This provokes questions about the true financial viability of Revitalization as a value-unlocking mechanism. Facing criticism for the selection of its lead developer, Daniels, TCH opened bidding to a variety of developers for the to-be-built phases of the project—which resulted in significant community backlash from residents concerned that the effort invested in developing a relationship with Daniels would go to waste if they weren’t reselected. And, as this project has unfolded, the agency has cycled through five CEOs in the past eight years—leading inevitably to inconsistency of approach and supervision for Regent Park and other Revitalization projects.

Given the different stakeholders and their inconsistent priorities, the mix of positive and negative impacts of Revitalization can be difficult to assess. For TCH, with its stated goal of using land value to unlock funding for replacement and the secondary goal of redesigning its sites to fit better with the city, Revitalization is a partial success. Land value has proven to be a source of capital, although the exact degree to which TCH comes out ahead is up for debate due to cost overruns. Urban design and amenitization have clearly succeeded at Regent Park, but the opportunity (and funding) to provide such rich amenities and design at future sites is an open question. For residents, Revitalization has provided higher-quality, better-designed housing with more access to community and commercial amenities, and a model for partnership in planning and design. In Regent Park, the relationship between Daniels and residents is strongly positive, although a potential change in developers may undermine the hard work to date. Residents have also been deeply involved in the planning process from the beginning, with support from TCH. 

But the logistics of relocation have been widely criticized as resulting in disparate outcomes and the separation of longstanding friend, family, and community relationships, suggesting TCH should adjust its approach for future sites—potentially including the abandonment of its lottery system. Not all replacement units are being built on the Regent Park footprint; indeed, several hundred were built a 20-minute walk away from the neighbourhood, in another part of the city’s east side. Phasing at some future sites has been planned to allow on-site relocation, which will help to reduce some of the strains put on residents forced to move to far-flung parts of Toronto. But a more fundamental set of questions about the impact of Revitalization on the psychology, cultural bonds, and community of low-income residents remain. It remains to be seen whether the introduction of thousands of market-rate units to vastly outnumber subsidized housing will let disadvantaged communities preserve their voice in decisions, or whether their new higher-income neighbours will dominate political power.

Evaluation in summary

Strengths of Revitalization

• Revitalization has actually replaced hundreds of units of social housing in Toronto. In a constrained funding environment, particularly for capital expenditures, any program that realizes results has value. Revitalization has borne fruit—and TCH has invested a great deal in ensuring that it can be repeatable across several dozen future properties. Revitalization is actually producing more than 1 social housing unit for each legacy unit being demolished, thanks to 448 additional fixed-rent units in Regent Park.
• Many hard parts of the process are outsourced to professional developers. Revitalization moves the burden of final design, construction, and management to developers, who have honed their skills building residential properties in Toronto’s hot market. This reduces the organizational burden otherwise put on an agency like TCH, and allows them to focus on the resident-facing parts of the process.
• Unit density increases significantly in properties after Revitalization. A testament to the sustained demand for housing in Toronto is that the 18,428 units planned across the first 7 Revitalization properties represent a 365% increase in total units on site. It makes better use of land dedicated for housing by having more people live on it.
• A shift to a mixed-income community helps to deconcentrate poverty. There are benefits to the socio-economic shift embedded in Revitalization: places which were previously only populated by lower-income people are now home to people across the income spectrum, which has helped at the very least to keep new businesses open in Regent Park.
• Revitalization has brought many new amenities to Regent Park. Both commercial and public amenities once missing from the community’s urban fabric have been integrated during the Revitalization process, including retail offerings like grocery stores and banks which were missing beforehand. 
• Urban design updates help eliminate the legacy of modernist social housing. Regent Park was known before Revitalization as having a litany of design mistakes—inward-facing streets that disconnected the community from its wealthier surroundings, a lack of defensible private space, poorly located and programmed open spaces. In the wake of Revitalization, the community has been re-integrated into the surrounding street network, and the street-level experience is friendly and open, with “eyes on the street” from actively programmed open spaces.

