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A Tyee Series

Homes that Cost Less than Rental

How a Toronto developer creates 'cost-effective' condos sold to families making as low as $32,000.

By Monte Paulsen, 17 Feb 2009, TheTyee.ca

Housing series, part 3

Options for Homes project in Toronto: non-profit fix for Canada's housing problem?

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"We don't call what we do 'affordable housing' anymore," said Toronto developer Michael Labbé. "We call it cost-effective housing. Because what we do is build ownership housing that's less expensive than rental."

Labbé is the founder of Option for Homes, a not-for-profit company that produces condominiums for tens of thousands of dollars below market rates, helps its customers scrape together large down payments, and has accumulated a multi-million dollar endowment that could fund its work in perpetuity.

Since 1993, Options has started 10 developments in the Toronto area, and completed more than 1,500 homes.

"If we could get government behind this model -- not with hand-outs, but strictly through policy support -- then Canada's housing problem would be over within a generation," Labbé said.

Options for Homes' success is less the result of any solitary solution than it is the cumulative impact of a quiver of cost-shaving tactics, each of which slices tens of thousands of dollars off the cost of a home.

Though the tactics themselves may require adaptation in the Lower Mainland's overheated land and construction environment, the Options-style aggregation of tactics offers hope for developers seeking to close the $200,000 gap between what ordinary families can afford and what ordinary homes cost in urban British Columbia.

Difficult sites near transit

"It starts entirely with the availability of land," Labbé said. "Without land, there's no sense talking about anything else."

Options buys the cheapest property it can find within walking distance of transit. The group prefers sites where it can build with wood (which costs less than concrete construction) and where expensive underground parking can be avoided.

"We will be further out," Labbé said. "We tend to end up in fringe conditions, or on difficult sites."

The group typically pays for an option to purchase the property at market value after the building is presold.

"We can work with any site where the owner of the land, whether government or private, is willing to tie up the land for a year and a half while we get ready to buy it," Labbé said.

Labbé said Options' land costs have averaged "in the ballpark of $10,000 per unit" in Toronto, a market in which developers "generally pay $30,000 to $50,000 per condo."

He acknowledged that Vancouver land costs would run higher, but claimed that workable properties can still be found away from the downtown core.

"Even in Vancouver, land is such a small percentage of the cost of the end product," Labbé said. "It's what you do from there forward will produce some version of affordability."

Starter homes with no frills

Options' design philosophy is similarly cost conscious.

"We're building starter homes," Labbé said. "We create apartments at the lowest possible price, so that everyone has the best chance to buy one."

Size matters. "We like to build more than 200 units at a time, so we're getting the economies of scale," Labbé said. "We like to have a lot of repetition in the styles of our units."

Finishes are basic; suites include broadloom carpet and economical ceramic tile. Appliances are not included, though they are available at cost through a bulk purchase. Where available, underground parking is not included either; buyers pay $25,000 to $30,000 per space.

Options negotiates with the city to reduce the required amount of amenity space to one square metre per unit. This is typically a simple meeting room. There are no pools, saunas or exercise facilities.

Options has hired the same contractor (Deltera) to build each of its buildings. Labbé said he pays slim margins: two per cent management fee, five per cent profit, two per cent contingency on a guaranteed price contract.

By hewing closely to this starter-home approach, Options has built its condos for a per-unit average of $60,000 less than other Toronto developers.

"We've come in at $60,000 less than everybody else," Labbé said. "You know, in Vancouver, it might be $100,000 less."

Marketing in church basements

"Our marketing strategy is backward to traditional marketing for condos," Labbé said. "With traditional marketing, you pay the advertising costs to reach everybody in the market place, and then you find the people who will pay the most money for your product. Our strategy is to approach as few people as possible to achieve our sales targets."

Options mails flyers to everyone already living within about a kilometre of the site. These one-page brochures invite prospective buyers to attend a meeting.

The meetings are held every other Saturday, usually in a church basement near the site. The meeting consists of a video about Options and a presentation about the building, followed by a question and answer session.

"We explain that Options is acting on behalf of the end purchasers, looking for neighbours who want to move in together," Labbé said.

