Propolis Housing Cooperative is partnering with Tapestry Community Capital, a non-profit investment organization, to fundraise through community bonds: investments typically bought by, and returning profits to, local residents. “They can be such a great solution for people to know that they’re having an impact with their investment, helping to build the affordable housing that we so desperately need – and they get a financial return on their investment at the same time,” Propolis director Lindsay Harris tells The Energy Mix.

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But what makes this development – which includes 12 deeply affordable apartments to be operated by a local non-profit – unusual is that it is hooked into a geo-exchange system. That means it is tapping the earth’s heat, rather than conventional gas-fired boilers, to warm and cool the building’s interior spaces. 

According to Adam Molson, vice-president of the Daniels Corporation, the project’s developer, Uniti is one of the first completed projects in the company’s 2030 decarbonization strategy, which begins with geo-exchange systems or air-source heat pumps in all its new rental projects, followed by the use of low-carbon concrete, efficiency improvements in the building’s exterior walls, rooftop solar and mass timber. 

“We broke the ice and got over the fear factor,” Molson says of the geo-exchange system. “That essentially opened the floodgates to us being able to move to geothermal as our default heating system. Unless there are site-specific reasons to pursue another technology, which there may be, we’re not using natural-gas space heating anymore.” 

The one-two punch of the climate crisis driving up utility bills in buildings that already generate 40% of global carbon emissions, while the housing crisis leaves few affordable rental options, puts units like the ones in Uniti in high demand. 

Across North America, rental units represent roughly one-third of dwellings, and steep rent hikes in many metropolitan areas have added enormous strain to those household budgets. A March 2024 research report for Canada’s Task Force for Housing and Climate recommended that purpose-built rentals account for 35% to 40% of all new starts for the balance of the decade. 

With condos, there’s little incentive for developers to invest in low-carbon systems because the benefits don’t accrue to the developers, whose goal is to sell off the units as quickly as possible, nor their investors – that is, the people who buy condos and rent them out, and thus pass on the utility costs to their tenants. But the math works quite differently for an asset manager that’s going to own and operate an apartment building for decades, especially if their institutional investors have explicit ESG (environmental, social and governance) targets, including emission reductions, as is the case with Choice Properties, the real estate investment trust that partnered with Daniels to build Uniti. What’s more, geo-exchange infrastructure, which remains costly to build and install, is ideal for larger buildings that can create the economies of scale necessary to deliver those lower operating costs over the long term. When the planets align, the sustainability investments yield meaningful emission reductions and a payoff for the owner. 

Investors are shopping for rental buildings

In fact, there’s good evidence in both Canada and the United States that investment capital is now flowing into rental apartments at a pace not seen in decades. There are various reasons for the shift, including the high interest rates of recent years that have scared off condo buyers, as well as the fact that all forms of housing, including condos, have become so expensive that most people are completely priced out of the market. 

While the market transition toward purpose-built rentals may bring about more lower-carbon housing because landlords have a financial incentive to minimize energy costs, the change isn’t sufficient to guarantee a payoff that is both green and affordable, nor does this trend assure a supply of affordable rentals. Deep retrofits of drafty older rental stock remain financially daunting, especially for affordable housing providers. Some landlords have struggled to comply with strict decarbonization regulations cropping up in jurisdictions like British Columbia and California, among them building code requirements to “fuel switch” (i.e., from gas to electricity), slash carbon embodied in building materials (e.g., by constructing with mass timber to reduce concrete) or add battery storage systems. 

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Others, meanwhile, have resorted to greenwashing, touting essentially cosmetic environmental improvements in their buildings as a way of justifying rent hikes and displacing low-income tenants. Case in point: a rental high-rise in northwest Toronto, where tenants last year staged a rent strike, accusing the owners of using an energy retrofit renovation to justify above-guideline rent increases of as much as 7% to 10% (Ontario landlords are permitted to increase rents by no more than 2.5% per year but can apply for more if they’ve renovated the building significantly). “This year, my rent went up from $2,100 to almost $2,400 per month,” one tenant told The National Observer. “I don’t know any tenants in Ontario right now who are getting a 10% increase in their income every year, including myself.” (The landlord, Dream Unlimited, disputed the accusations.)