Weaknesses of Revitalization

• Lottery-based unit assignments create unnecessary problems. While the relocation and return process receive well-deserved criticism, it is difficult to understand why TCH continues to rely on a lottery to determine the sequencing of unit choice after it has specifically received such strong condemnation in both the relocation and return processes. Perceptions of “winners” and “losers” run counter to general satisfaction.
• Relocation is poorly executed, with negative effects on residents. Thanks in part to the lottery system, but mostly due to the scatter-site nature of TCH’s housing portfolio, people accustomed to living together are forced to live in a wide variety of TCH properties, spread unevenly across Toronto, with little input or clarity about how long they’ll be there. A lack of infrastructure to support the preservation of meaningful community bonds during the relocation period does not help.
• The “right to return” is not truly realized. When TCH defines “return” to include units 20 minutes away from the boundaries of Regent Park—and doesn’t adequately explain this to residents—it creates a false expectation that people will be able to return when not all of them will. 
• There are thousands of TCH units for which Revitalization won’t work. Given the scatter-site nature of the TCH portfolio, it is noteworthy that several Revitalization properties to date have been on some of the largest and most transit-proximate contiguous parcels of land owned by TCH—and thus those with the most development value. Others have been on properties located in valuable areas, like 250 Davenport, where TCH sold a piece of land to a developer to fund renovations. None of the Revitalization properties so far have been under 120 units. How or if TCH will use Revitalization to redevelop its smallest properties is an open question.
• Program administration has been opaque and not gone smoothly. The abrupt change of course embodied in the re-tendering of a community-approved developer relationship with Daniels in Regent Park has to date not been fully explained by TCH. This typifies a messy program administration strategy with a distinct lack of transparency. Similarly, information about Revitalization as a program and a financial enterprise is very difficult to collect in one place, suggesting an opportunity for a more structured, transparent approach to the program.
• Developers may realize more financial benefit than TCH. The shift from a fixed payment for land value initially to a profit-sharing arrangement puts more financial risk on TCH than on its developer partners. This may have been done to incentivize developer participation, or it may reflect a lack of developer interest in the original model, but in either case it likely means that developers come out ahead financially. 
• It’s difficult to prove that land value is being maximized. TCH does not make almost any financial figures about Revitalization available in any clear, public, structured manner, aside from those embedded in other financial reports as capital expenditures. This makes it incredibly difficult to dig into the specifics of any given property’s Revitalization, and thus to understand whether alternatives would have provided more value for the land TCH is giving up.
• Lower-income residents are feeling crowded out by market-rate residents. Regent Park’s dramatic socioeconomic shift in favour of market-rate residents has led returned social housing residents to feel that they are now guests in a wealthy neighborhood, as opposed to the rightful residents of a place that was once theirs.
• Revitalization doesn’t reduce TCH’s reliance on piecemeal government funding. Despite the nominal unlocking of financial value, Revitalization is structured so that TCH still must pay developers the full amount of construction cost for all replacement units. This means that Revitalization arguably concentrates capital expenditure away from units which wouldn’t qualify as having development value; it also means that the agency is critically dependent on government funding to swoop in to cover those upfront capital expenses, to be paid back by the possibility of future profit-sharing.

Recommendations

For the future of Revitalization in Toronto

Revitalization has proven itself as a mechanism by which to produce at least some replacement social housing in the city, as demonstrated by the pilot project at Don Mount Court and the initial phases of Regent Park’s reconstruction. On this level, the program has significant value, and it should continue to be a part of TCH’s unit replacement toolkit. However, serious issues exist in program design and execution which should be addressed as TCH turns to Revitalization for more and more properties. 

The most pressing is the relocation and return process. Residents have repeatedly decried what they describe as an arbitrary, unpredictable system that separates them from their friends and neighbours. Some degree of disruption is unavoidable when people are being relocated, but TCH should strive to ensure that future projects are phased to minimize offsite relocation, and perhaps put additional community-preservation mechanisms (such as continued community meetings, with financial support for accessibility) in place before people return home. The use of a lottery, in particular, has received significant negative attention in its creation of “winners” and “losers” in unit allocation; shifting to a purely ranked-choice assignment system might make Revitalization feel less arbitrary and unfair, even if the results are the same. Residents have also noted that their right to return is not guaranteed; in Regent Park, some replacement units are actually built elsewhere in downtown Toronto, and residents have taken units that don’t suit their families solely to have the right to go back to the original boundaries of their neighborhood. Future projects should meaningfully guarantee a true right to return, providing residents a unit within the boundaries of the original neighborhood. Perhaps there’s a way to crib from the playbook of an “athlete’s village” and build units that are temporarily used as social housing during periods of peak relocation demand before being renovated into market-rate housing subsequently.