There is no model unit. There's not even a tabletop model of the building. The only handouts are cheap photocopies of the floor plans.

And no sales are made. Interested buyers can put down a $100 deposit and sign up for a one-on-one meeting at a later date.

"That deposit allows you to reserve the suite that you're considering. You get all the legal documents to study. You get the DVD to look at. Then you come back for a private consultation before you decide if you want to buy," Labbé said.

About 100 people attend each meeting. About a third put down $100. And about a third of those buy a suite. The rest wind up atop waiting lists for future buildings.

In a real estate market where cost of sales typically runs $20,000 per unit, Options spends less than $2,000 per unit.

And the meetings spur cash flow. "We're often collecting $3,000 to $4,000 at a meeting," Labbé said. "We now have $500,000 that's been raised $100 at a time."

Though some attendees arrive suspicious, Labbé said most go away impressed.

"One woman asked an aunt to come with her. She was afraid she'd be pressured into doing something she didn't want to do. So she invited her aunt, a livelong renter who vowed would never own," Labbé said. "The aunt ended up buying a unit."

Every buyer starts with 13 per cent down

Options customers must qualify for a bank mortgage, just like buyers of any other condo. But Options works hard to help its customers qualify.

"We help people with their down payment, no different than if you got help from your relatives," Labbé said.

Options does this by providing an interest-free second mortgage to each of its purchasers.

For example, consider the case of an apartment that cost Options $200,000 to build, and that could fetch $260,000 or more on the market.

"We could have easily sold that unit for $230,000. And we'd have $30,000 in our pocket that we could then use to start more projects," Labbé explained. "But that would mean that people who can not afford the $30,000 would be excluded."

Instead, Options sells the unit for $230,000 and gives the buyer $30,000 loan for which no monthly payments are required.

"All our banks have counted that $30,000 as part of the buyers' down payment," Labbé said. "So everybody who buys from us starts with 13 per cent down."

And in the event the already-discounted condo were to lose value, the second mortgage is written off

"The second mortgage takes the loss," Labbé said, adding that it has yet to happen. This protection has proven particularly attractive to women, who comprise half of Options' customers.

"Single women tend to be very conservative investors," Labbé said. "They don't care how much they make, as long as they don't lose anything."

For some, homes that cost less than rent

Options lends even more to low-income homebuyers.

Where municipalities are willing to defer collection of development fees, Options ploughs that cash savings directly into the creation of ultra-affordable units.

"We don't ask for hand-outs. We ask for deferrals," Labbé said, adding that for one building, Toronto agreed to defer $3 million.

"But instead of using that pool of money to increase the value of every buyer's second mortgage by $10,000," he explained, "we decided that for about 25 per cent of the units, we'd give low-income homebuyers an extra $80,000 in help toward their down payment -- over and above the regular alternative mortgage."

The practice enables Options to sell family homes to people who might otherwise find it difficult to rent apartments of the same size.

"I can take a two-bedroom unit that would sell for $220,000, and put somebody in it who only has to carry a mortgage of $100,000," Labbé said.

"This enables a single parent with an income of $35,000 the own her own home," he said.

"Now, in every building we do, if we can get those minor concessions, we can do 25 per cent income-related ownership and 75 per cent low end of market ownership. And there's no limit to the size of community we can build at that ratio. We could do a 5,000-unit neighbourhood."

Co-ops pay it forward

Each group of buyers is organized into a building co-operative. Options provides staff and guidance to the co-op for a small fee. When about 80 per cent of the units are sold, the co-op buys the land and contracts the builder. When the building is complete, the co-op morphs into a strata council.

"I believe that if you get people involved early on -- and the co-op legislation requires it -- you end up with a much stronger community once your building is finished," Labbé said.

The co-op rules dictate that all the money returned to the co-op must be reinvested in housing. So no matter whether the second mortgage is $15,000 or $115,000; whether it repaid at closing, or carried for decades; every penny goes back to the development of cost-effective housing.

"That's the money we use to start other co-ops," Labbé said. "That money doesn't belong to us. It belongs to people who don't yet have housing."

Labbé acknowledged that as Options units are resold, most will cease to be affordable for entry-level homebuyers.

