The developer who wants to make Canadian housing affordable

Maimoona Mehmood and her husband, Syed Ali, have finally bought their first home, and you have to be happy for them and their three children. The Pakistani-born couple moved into their new two-bedroom unit in a Mississauga, Ontario, townhouse development in June, paying $279,000. They worked long and hard to save money, he as a dispatcher for a trucking firm and she earning $12.50 an hour at Pizza Pizza. And for the past six years, they made do with a $900-per-month basement apartment. "I looked at the ceiling a lot," says Mehmood.

Even so, like countless other Canadians in what seems to be the longest and strongest real estate boom ever, Mehmood and Ali had to stretch to buy. They put down just 5%. That kind of leverage worries federal Finance Minister Jim Flaherty and many analysts. Home prices in Toronto and other major cities are still at or near record highs, and so is average household debt. Is the boom a bubble, and is it about to go bust?

No one knows. In the meantime, people still want and need to buy homes. If they're going to crack the affordability nut, there are basically just two ways to do it: more housing supply and some form of financial help for buyers and/or developers. But Flaherty has tightened mortgage rules, interest rates have nowhere to go but up, and Ottawa and many provinces have long since retreated from the social housing business. Are there any other solutions?

Ask that of a unique home builder, the one that Mehmood and Ali bought from: Daniels Corp. It's run not by a central-casting developer but by a onetime social-housing activist and part-time musician, Mitchell Cohen. Daniels markets itself as a developer who looks out for the little guy, the one who embraces public-private partnerships like the revitalization of Toronto's massive Regent Park public housing project. Yet Daniels is also cashing in on the city's red-hot condo boom, building some flashy towers with small units that sell for $300,000, $400,000 or even more. Few builders give you a more complete perspective on the entire market.

Herewith, then, five tales of how Daniels and its buyers make the numbers work.

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Sureya Ibrahim, in her 30s

Kate Sellar, 35, and Ryan Fritsch, 35

Ibrahim, an Ethiopian-born single mother of three children, lives in a shiny new three-bedroom brick-and-glass townhouse in the first phase of the redevelopment of the infamous Regent Park neighbourhood. Sellar, her husband, Fritsch, and their two-year-old son, Jay, live in a townhouse on the next block. You'd be hard-pressed to see any differences between the two. But Ibrahim's unit is owned by the city's social-housing agency, the Toronto Community Housing Corp. (TCHC), and her rent is geared to her income—she pays about $900 a month. Sellar and Fritsch, both lawyers for agencies of the Ontario government, bought their townhouse for $605,000 this past June. Even at a modest 2.9% mortgage rate, their monthly payment is close to $3,000. Does either family think there's anything wrong with that disparity? Nope. "This is what makes the neighbourhood," says Ibrahim. Sellar and Fritsch agree. "If this were just a gentrification or a land grab, we wouldn't have been interested," he says.

The original Regent Park, built in the late 1940s and 1950s, sprawled across 69 acres downtown: the biggest and most ambitious public housing development in Canada. Daniels is now seven years into a $1-billion, 20-year rebuild that aims to replace all 2,083 subsidized housing units, and add more than 5,000 condo and townhouse units to be sold at market prices. The revitalization is a sweeping attempt to correct the failures of the old Regent Park. That incarnation was based on the "garden city" model of public housing—apartment blocks separated from one another by suburban-like lawns, and closed off to traffic from the rest of the city. But that design was problematic. Emergency vehicles couldn't easily get in. At night the area was full of dark enclaves, with few pedestrians or people sitting on porches—what Jane Jacobs called a neighbourhood's "eyes on the street."

Regent Park was closed off economically, too, since all units were for low-income tenants, and there were no shops. In the 1970s, the place became notorious as a haven for gangs. After Ibrahim moved into a two-bedroom apartment in 1997, she says friends from outside the neighbourhood said, "You have kids. What's wrong with you?"

When Toronto began consultations on the revitalization in the early 2000s, residents agreed that it wouldn't work unless there was a mix of incomes, and of social and market housing. Using that strategy, the city had successfully built the St. Lawrence Neighbourhood. The mix was necessary for financial reasons, too. TCHC had committed about $600 million to the new Regent Park, but that wouldn't cover the whole cost. A builder would have to be able to earn a profit.

