Stuck in traffic: How mortgages could ease congestion
When she tours homes in the neighbourhood west of Eglinton and Bathurst, Lindsey Springer knows exactly what she's looking for; three bedrooms, finished basement and easy access to transit.
"Definitely accessiblity to the TTC is really important, my husband takes the TTC to work everyday so that's really important, she says.
The suburbs don't suit her lifestyle but finding a home close to existing transit is proving hard.
"More expensive, definitely multiple offer situations, and we wish they were more affordable."
The problem she's facing is a common one. Homes and condos in denser, walkable and transit-friendly neighbourhoods come at a price often out of the reach of young families.
Making those neighbourhoods more affordable for people like Springer is the idea behind location efficient mortgages (LEM).
"The location-efficient mortgage idea was based on the premise that you'd actually encourage people to use the public transportation and get away from a lot of the congestion we see with cars in the big cities," says mortgage broker Calum Ross.
The concept is similar to those that offer mortgage savings based on energy efficiency, he says. Traditionally, mortgage risk is assessed by looking at income and debts like car payments. But the costs to operate the car, from fuel to insurance and maintenance aren't factored in. An LEM allows buyers in walkable, transit-friendly, so-called 'efficient neighbourhoods' to borrow more because, in theory, they won't be using a private automobile.
"The idea was, if people could live without cars, so some of their montly expenses would go down, so it would be good for environment and it would also mean they'd have more disposable income," Ross says.
The U.S. experiment
It's a concept that hasn't been tried in Canada but has been tested in the U.S.
In a pilot project launched in 2000 in four cities; Seattle, Chicago, Los Angeles and San Francisco. A formula was devised to determine how efficient certain locations were and how much potential buyers would save in transportation costs by moving there. Criteria included type and frequency of transit, area density and distance to employment.
It was estimated that buyers could add anywhere from $12,000 to $50,000 to their available credit. The pilot project though was only short term and no long-term studies were done on its impact.
Cherise Burda and the Pembina Institute have recommended LEMs as a way of encouraging smarter growth. A recent Pembina Study found more than 80 per cent of residents in the Greater Toronto Area would give up a car and big house in the suburbs in order to live in a transit-friendly and walkable neighbourhood.
"It's basically living closer to work, living closer to where you play, where you go, it's basically live where you go," she says.
She says the biggest barrier is affordability and that LEMs gives potential homeowners more flexibility to move closer to work and ditch their cars.
"If you remove one car from a household, it could increase your capacity of a 25 year mortgage by $200,000, so it just provides more options for homebuyers to live closer to where they work."
She says municipal growth plans and development charges should concentrate on encouraging high-density, smarter development along existing and the new lines envisioned in Metrolinx's Big Move transportation plan.
"So that we then have walkable communities along thes transit lines, options to take transit. That will help congestion. If we don't deal with sprawl then things will get worse"