"This is the policy shift that people have to get their heads around. As suites turn over, the income-related ownership will eventually disappear on that site," he said.

But those losses are replaced as the equity tied up in second mortgages is gradually reinvested into new developments.

"In Toronto, for every unit that's turned over we've built four more units," Labbé said.

"That's why this is potentially a permanent solution to Canada's housing problems," he added. "We have created our own internal resources. We have dedicated those resources to housing in perpetuity. We are unstoppable."

In Vancouver, a $500 million legacy?

"I'm a little disappointed that there isn't an Options development underway right now in Vancouver," Labbé said. "When I was there, I met with the city and they pointed out more than 4,000 units of land that were available."

Options has licensed its systems to a little-known Vancouver non-profit called the Columbia Housing Advisory Association. The Tyee attempted to contact project co-ordinator Jamie Richie, but was informed he would be out of the country for months.

"If Vancouver decided it was going to get behind this model, they could generate about 2,000 units a year at the absorption rate in Vancouver -- which at this point would help your economy out -- and also would probably produce $50 million a year in second mortgages," Labbé said. "Ten years down the road you'd have half a billion dollars of assets targeted to solve the housing problem."

That's right: Half a billion dollars.

Labbé urged other groups to borrow and adapt the Options model. "Really, most things are an assembly of many peoples' ideas," he said. "This more so than most."

And he believes an expansion of the Options model is inevitable.

"Housing is the one area of social need that creates wealth," he explained. "All the housing solutions we have created to date have tended to bury that wealth. This system makes that wealth available to many, because every purchaser helps expand a permanent solution to housing," he said.

"I'm absolutely convinced that, either quickly or slowly, we are going to eliminate housing as a problem in Canada."

Related Tyee stories:

[Tyee]

Monte Paulsen is investigative editor of The Tyee. He welcomes e-mail and invites respectful comment in the forum below.

This series on affordable housing was made possible in part through the support of Tides Canada Foundation, the Catherine Donnelly Foundation, and the Van Tel/Safeway Credit Union Legacy Fund, held and managed by Vancity Community Foundation.

30 Comments:

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  • Monte Paulsen

    2 years ago

    Today's Challenge: Three Questions

    Homes for All is a series that seeks to identify ways to close the roughly $200,000 gap between what ordinary B.C. homes cost and what ordinary B.C. families can afford.

    Today's challenge comes in the form of three questions:

    1. What components of the Options for Homes model do you think would work in Metro Vancouver and B.C.'s other overheated urban real estate markets?

    2. What components of the Options model would need to be adapted for use in B.C., and how would you make them work?

    3. And what components are missing from the Options model, and how could a B.C. developer make those work?

  • sunshine coast girl

    2 years ago

    That is so cool....

    I love to hear about projects like this and wonder how a big city like TO can manage to participate, but Vancouver can't.

  • Bobbi

    2 years ago

    Lots to like

    Independant not-for-profit with no government interference, hip hip hooray! Buyers are self-selecting and then accpeted for their ability to pay (even it is lower than the 'market') and not some arbitrary charter grouping, even better. All to the good, as is how Options searches out land, Labbe is the welcome type of pragmatic.

    Leaky condo issues are the main thing I think of in Van, other than that it all seems good for Vancouver from the perspective in the happy hamlet of Kelowna.

    In K-town, despite the best efforts of some very nice and smart people/planners at the City, transit is here is generally perceived as sucking. The town is laid out in long strings along the curve of the lake and up several distinct valleys. Anything that could remotely be considered 'cheap' land is either eons of a bus ride away from services, or in the ALR. The sole exception off the top of my head is the old KSS (school site) near downtown on Highway 97. Renamed Central Green by the City, it is large, central and the subject to monster committee and consultant studies, it is also going to be 'GREEN.' So many of the cost saving measures don't make the agenda.

    Green is also what is missing from Options, although some sleuthing might shake out some funding, maybe the Feds or the BCLibs would want to stick a sign out front, trumpeting their good judgement in spending taxpayer dollars and install some solar hot water units. Maybe Options could include a community garden and composting.