Daniels was chosen as the developer in 2006—no surprise, since it would be hard to find one more adept at working both government and corporate contacts. The neighbourhood is being rebuilt in five phases. Everyone agreed that the area needed retailers, and Cohen says that it was vital to attract Tim Hortons, RBC, Sobeys and others into the first phase, since they would draw in condo buyers and other businesses. The area also needed more recreational facilities, so Daniels has built the $38-million Daniels Spectrum arts complex. Ottawa and Ontario each contributed $12 million, and more than 100 corporate and private donors supplied the rest. Next up: a new soccer field and athletic centre.

Those venues help Daniels sell condos, too. Buyers love having the amenities nearby, and it means they don't need pools and gyms in their own buildings, which would inflate maintenance fees.

Even Ibrahim has benefited from corporate largesse. She now is an engagement worker at the Community Centre for Learning and Development, an agency in the Daniels Centre of Learning, which is partially funded by the TCHC, but also by Daniels. "Other people would just make money and not care how the community grows," she says.

Sellar and Fritsch are unabashed left-wingers, but they're living in Regent Park for more than idealistic reasons. They married in 2007, and began searching for a home to buy in late 2009. "The bidding wars were insane," says Sellar. Fritsch says that they first looked at the redevelopment "more or less to gawk," but liked what they saw. The first phase was nearly complete, so they wouldn't have to wait years for construction, as with a typical condo project. Regent Park is within walking distance of their offices, as well as downtown attractions such as St. Lawrence Market. There were two new daycare centres slated for the neighbourhood. And because a lot of people in Toronto were wary of the area, it looked like a bargain. The couple bought a large two-bedroom condo in March, 2010, for a modest $360,000. "I saw it as a stigma discount," says Fritsch.

This past June, the couple sold the condo for $395,000 and bought their townhouse. "We doubled down," says Sellar. One attraction is that the townhouse is new—no structural flaws, decrepit wiring or any of the other headaches that they might find in an older house. Regent Park also seems to have passed the tipping point between scary and hip, and prices have surged. In April, TCHC applied for permission to boost density in the next three phases—raising the height of proposed condo towers and adding almost 2,000 more market units.

But the process of tearing down the old Regent Park, relocating residents to other TCHC buildings nearby, then moving them back into new units, is time-consuming; only half of the residents are in newly built homes. Does the grand tradeoff between profit and purpose seem just to Sellar and Fritsch? "In a perfect world, social housing would be appropriately funded by the government," says Sellar. "But somebody has to provide the capital to support it around here."

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Mark Demian, 24, and Aylar Jalilpour, 25

For young first-time buyers who want to live near their jobs downtown, a detached house, or even an old row house or semi, is out of the question in Toronto, even if they can afford to pay more than $300,000. For that kind of money, say hello to a one-bedroom condo—and a small one at that.

In September, Demian and Jalilpour got the keys to their unit in Daniels's new Cinema Tower, next to the TIFF Bell Lightbox and the 46-storey residential tower that rises from it. Opened in September, 2010, the Lightbox is the headquarters of the Toronto International Film Festival. With its five cinemas and other attractions, it is the hub of the Entertainment District, a dense mix of posh condos, restaurants and nightclubs that have replaced warehouses and parking lots over the past decade. In the Cinema Tower, suite models are named after movie directors: "Ours is called the Scorsese, I think," says Jalilpour.

It's hardly glamorous, though—an open kitchen and living/dining room, bedroom and bathroom packed into 585 square feet, plus a small balcony. Price: $380,000. In any case, TIFF hype had less to do with the couple's purchase than practical factors. They're getting married in January. They both work downtown—Jalilpour in Toronto's children's services department and Demian in IT with Ticketmaster—but still live with their parents in the suburbs. "I'm tired of the commuting," says Jalilpour. "It can be four hours a day."

They were players in the condo market previously. In 2011, as an investment, they signed up to buy a two-bedroom unit in Richmond Hill, north of Toronto, for $435,000. They're still scheduled to close—in June, 2016.

