It is an understandable mistake. The 15-storey art deco building is attractive, well-maintained and stylishly furnished. Its vaulting lobby and marble staircase bespeak the elegance of a bygone era.

Fifteen years ago, the hotel was a dump. Its ceilings were caving in. Its halls were dark and dangerous. Its tenants — drug addicts, homeless families and elderly people with no place else to go — shared the premises with rats and maggots.

That was when a young college graduate named Rosanne Haggerty moved into the neighbourhood. She intended to work with kids in the tenements, but found she was better at creating low-cost housing than counselling troubled teens. So she switched her focus.

The squalid hotel at the corner of Eighth Ave. and 43rd St. soon became an obsession for Haggerty. She could see its potential, but didn't know how to save it from the wrecker's ball.

Moreover, her desire to convert it into a home for street people, low-income workers and psychiatric survivors ran counter to the prevailing wisdom of the day. All the experts believed that large-scale subsidized housing projects were ghettoes-in-the-making.

But Haggerty couldn't let go of the idea of doing something innovative with the historic eyesore. She brainstormed with other housing activists. They applied for every grant, tax credit and low-interest loan available. They won the support of corporate and community leaders. They sold the mayor on their vision.

In 1994, the beautifully restored Times Square Hotel emerged from its scaffolding. Before long, other owners started sprucing up their buildings. Property values rose. The porn shops and strip clubs moved out.

Today, the hotel is home to 652 proud, stable, well-cared-for residents.

Haggerty told her story to a roomful of housing activists in Toronto to make the point that there is a better alternative than warehousing the homeless in emergency shelters.

"Why are cities so willing to open shelters when supportive housing can be operated at a fraction of the cost?" she asked.

She acknowledged that Toronto couldn't just start closing its hostels and using the savings to reclaim run-down buildings. But she urged the city to make a five-year transition from managing homelessness to solving it.

Haggerty is the founder and executive director of Common Ground, a non-profit organization that has converted two derelict Manhattan hotels and an aging YMCA into modern supportive housing complexes. All three buildings have on-site mental health and social services, vocational assistance and substance abuse counselling. Tenants pay 30 per cent of their income as rent.

Common Ground also operates a property management company, employing residents as security guards, maintenance workers and administrative staff. And it runs a string of Ben and Jerry's ice cream franchises (one in the Times Square Hotel) to provide the formerly homeless with work.

"We see the worst buildings as opportunities," she said. "We turn them into the best expression of what people move to cities to find."

Haggerty's model couldn't be transplanted holus-bolus to Toronto because it depends on government incentives that don't exist in Canada. She was able to use federal tax credits to induce private corporations to invest in low-income housing; tap into state assistance for the homeless and mentally ill; and get restoration funding from the city.

But she is convinced the concept is transferable. In fact, Common Ground is working with Toronto's Homes First Society and Canada Mortgage and Housing Corporation to come up with innovative housing projects that would work here.

Toronto doesn't have a surfeit of large, gone-to-seed hotels. But it has other buildings that could be recycled. The Homes First Society proved it could be done in 1989, turning an abandoned postal depot into StreetCity, a self-contained village for 76 hard-to-house individuals.

But government support for social housing has dwindled. And homeless advocates have learned that architectural creativity has to be matched with disciplined property management.

A few small affordable housing projects came on stream in the '90s. But they did not begin to meet the need. There are currently 90,000 families on the waiting list for subsidized housing.

The economic case for replacing traditional shelters with long-term housing is compelling. A permanent apartment costs roughly half as much, per resident, as a hostel bed.

The political case is more problematic. The city would have to run two parallel systems for a few years. In the short-term, costs would go up.

Newly elected mayor David Miller is committed to increasing Toronto's supply of affordable housing. He is open to the new ideas. And both Queen's Park and Ottawa have promised him support.

Haggerty's advice: Don't throw more money at hostels. A person needs a home to become a contributing member of society.

Carol Goar's column appears Monday, Wednesday and Friday.

Additional articles by Carol Goar