  • asp

    2 years ago

    impressive

    The only change I would make would be to make all the buildings zero-energy. Adds maybe 5% to the cost for things like extra insulation and low-e windows.

  • RickW

    2 years ago

    Seems to be a certain reluctance......

    .....to try something here that appears to be a success elsewhere.

    Pride? Arrogance? Ignorance? Greed?

  • srfl

    2 years ago

    RickW

    All the above I'd say. Add 'stupidity'. How sad that we've allowed such people to have authority here.

  • Dungeness_Crab

    2 years ago

    srfl beat me to it

    Rick's comments fit Gordo to a T.

  • alive

    2 years ago

    put the blame where it belongs

    to some extent the cost of housing has been market driven, Buyers have demanded all the frills and developers have been more than willing to add extra cost items.

    New buildings have introduced more and more complex roof structures for instance, all for show! but behind all the facade still a flat roof that is liable to leak.

    Now that the boom is over, perhaps builders and contractors will begin to hand out sensible estimates?

    BC has been overcharged by an industry that saw the opportunity to cherrypick their next project, let us hope that the tide has turned!

  • Noha Sedky

    2 years ago

    Options Model in BC

    The Options approach - as a cost-effective homeownership alternative - is one that could easily be adapted to our region.

    What is needed is a not for profit organization to take the initiative and run with it. This is not a model that can be implemented by the private sector.

    It also needs municipal government support. Municipalities can assist through deferrals/waiving of development fees. If they have land resources, they can gift/grant sites to the non-profit or provide land at discounted rates. Most of all, municipalities can facilitate the development approval process for new projects and further the success of cost-effective housing solutions in their own communities.

    Options has done a great job of spreading the word about their model of housing development. We now need one or two demonstration projects in BC to refer to. Local best practices go a long way to getting local support and understanding for a new initiative.

  • verso

    2 years ago

    ...

    "It also needs municipal government support."

    Definitely.

    I also agree with those posters who would like to see a green component thrown in, like zero-energy.

    I love that the project forgoes the traditional marketing approach. I wonder how much cost those glossy ads in the dailies and Straight add to the cost of ownership in this market.

    I also wonder how projects like this would play with developers here, seeing how so much money is at stake.

    Kudos to The Tyee – great article, great series. Could you imagine a series like this in the Sun?

  • freebear

    2 years ago

    Gramine Bank of Housing

    Sounds very similar to the Gramine Bank idea-a good one!

    I would also say that municipalities should provide as transit sensible site as possible; it will assist the overall development pattern; and make being car fee possible for the lower incom buyers-no need for any parking stall/underground stall.

  • anarcho

    2 years ago

    This is a very positive

    This is a very positive proposal. I have long believed that housing for ordinary folks should be done by non-profits.

  • ted...

    2 years ago

    400-sqr ft. Dog-kennel ( affrodable & cheep )

    100k for 400-sqr feet .

    wages & construction costs keep going up...!

    soon it'll 300-sqr for same 100k ...

    ---- So , what happens when your
    neighbor's 13-year old, discover's music...?

    where do they practice an instrument,
    assigned to them at school ...?

    ( oh , at the resterant )

    --- you know ,

    what about cooking oder's and over-night guest's who snor ...?

    Or how air-born virus's get spread

    ----- ted...

    you know , the smaller they get
    the more it look's like a getto

    ie: a place for those who can't afford
    the bounties that Canada has to offer ...!

  • bentrider2010

    2 years ago

    Housing and transit - inextricably bound

    It's an interesting idea. Applied to Vancouver, however, it would more than likely be a recipe for urban sprawl. The cheap land in the lower mainland is in suburbs that are for all intents and purposes not served by public transportation. Most of Surrey, for instance is transit-free and completely car-dependent, unlike most of the GTA.

    If local governments in Vancouver were to donate expensive land below market cost, near where people work and near where transit works such an idea might work in Vancouver, if the project density were much higher than Toronto.

    The other thing that concerns me is that construction standards in Vancouver are different than Toronto. Vancouver developers are accustomed to throwing up shoddy junk that results in crushing special assessments to the suckers that bought it. Is there a construction company in Vancouver that would even know how to construct a residential building that does not start falling down the minute the strata council is formed?