Depending on how you assess the couple's finances, the fact that they are on the hook for two condos might scare the heck out of Jim Flaherty, or put a smile on his face. Flaherty has been worried about overheated real estate markets and ballooning household debt for years, which is why he tightened mortgage insurance rules effective July, 2012.

Demian and Jalilpour put a fat 20% down on the Richmond Hill condo, and they've put 5% down on the Cinema Tower unit. That's a total of almost $100,000. How did they get the money? The old-fashioned way: They saved it. They both stayed at home with their parents during college, and they watch expenses carefully. "It taught us a lot of discipline—budget, budget, budget," says Demian.

For the moment, they aren't too worried about owning two units. Their monthly mortgage payments downtown are $1,900, but payments on the Richmond Hill unit won't start until the close date. The couple don't think they'll have trouble selling it by then. As for the Cinema Tower unit, they figure it will at least hold its value, even if the market cools. "There are a lot of young professionals like us moving downtown," says Jalilpour.

In the meantime, they'll keep watching expenses. "We're looking at buying a bed, an L-shaped couch and a big-screen TV, and that's it," says Demian. There won't be room for much else.

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Edna Manlangit, 59, and Rue Quizon, 25

Like a lot of big North American cities, Toronto has many 1950s and 1960s suburbs filled with modest-sized houses sitting on big lots. But as the city has sprawled past them, those houses have become far too expensive for middle-class buyers. Yet many of those buyers would be happy with apartments in those neighbourhoods, especially if they are near transit, stores and other services. The simple supply-and-demand solution is density—let a developer tear down a block or two and build high-rises.

Of the condo projects shooting up in midtown Toronto, one of the biggest and most architecturally startling is NY Towers. Six spired 28- and 20-storey towers (named Chrysler, Waldorf and so on) are surrounded by several low-rises. Daniels didn't design the development, but when the original builder ran into trouble early on, in 1999, Cohen saw several positives. One was that he thought he could realize economies of scale. Another was an upscale shopping mall across the street. And a station on the proposed Sheppard subway line was scheduled to open near the site in 2002. Many people scoffed at that extension as a white elephant. But a decade later, it's doing its job—attracting more housing and businesses.

The downtowner's cliché of the suburbs is that they're parochial and white-bread. But people like Manlangit and her daughter, Quizon, belie that notion. Manlangit, born in the Philippines, has worked all over the world, in recent years in procurement at the U.S. consulate in Toronto. After spending most of the past eight years in Ottawa studying and working on Parliament Hill, Quizon now works, like her mother, in downtown Toronto. Both mother and daughter travel widely on vacation.

For all that urban worldliness, Manlangit and Quizon both liked their apartment in Richmond Hill—it was quiet, and next to a supermarket and a commuter rail and bus station. But in recent years, it was taking far too long to get downtown.

NY Towers looked attractive to Manlangit, but she didn't have the down payment for the unit she wanted. So she enrolled in a Daniels rent-to-own program, and moved into a one-bedroom-plus-den unit. The program gave her credits that could be allocated toward a down payment. This past May, she bought a one-bedroom unit with a den for $330,000. She put down $50,000, of which $8,000 came from the rent-to-own credits; she borrowed $25,000 from her RSP.

The biggest attraction? "It's in the middle of everything: cinemas, shopping malls—it's all very accessible," says

Manlangit. She and Quizon think the unit will hold its value. The neighbourhood is desirable, and Toronto is becoming "a world city," says Quizon. Prices at some new downtown developments near her office are nearly double what they are at NY Towers. "Who can afford to live there?"

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Jason Keddy, 40

Families go through stages—marriage, children, divorce, illness. Sometimes those changes compel people to move into, or stay in, an expensive city. Is there a way to lower their costs?

Keddy found himself in a squeeze in the summer of 2012. He's used to wheeling and dealing—he's bought and sold six houses since the mid-1990s. He'd bought a house in Mississauga in 2010, but then sold it in early 2012, figuring it would be easy to afford the next one. The sale was due to close that July, but he was blindsided on June 21 by Jim Flaherty's announcement tightening federal mortgage rules. Prices took off. "The market went crazy," he says. "Houses would go up for sale one day and be sold the next."

Keddy, a manager with the Ontario government, has specific housing needs. Divorced, he needed room for his two children, who spend half their time with him. Under his wing he also has his brother, who suffers from cerebral palsy and schizophrenia; he needs to be near doctors and laboratories in Mississauga.