Indeed, as tenant advocacy groups point out, there’s no guarantee that the benefits from energy-efficiency improvements – everything from installing new appliances to replacing drafty windows or baseboard heaters – will trickle down to renters in the form of lower rental rates or reduced energy bills. “We do believe that in many ways, tenants and landlords have differing interests,” says Eddy Roué, chair of the Central Ottawa chapter of ACORN (Association of Community Organizations for Reform Now), a tenants’ advocacy union that recently launched an “eco-tenant” platform for its membership. “But when it comes to things like energy efficiency, this can absolutely be a win-win scenario.” The wrinkle, he adds, is finding the right way to pressure property managers to make the investments. 

Roué cites ACORN’s advocacy strategy, which includes calling for reforms such as anti-eviction covenants on publicly subsidized retrofit projects, free heat pumps for low-income tenants, and a requirement that landlords “demonstrate that the retrofits will result in benefits for tenants, particularly in cases where the landlord pays the energy costs.”

What it takes to green a retrofit

Retrofits on older rental apartments are capital-intensive because they involve the transplant of vital organs – from mechanical HVAC systems to insulation, windows and exterior cladding – in structures filled with tenants. Many property managers will stage these retrofits over a longer period, replacing the various elements only when they’ve reached the end of their usable life. Some cleantech start-ups are also developing approaches to take some of the pain out of retrofits, such as New York–based Hydronic Shell Technologies, which is developing a concept for exterior facade panels that incorporate heat pumps. 

The question confronting policy-makers is how to accelerate this transition. 

Certain jurisdictions have made energy retrofits mandatory. New York City, for example, enacted Local Law 97, which requires landlords of large buildings, many of them rentals that use carbon-intensive heating oil, to meet emission targets or face stiff fines. Some New York landlords have also experimented with so-called green leases, which are structured so that the property manager and tenants share the upfront capital costs for retrofits while also dividing up the savings from lower utility bills. 

Other governments have opted for carrots instead of sticks. The State of Massachusetts last year established a Community Climate Bank to fund low-carbon projects aimed at affordable rental housing agencies. The Canadian government, in turn, has begun offering loans for purpose-built rental development and retrofit projects in multi-family buildings.

It can sometimes just be cheaper to knock down a building rather than retrofit it. It’s hugely destructive and very environmentally unfriendly.

—Tom Wainwright, London’s Royal Holloway University

Yet some places have seen backsliding from earlier efforts to decarbonize rental housing, including housing targeted at low-income households. Before the election of a Labour government in the United Kingdom last summer, initiatives to backstop energy-efficiency programs targeting private rental housing were either stalled or cancelled. 

Real estate expert Tom Wainwright, a professor of strategy and entrepreneurship at London’s Royal Holloway University, also points to unresolved policy contradictions. In the U.K., rental housing developers no longer pay value-added taxes on their projects. However, there’s no such exemption for retrofits, which creates a perverse incentive for landlords, including the removal of existing apartments from the market. “It can sometimes just be cheaper to knock down a building rather than retrofit it,” Wainwright observes. “When you think about all the embodied carbon in the concrete that gets knocked down or landfilled and doesn’t get recycled, it’s hugely destructive and very environmentally unfriendly.” 

Even in climate- and rental-friendly jurisdictions, like Germany, the payback on energy retrofits is difficult to realize. As a 2022 University of Regensburg study found, landlords couldn’t expect to recoup their investment by charging a “green premium” for retrofitted rental units, even after the government kicked in some of the carbon levy as an incentive. 