  • dr evil

    2 years ago

    pyramid

    ALL ideas must flow down from the Great Leader.
    For instance..there was no Gang Problem in Vancouver until the Great Leader deemed it to be so.

    British Columbia has been so dumbed down...so dumbed down politically it is hard to know how to approach issues.

  • Rod Smelser

    2 years ago

    Surrey has the Skytrain, buses on the KGH

    bentrider2010
    It's an interesting idea. Applied to Vancouver, however, it would more than likely be a recipe for urban sprawl. The cheap land in the lower mainland is in suburbs that are for all intents and purposes not served by public transportation. Most of Surrey, for instance is transit-free and completely car-dependent, unlike most of the GTA.

    There is less transit in the suburbs, but less does not mean zero. Surrey has the southern end of the Skytrain line and there are regular buses running up and down the KGH as well as other major thoroughfares. Apartments near those routes could fill the requirements described by Labbe.

    And we'll see what Vancouver land prices are by December. As well, rezoning by the City around existing Skytrain/Canada Line stations would add to the supply of land for apartments.

    The real reason that doesn't happen is because Vancouver civic voters are opposed to any meaningful changes to density. They say it's because they're worried about the impact on the ambiance and character of their particular neighborhhood, and in some isolated instances that may be true.

    But the much greater fear is that a significant increase in density would indeed lead to lower land costs for new apartments, whether developed by cost cutters like Labbe or by any other condo developer. And that would mean that the tens of thousands of existing home/apartment owners would see a reduction in their land values and net worth, and a reduction in their non-taxable capital gain in their principal residence. This is the real, hard basis for the resistance to increased density in Vancouver.

  • f00bar

    2 years ago

    Interesting...

    This is an interesting scheme. But it's govt subsidised low-income housing, even if it doesn't look like it. Take the example given of the Toronto building where the city "deferred" $3m in developer fees. That was turned into $80k subsidies for 38 units. (Or, if you consider the $220k unit ends up costing the buyer $100k, that's $120k/unit).

    Now, some other market housing has to make up the $3m that this dev didn't pay. Or else it gets added to property taxes. Also, these buildings don't have any amenities, so the city will have to provide them, at taxpayer expense. It's hard to quantify how much that is.

    It certainly seems like it's more efficient than the way we pay for low-income housing here in Vancouver (where $2000/sq ft seems to be the going rate). But it's not going to solve the affordable housing problem for most people.

  • morechatter

    2 years ago

    Its Just More Talk

    I don't mean the concept and what is being done in Toronto as its great. But I know one thing for sure if the Liberals get in its all just that Talk. As there is no shortage of it as this subject has been a major topic since the Liberals took power. And after 8 years of talking and their commentment to putting people to the streets thats all its going to amount to is more talk and more homeless. Oh and maybe some more shelter beds and maybe the fixing up of a few of those run down hotels that are considered unsafe as major fire hazard and health hazard.

  • f00bar

    2 years ago

    Another piece of the puzzle

    Monte, one thing that you should consider in the lack of affordability of housing here, is the role that the Vancouver city planning dept plays.

    After all, they're the ones that encouraged developers to build tiny, expensive condos in the downtown core. It's their incredibly long and arduous planning/approval process that adds enormous costs to developments. They're the ones that extract really large development fees. They were asleep at the wheel while large parts of downtown got converted from commercial to residential space.

    We often hear how it's the people of Vancouver that don't want increased density, but it was the residents that put in suites for years before the city legalized them. Here's a case where people had to disobey the law to achieve both higher density and more affordable housing.

    I think you'd find plenty of support for laneway housing all across the city, but despite the planning dept's nominal support, they focus mostly on large tower blocks where residents don't want them (eg the Hills on Nanaimo, now cancelled).

    I would imagine if the planners let go of some of the control (see the insane bylaw restrictions on what a house is allowed to look like), the people of Vancouver would find ways to make housing more affordable.

    Imagine if the laws were changed so that you could put in a laneway home as long as all the residents on your block were ok with it. Neighbourhoods that are fine with that would sprout homes in no time, others would stay nice and distant. People would be free to have their own creative solutions to the problem.