So Keddy was looking for something with four bedrooms, or three bedrooms and a den. A detached home was beyond his price range, so he figured a townhouse would be a good bet. But "it's hard to find a three-bedroom, let alone a four-," he says. Ditto for a high-rise condominium—"unless it's a $3-million penthouse," he says. As a stopgap, he rented a three-bedroom townhouse in a Daniels subdivision in July.

Two months later, he noticed a four-storey apartment block in the subdivision; it had a unit with three bedrooms plus a den. At $400,000 it wasn't a steal, but it was definitely affordable. He put 5% down last November and took possession in January. His monthly mortgage payment, including insurance, is about $1,900. The building has no pool or other fancy amenities, so the maintenance fee is just $210. "Some condo buildings in Mississauga that include cable, water, hydro, pools, et cetera, charge $800," he says.

Another key money-saver: The mid-rise is of wood-frame construction. Cohen says this can save up to $80 per square foot compared to the metal-reinforced concrete used in high-rises. For a 700-square-foot apartment, that's a $56,000 saving. If land prices in the Toronto area stay high, he and other industry executives say that wood-frame is the way of the future, particularly in dense suburban townhouse and low-rise complexes, and in urban infill projects. Helpfully, new building codes are about to take effect in Ontario that will increase the maximum allowable height for wood-frame buildings from four storeys to six.

Keddy looks around the Toronto area and figures the pressure of population on land isn't going to ease any time soon. "It's just going to be one built-up city," he says.

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Syed Ali, 37, and Maimoona Mehmood, 34

After six years of living in a Brampton basement apartment, Ali and Mehmood were frustrated. Their three kids, aged 4 to 8, were growing up and the couple wanted to move to a better neighbourhood. "I like Mississauga because our community is here—there are lots of people from back home. The mosque is here. The school is very good," says Mehmood. And although Ali is cautious by nature, waiting to buy wasn't paying off. "Friends of ours bought a three-bedroom townhouse for $260,000 seven years ago," says Mehmood. "It probably costs $330,000 now."

Through friends, the couple heard about Daniels's so-called FirstHome communities of townhouses and low-rises. These projects give first-timers help with financing. The company offers graduated deposits—say, $2,500 to start, another $2,500 10 days after you sign a purchase agreement, and another $1,000 a month until you reach a 5% down payment.

Unlike most developers, Daniels doesn't sell these places through floor plans or a few model homes; it builds the entire subdivision first. "There's no customization," says Cohen. "Having 15 different tiles, 20 different kitchens, whatever, is really complicated. Contractors give us a phenomenal price because they can get in and out quickly."

The approach not only saves money, it is also a powerful marketing strategy. Buyers can actually see their unit, and they don't have to wait months or years to move in. They usually line up weeks in advance of the sales launch date, and the developments tend to sell out immediately.

Ali and Mehmood "lined up" for three weeks at Daniels's Hazelton Place Phase Two development in May. They were No. 17 in line, coming back for roll calls two or three times a day. They bought a modest two-bedroom for $279,000. Hazelton looks like a collection of three-storey row houses, but the buildings are actually divided into units of various sizes. Mehmood would have liked one of the "big houses with a garage." But the couple settled for a one-floor unit with a parking spot.

Ali and Mehmood have a 2.9% mortgage that costs them about $1,500 a month. "We wanted a house we could afford any time, whether the market goes up or down," says Mehmood. "You have to start small and think big."

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One part Cadillac Fairview, one part hippie co-op: the Daniels Corp. hybrid

An hour with Mitchell Cohen is like a free-ranging seminar on cultural studies with a retro-hipster professor. For the president of Daniels Corp., the redevelopment of Toronto's Regent Park social-housing project is a springboard for extemporizing about local quilt makers, organic gardens, the kids' dance troupes and music schools now headquartered in the gleaming new Daniels Spectrum, and plans for new athletic grounds, sponsored by Maple Leaf Sports & Entertainment. Investments in culture and athletics, he says, "are changing perceptions" about a place once regarded as slummy.