Revitalization also has program administration issues, which are not helped by the instability of TCH as an organization. The outcry after TCH changed course and sent Regent Park’s future phases of development back to an open tender suggests that clear communication to residents, developers, and government stakeholders will be essential going forward. Governments may want to investigate whether Revitalization should be at least partly managed by a separate agency for accountability and stability.

Very little information is publicly available on the financial processes embedded in Revitalization, including the payment for replacement units and the remuneration mechanisms, which raises the question of whether TCH is maximizing the value of its land as a public asset.  In the words of TCH, the program “enables us to direct our limited capital repair money to other communities that don’t have the opportunity for revitalization.” It is difficult at best to evaluate that claim; indeed, one can argue that the shifting of upfront construction costs to the more attractive properties with “the opportunity for Revitalization” is only further delaying crucial capital investments in properties without. Policymakers should evaluate which of fixed upfront payments or profit-sharing arrangements have the best results for TCH, in terms of both risk and total financial benefit. This also makes it difficult to evaluate whether a 70% market/30% social unit mix is essential to financial success; given residents’ complaints about the demographic and power shifts in their communities, a deeper understanding of the unit economics could help TCH demonstrate its reasoning as it lays out the future of its properties.

Lastly, researching the details of the program and the properties was not simple, and data were hard to find in the materials made accessible by TCH. Transparency to residents and the public could help to bolster the program’s long-term prospects. To simplify public analysis, and demonstrate the value of Revitalization as an example for other cities, TCH should develop a single source of truth on the program, including:

• Master plans and records of community planning processes
• Unified portal providing information on purchasing opportunities at given properties
• Detailed information about resident-facing processes, especially relocation and return
• Financial reporting, with cost and revenue projections and funding sources
• Financial calculations indicating how Revitalization will offset costs for other properties

For others seeking to follow Toronto’s example

Leveraging accumulated development value built up on land beneath social housing has potential to help offset the capital costs of repair and replacement. As housing policymakers and practitioners face increasingly constrained funding environments, new sources of funding are precious. However, TCH’s legal structure makes it difficult to mimic exactly. The agency owns much of its social housing, including the land underneath it, because of the devolution of responsibilities from higher levels of government. Evaluating both legal feasibility and the amenability of other governmental stakeholders to developer partnerships will be essential.

If one were to design a new developer partnership program with the lessons of TCH’s Revitalization model in mind, two strategic imperatives seem crucial to get right: 

1. Identify a sustainable funding mechanism that maximizes upside. TCH has yet to prove that either its upfront land purchase payment model or its down-the-road profit-sharing arrangements maximize its returns. Revitalization also relies on the implicit and explicit capital funding support from government to front the undiscounted construction costs of replacement units. Other agencies may interrogate models where developers build replacement units at low or no cost, or where developers take full control of properties and the responsible agency becomes a master tenant and property manager. Finding ways to exceed 1-for-1 affordable unit replacement—whether by adding so-called “workforce” housing, incorporating new housing modalities like co-living, or simply requiring more subsidized units be built than existed previously—could be financially feasible depending on individual city contexts.
2. Design a program that puts social housing residents first. TCH’s greatest problems in execution have been on the resident level: relocation, a lack of guaranteed on-site return, and the social configuration questions that come from newly mixed-income communities. Finding ways to elevate and emphasize the voices of historical lower-income community members at every step in the process—from initial design, to  relocation, to return, to the continued governance of the community—could establish a foundation of trust by proving to existing residents that their concerns have weight. Some of the victories in Regent Park suggest parts of TCH’s approach worth emphasizing, including asking residents what amenities they need and striving to have them included in the final development. 1-for-1 replacement and a right to return should be a baseline expectation of any modern social housing redevelopment plan.

TCH’s serious issues with administration, communication, and transparency should be instructive for any agency seriously considering an approach like Revitalization. Being as open and clear as possible will ease the process for all stakeholders and help to ensure an optimal alignment of outcomes—most importantly, for the residents who can benefit from new homes.

Lastly, it is worth noting that Revitalization is not the only option to unlock additional value. In the US, HUD’s Rental Assistance Demonstration program has shown one path to leveraging underlying land value—by making properties once controlled by government eligible for mortgage debt to finance redevelopment. San Francisco’s HOPE SF program, which relies on RAD in conjunction with private-sector developers, is a strong example of a public-private partnership that is realizing significant results with meaningful support from a city government.