  • Rod Smelser

    2 years ago

    How does Vancouver Planning Dept encourage micro-suites?

    f00bar
    "... is the role that the Vancouver city planning dept plays.

    After all, they're the ones that encouraged developers to build tiny, expensive condos in the downtown core."

    This wouldn't suprise me, but I don't understand how it works.

    AFAIK, the City sets total floor space and a building envelope, but I am not clear on how it selects the number and/or size of apartments within any given building, given its permissible volume.

    Do other municipalities like Burnaby, Richmond, North Vancouver (City or District) have the same approach?

  • realisticman

    2 years ago

    Interesting Idea

    Here's Jamie:

    http://www.chfcanada.coop/eng/pages2007/chfc_1_2007awards.asp

  • Rod Smelser

    2 years ago

    realisticman - WHAT'S THE POINT?

    So Richie got an award from CHMC. So what?

  • BC Mary

    2 years ago

    Wonderful concept

    Best wishes to those who decide to get with this program.

  • Tbarnston

    2 years ago

    Leaks and Longevity

    The cost cutting approach to construction under this model is going to lead to deficiencies in the product. Are these buildings going to be assets for the community over the long term, or are another round of working poor going to get saddled with shoddy, leaky condos? I bet on the latter scenario.

  • realisticman

    2 years ago

    Rodney

    "Options has licensed its systems to a little-known Vancouver non-profit called the Columbia Housing Advisory Association. The Tyee attempted to contact project co-ordinator Jamie Richie, but was informed he would be out of the country for months."

    As I said, this interesting and the writer left us wondering where the Vancouver license holder is; I had no interest in any award he has, I explained where he is.

  • BC Mary

    2 years ago

    Damn the adversarials ...

    Here we go ... opposites are formed ... the first blows are struck ... the partisan battle is joined ... and suddenly a brilliant idea hangs in the balance.

    This is so British Columbia.

    Me always right ... You always wrong

    Me good ... you bad

    Everything you say, I will denounce ... Jeez, Jeez.

    My thanks go to Realisticman for digging up the specific point that Jamie Richie is overseas on another excellent job assignment; that Jamie Richie is an ideal candidate for the job of directing the Options concept to be tried in Vancouver, and that the whole brilliant idea may yet become a reality ... if we let it.

    It's unfortunate that Tyee left the impression that Richie was goofing off and not returning a genuine call.

    But couldn't we all come together on such a grand concept as the $32,000. house ... with its ways of drawing the buyers into a human mix instead of a private-for-profit, hit-and-run cash deal?

  • f00bar

    2 years ago

    small condos

    Vancouver city planning encourages tiny boxes in two ways:
    - allowing smaller and smaller units to be build; and not requiring developers to include larger units
    - increasing developer fees as much as possible (to avoid increasing property taxes), while holding the FSR steady.

    The only way developers could make money under those conditions was to include as many units as possible in a building, each as small as possible.

    You can find a quote from Brent Toderian saying how wonderful planning policy is because the city (now) requires at least 1 third of condo units to be "family friendly". A 750sf ft 2 bedroom counts as family friendly....

  • G West

    2 years ago

    Question and speculation

    Vancouver is an aggressive, highly speculative and flip-oriented market.
    Labbé says:
    "We can work with any site where the owner of the land, whether government or private, is willing to tie up the land for a year and a half while we get ready to buy it..."

    Given the fact that the CEO government here, when it purchased several flea-bag hotels last year, had to do it behind a cloak of secrecy in order to hoodwink its own developer friends from bidding up the price, the first requirement for success of a plan like 'Options' is a change in the regulatory environment to keep the usual suspects from trying to subvert their efforts at the get-go.

  • BC Mary

    2 years ago

    Sorry: $230,000 house, not $30,000.

    Must've been wishful thinking ...

  • gglave

    2 years ago

    "Zero Energy" is Expensive

    @asp wrote:
    -------------------------
    The only change I would make would be to make all the buildings zero-energy. Adds maybe 5% to the cost
    -------------------------

    Making buildings 'zero energy' costs a lot more than an additional 5%. Tyee contributor James Glave outlines this well in his book "Almost Green."

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