But there's a business case for those investments, too. They help make a subdivision a destination neighbourhood, and they enhance Daniels Corp.'s reputation as a genuinely socially conscious builder. "We've established a persona in the marketplace," says Cohen.

The company was founded by John H. (Jack) Daniels, the respected Polish-born architect who led developer Cadillac Fairview during its glory days in the 1960s and 1970s, but who was eased out in 1982.

Daniels and Cohen first met briefly in 1982, to discuss a seniors housing development in Toronto. Cohen, with degrees in psychology from McGill and the London School of Economics, had a long track record helping community groups in Toronto and Montreal finance and build co-op housing. An avid guitarist and pianist, he was writing and producing jazz and R&B songs on the side.

After Brian Mulroney's Conservatives were elected and pulled out of social housing, Cohen got in touch with Daniels again, essentially looking for a job.

Daniels had bought a parcel of land in Mississauga to build townhomes. He was willing to indulge Cohen's social conscience on the site if he could also generate a profit. "Jack is really quick on his feet. He understands that real estate is up and down and all around. You have to be flexible and think outside the box," says Cohen. He built the project to then-new R-2000 federal insulation standards, and it sold like hotcakes. Daniels, who is now in his mid-80s, and still chairman and CEO, has been happy to let Cohen run the company ever since.

Even though Mulroney got Ottawa out of social housing, Ontario's Liberal and New Democrat governments kept at it. In 1995, however, the fiercely right-wing Mike Harris Tories were elected. "Literally the morning after the election, they terminated all social housing programs," says Cohen. "It was 60% of our business at that point."

Cohen soon rebounded. Seniors housing looked promising, and he struck up an alliance with Amica Mature Lifestyles that has produced 13 retirement homes and seniors condo projects in Southern Ontario.

Tapping Cohen's social-housing roots, Daniels also launched several initiatives in the early 2000s to help low-income and first-time buyers. One was rent-to-own buildings called Gateway Rental Communities. Under this approach, a portion of a tenant's monthly rent earns them credits that can be used toward a down payment on any Daniels home. Another was the company's FirstHome developments, which are based on a bold strategy: prebuilding.

It took a while to persuade lenders to allow prebuilding. After a condo bubble and bust in the early 1980s, banks and governments required developers to sell at least 65% of a project in advance before they could break ground. That ensured that they could pay off the construction loan.

Daniels told lenders that it was prepared to hang on to any unsold units itself and rent them out. In a perennially tight rental market like Toronto, that pretty much guarantees an income stream big enough to carry any remaining debt, even if sales are slow. "There's the real magic," says Cohen.

The risks of the prebuilding approach became apparent when the Toronto condo market froze up during the 2008-2009 financial crisis. Daniels was building the first phase of Regent Park when world markets dived in September, 2008. The first condo building was completely unsold. "That was a difficult moment," Cohen says drily.

To spark sales, Daniels offered so-called Inner Circle early-purchase opportunities to its own employees, TCHC employees and other supporters of the project.

That's a standard condo marketing gimmick, and anyone could have got on the list for $250. But the offer provided a reminder that social housing is still a political hot button; it sparked a furor reminiscent of the one that arose when the late Jack Layton and Olivia Chow lived in a co-op.

Among those who took up the Inner Circle offer was a city councillor of the NDP persuasion, Pam McConnell. Daniels began selling the units in May, 2009, and McConnell bought a two-bedroom unit for $400,000-plus—in part to demonstrate her faith in the project. Cohen himself bought two units as an investment, and to show confidence in the project. But by early 2012, those units had shot up in value. The Toronto Sun's scrappy city hall columnist (and former provincial Conservative candidate), Sue-Ann Levy, complained that insiders had got a "suite deal," and asked, "Where have all the poor people gone?" The TCHC asked former judge Patrick LeSage to investigate. LeSage reported that there was nothing improper. "Daniels was prepared to take a risk and has done more than required," he concluded. "In my view, TCHC and Daniels may be proud of their accomplishment."

So, for now, the politics have quieted. But what will happen to the revitalization and the rest of Daniels's business if the market plunges? "Do I see a bubble that's about to burst? No, I don't," says Cohen. But even if he's wrong, there will be plenty to do. "People stretch to become owners, they work hard to become owners," he says—in any market.