Scaling low-carbon rentals

The prospect of building new low-carbon rental projects involves far fewer obstacles and has attracted the attention of not just policy-makers and investors, but also innovative designers eager to push well beyond the familiar green benchmarks, like LEED certification.

Shawn Lapointe, a principal with Vancouver-based Henriquez Partners Architects (HPA), describes one such initiative the firm has created with developer Westbank, dubbed Prototype. It’s an attempt to determine an optimal design for a 25-storey mass timber building in Vancouver (that will use some steel) while minimizing cement-hungry underground parking and exterior windows (floor-to-ceiling “glass curtain walls” being incredibly inefficient). They’re also folding in plans for a connection to a local district-energy utility. (District-energy systems distribute low-emission forms of energy such as deep lake water for cooling or recovered sewer gas to run boilers to generate steam for heat.) Prototype, moreover, will be entirely rental, with 20% of the units set at below-market rates and a third suitable for families with children. The project is located on a transit corridor in Vancouver where the city is encouraging rental development by offering density bonuses to builders willing to forgo the condo model.  

What’s more, the design is intended to be portable, meaning that all of HPA’s calculations can be put to use in other locations. “We wanted to make sure that what we’ve developed works for a variety of different sites and conditions, so it can be as replicable as possible,” says Lapointe, who is overseeing Westbank’s Mirvish Village development in downtown Toronto. “We’re also hoping to be able to share that information with others.”

As he looks at Daniels Corporation’s project pipeline, Adam Molson reckons that the current policy and investment climate favours low-carbon purpose-built rentals. With governments scrambling to meet public outcry over the lack of affordable housing, the public policy environment has become highly receptive, with grant programs and tax credits meant to assist both affordable rental and previously unattainable carbon-reducing features, such as geothermal heating. 

There is one storm cloud in Canada, however: natural gas prices, which are now high enough to make the math work on the geo-exchange infrastructure planned for future Daniels/Choice rental projects. But if a future Conservative government slashes or eliminates Canada’s carbon-pricing system, all bets are off. “Right now, you have a payback that might be 10 to 15 years,” Molson says. Without carbon pricing to prime the pump of sustainable rental housing, “you could have a payback that’s well in excess of that, and maybe no longer under-writeable on a purely economic case.”

In that case, it’s hard to imagine that the much-touted financial benefits of “axing the tax” will trickle down to renters living in all those gas-heated buildings. Either way, sky-high rents and energy-inefficient apartments are a burden millennials and Gen Z simply should no longer tolerate.

John Lorinc is a journalist and author specializing in urban issues, business and culture. 

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These sites represent the beginning of a concerted drive by the City of Toronto to develop thousands of units of affordable rental apartments on publicly owned land – a program known as Housing Now that grew from a campaign pledge by Mayor John Tory to build 10,000 residential units on 11 swaths of vacant municipal land, including 3,700 that will be designated “deeply affordable.”

In many European cities, large segments of the population live in rental buildings that sit on public land. Indeed, the so-called Vienna model – a system for building affordable rental apartments on public land that goes back to the 1920s and is lauded for its accessibility – offers compelling proof that quality urban housing isn’t just the product of market forces.

Toronto’s plan has echoes of the Vienna model. The city will leverage its own real estate to attract apartment developers, both for-profit firms and non-profits. But they must be willing to sign on to unusual terms: the city will offer builders prime locations, financial incentives (reduced development charges, for instance) and 99-year lease agreements instead of outright land sales, as normally happens when public land is redeveloped. The quid pro quo is that property managers must guarantee affordable rents for a century. The builders that win the right to develop these first four sites will be made public this spring. CreateTO, the city agency responsible for these projects, expects construction to begin by late 2020 and will soon make other sites available.

While city officials are attaching all sorts of planning conditions to these deals, one in particular stands out: they must satisfy a set of demanding environmental performance benchmarks set out in the 2018 version of the “Toronto Green Standard” (TGS), which lays out the sustainable design requirements for new private and city-owned developments. That should translate into features such as better-insulated walls, less exterior window space, improved heating and ventilation systems and other measures meant to reduce a building’s carbon footprint.

“It’s important that if we have an environmental emergency and we have a homelessness and housing crisis, there’s a way to leverage these sites and [address] both,” says Mark Richardson, spokesperson for HousingNowTO, an advocacy group tracking the rollout of the program.

“The upfront costs may be high for creating more sustainable buildings, but in the long term, the operating costs will be lower.”

Forking out for sustainable affordable housing

Like a growing number of cities, Toronto last fall declared a climate emergency and is developing an ambitious plan to slash building-related emissions by 65% (from 1990 levels) over the next decade. But given mounting public concern about escalating real estate, condo and rental costs, it’s also clear that sustainably designed affordable housing projects, such as those envisioned for the Housing Now sites, have become increasingly critical in meeting the city’s climate and social-inclusion goals.

“Climate change and housing affordability are the two most difficult challenges facing communities and the country,” says Jake Stacey, vice-president of impact banking at Vancity Community Investment Bank (VCIB), which is launching a “green commercial mortgage” this spring to finance projects that combine both objectives.

Older buildings will also have to pull their weight. Hundreds of slab apartment towers constructed in the 1960s and ’70s will require deep energy retrofits (new windows, insulation, LED lights, airtight building envelopes, high-efficiency mechanical systems, etc.) to meet council’s carbon reduction targets. But in the past, financing for such undertakings was elusive. Some of the capital costs can be recouped by reductions in operating costs related to energy efficiency retrofits, but property owners need other sources of financing if they hope to make these fixes without hiking rents.

At various times, public funding programs have helped make the math work, but mostly on the margins. Case in point: since 2000, the Federation of Canadian Municipalities’ Green Municipal Fund has provided $5.1 million in grants and $31.3 million in loans to a handful of social housing complexes looking to cut emissions.

The Atmospheric Fund (TAF) has provided $10 million in financing for 22 energy-efficiency retrofit projects around the Greater Toronto Area, mostly older apartments, using a profit-sharing formula that sees TAF finance the capital expenditures and keep about 90% of the energy savings. The organization invests from an endowment established by the City of Toronto in the 1990s.

There are also a few sources of private sector financing. VCIB’s lending program has underwritten more than 1,200 rooftop solar and geothermal energy projects for residential buildings. The bank also recently acquired CoPower, which sells green bonds that have financed about 400 energy-efficiency retrofits. VCIB’s commercial green mortgages, says Stacey, will allow property owners to borrow against long-term value growth created in their buildings by energy-efficiency capital upgrades, such as tighter building envelopes, new mechanical systems and LED lighting conversion projects.

Yet new public dollars will likely deliver most of the needed investment. This spring, Ottawa will begin flowing about $300 million from a 2019 federal budget commitment for a sustainable affordable housing program. Toronto Community Housing will receive $1.3 billion from the $55 billion National Housing Strategy for overdue repairs to its portfolio, with a portion of those funds earmarked for energy retrofits. A further $300 million from the federal government will help municipalities offer retrofit financing for low-rise homes, and it seems likely that governments will add even more to these pots of funding to counter the recessionary impact of the coronavirus pandemic.

The Housing Now philosophy offers a variation on the theme. The city is aiming to entice developers by leasing prime land and providing breaks on development charges and property taxes in exchange for more sustainably designed projects.
This latest version of the TGS, according to one city estimate, will add about 3.5% to overall construction costs. Yet advocates say that such buildings in the long run are financially attractive because they slash energy expen-ses over decades. They also tend to be better constructed, meaning they require less age-related maintenance.

As it turns out, the implicit formula – additional upfront investment in sustainable design in anticipation of lower long-term operating and maintenance costs – is exceptionally well suited to companies and non-profits that own multi-unit residential buildings and don’t intend to sell them any time soon. Yet it remains to be seen how hard Toronto officials will push the Housing Now developers to maximize the sustainability features of their plans. Richardson says CreateTO’s evaluation rubric doesn’t assign enough weight to the green design aspects of the proposals submitted by the development groups vying to build on these four pieces of land. In late February, CreateTO spokesperson Susan O’Neill said it was too soon to comment.

Greening building codes

For many years, sustainable-design activists, especially in North America, complained that building codes were far too lenient and set minimum standards that allowed developers to erect structures that leaked energy in the form of heat. Many of the condo towers that have sprung up in Toronto in recent years fit the critique. Their perfunctory concrete balconies jettison heat, while the wall-sized windows are so cheaply made and shoddily installed that they either radiate cold or transform small apartments into convection ovens, depending on the season and time of day.

Voluntary green building certifications such as the Leadership in Energy and Environmental Design (LEED) system have historically been taken up by only a small percentage of builders. (Since 2004, only 4,350 buildings have been LEED certified in Canada, according to the Canada Green Building Council, which oversees the certification process. To put that figure in context, the country erected nearly 20,000 new buildings in December 2019 alone.) In the meantime, other, less demanding, voluntary standards have come on the market, such as Energy Star, which rates residential dwellings for energy efficiency.

But in the past decade or so, provincial governments in Ontario and BC have revised their building codes to make them more demanding in terms of energy efficiency and performance. Vancouver and Toronto have gone even further with their own municipal codes, joining a growing cohort of cities pushing to achieve or surpass 80% reductions in carbon emissions by 2050.

The TGS aspires to ensure that all new buildings will attain “near zero” emissions by 2030. The code offers builders more stringent voluntary features and then sets out an aggressive timetable for making those optional elements mandatory – a system known as a “step code.” One such change in Toronto’s green building standard: much tougher rules for the so-called wall-to-window ratio, a shift that will effectively end the practice of building towers clad almost entirely in glass.

According to Lisa King, the senior policy planner who oversees the TGS, the 2018 rules have attracted all sorts of builders interested in developing projects that satisfy the code’s tougher voluntary requirements. “What’s exciting, under [the newest version], which is difficult [to satisfy] because it has absolute targets, is that we’re seeing a quick adjustment in the market.” She says numerous proposals have come in from firms developing smaller commercial or office buildings as well as rental buildings.

Passive houses pass on cost savings

One public agency has decided to aim even higher. Toronto Community Housing Corporation (TCHC) has embarked on an ambitious plan to build 21 townhouses in Alexandra Park, a downtown affordable-housing complex, that meet the most demanding voluntary targets in the TGS – a set of benchmarks that are virtually the same as “passive house,” a German certification method associated with draft-free structures that have, among other things, thickly insulated walls, state-of-the-art windows and extremely low energy bills.

After an unusual competitive bidding process was completed last year, a consortium led by Tridel and Diamond Schmitt Architects won the contract, estimated to be worth about $10 million. The tender process was out of the ordinary because the two finalists had to present their plans to community members, who voted on the one they wanted.
TCHC architect Michael Lam, who will be the senior construction manager, says the project will be the first of its kind in Greater Toronto.

While residential passive-house developments, both for-profit and non-profit, have gone up in Vancouver, Ottawa and Hamilton, none have been completed in Toronto. “We don’t have a lot of experience with this,” Lam says.

Officials with TCHC, which is in the process of redeveloping and intensifying a number of its housing complexes, looked ahead five or six years and realized that more demanding green building codes, especially for city-owned projects, were inevitable as the TGS evolves. So Lam and his team decided to get ahead of the curve. “We thought, ‘We’ve got an incredible opportunity in our own revitalization projects,’ and this [the townhouses] was a fairly well-delineated project.”

Because certified passive-house projects feature extremely airtight designs, smart heating/cooling and humidity-control systems, natural interior materials that don’t cast off chemical smells, and all sorts of devices tasked with capturing and recycling waste energy (from hot water going down drains or from bathroom ventilation fans, for instance), the design process is far from conventional, Lam explains. The team’s architects, engineers, energy consultants and constructors must all work together to figure out how they’ll create structures that satisfy a demanding set of performance standards. “The objective of the building is so different that it requires a different design process and a different way of thinking about how architect, engineering and energy modelling work together,” says Lam. Detailed designs will be unveiled later this spring, and construction is expected to begin in about a year

An Ottawa non-profit supportive-housing provider, Salus, went down this road a few years ago, with a 40-unit apartment complex for people with mental health issues. The project consists of 300-square-foot apartments with small kitchenettes, about a fifth of which are barrier-free. “At the time, [passive house] was not something that was on the landscape,” says Salus executive director Lisa Ker.

In 2013, Salus was trying to figure out what to do with a piece of donated land when a manager with a national affordable-housing umbrella group suggested they try developing a passive house project. Ker’s advisors predicted that the costs would be 6 to 9% above a more typical building. But, as she points out, Salus was the first in the market, so they had no real basis to evaluate. “We were very much an experiment.”

However, Salus’s donors were very interested, and not just because of the environmental features. As Ker points out, Salus’s clients live on the fringes of society and are generally seen to be contributing little. Living in a cutting-edge project, she says, “was a great opportunity to show they could bring something to the equation.”

Salus’s architect, CSV principal Anthony Leaning, adds that passive house projects are notably comfortable to be in, and so the design could improve clients’ health and well-being. And, he says, the durability of the building materials means such projects “will last a long time.”

CSV is now working on numerous other passive house affordable-housing projects, and Leaning points out that Ottawa’s public housing agency has also begun to promote aggressive environmental standards in its newest projects. Some of the federal government’s $55 billion 10-year National Housing Strategy funding will pay for large-scale energy-efficiency retrofits of older affordable-housing projects that need everything from new boilers to proper windows (in addition to funding 125,000 new housing units). “There’s a shift happening,” Leaning says of the affordable-housing sector’s growing embrace of energy-efficiency design.

Building on lessons learned

This story, of course, isn’t just about the performance of individual buildings. HousingNowTO’s Mark Richardson points out that the best strategy for reducing the emissions associated with any apartment building is to situate it close to a transit stop. Such locational decisions also bring financial dividends because the developer may not need to build a giant, expensive underground parking lot in such projects, provided municipal planning officials waive those requirements.

TCHC’s Michael Lam hopes that as for-profit builders like Tridel gain experience with more environmentally ambitious projects, such as the townhouses in Alexandra Park, they’ll begin to incorporate those energy- and cost-saving features in more market-oriented apartment building projects. “They’re seeing the writing on the wall: ‘Sooner or later, we’ll be asked to do this.’”

Anthony Leaning says municipal governments should be promoting the case for green affordable housing by offering to fast-track the approvals of such projects and waiving development fees.

The Housing Now program that is attracting so much attention certainly has deployed all available carrots and sticks – more demanding minimum-energy and ecological-performance standards, but also breaks on a range of charges, including property taxes. And as with TCHC’s Alexandra Park venture, the eventual winning Housing Now bidders will include both for-profit and non-profit developers, meaning there’s an opportunity for the design lessons to find their way into the private development sector.

VCIB’s Jake Stacey adds that as recently as two years ago, few builders or agencies would have had the chops or the courage to attempt a net-zero or near-zero building, of any sort. But as more organizations gain experience in building or rebuilding affordable housing that meets the ambitious emission-reduction standards we’ll need in the near future, other agencies, developers and financing sources will fall into line.

“There’s a way to do it,” she says. “I want to be out in front of this.”

Toronto journalist John Lorinc writes about cities, sustainability and business.

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