What Led to the Condo Boom in Toronto?

What Led To the Condo Boom in Toronto- (2)

Have you seen the cranes in the skyline?

Here’s the deal:

2014 smashed all records for completions of high rise condo units.

How did we get to this place?

What has made Toronto such a boom-town for high-rise condos?

We explore these questions in this first episode of the “Toronto Housing Market Insider”.

We speak with Andrea Mager, who is the Development Market Research Specialist at RealNet Canada Inc., one of the leading real estate information services company in Canada.

Andrea wrote a master’s thesis about the Toronto condo market, and we also discuss portions of that thesis.

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The Crazy Condo Boom in Toronto

It’s a bird, it’s a plane… oh, it’s just another condo crane.

The sights of cranes have been ubiquitous.  Toronto underwent a condo boom unprecedented in scale and scope.

2014 saw a record number of completions in condo projects: more than 20,000 units came onstream.  The previous year, 2013, had been another record, with 16,500 units coming onstream.

I don’t need to quote numbers, the evidence was everywhere.  You couldn’t walk on sidewalks downtown without coming across a construction site.  Traffic lanes were closed off to construction.

Toronto had the highest number of condo construction projects in all of North America.

How did this all happen?  Was it merely coincidence?

I think not.

Part of understanding the present is understanding the past.  I knew there must have been concrete factors leading to the condo boom we’ve seen.

To get more insight into this, I consulted an expert, Andrea Mager.  Andrea is the Development Market Research Specialist at RealNet Canada Inc., the leading real estate information services company in Canada.

Andrea also wrote a master’s thesis about the Toronto condo market, and we also discuss portions of that thesis.

I wanted to get a firm understanding of how we got here.  Call me a history buff, but I like to know how things happen.

My first question to her was: what were the key policies that led to the condo boom in the downtown core of Toronto?

Andrea:
“So looking back to the late 90’s under the Harris government where we were looking at the Oak Ridges Moraine conservation Act being introduced, to really restrict land use and development in those designated areas. So, there were several factors that made the Oak Ridges Moraine really appealing for development, namely the proximity to Toronto, the cheap cost of farmland, the scenic landscape and the infrastructure of sewers and water mains along the Yonge Street corridor that were already in place. So people were getting very concerned about development happening in this area, the Oak Ridges Moraine Conservation Act was put into place in 2001 and by this time, people were really getting upset that they hadn’t protected enough of the land and the Greater Golden Horseshoe was going to be vulnerable and at risk.  So this really didn’t go unnoticed by Ontario voters, so when they went to the polls for the 2003 election, they really made this choice and wanted the Smart Communities platform of the Liberal government to come into play. And they acted very quickly and they promised the creation of the 600,000 acre of green belt to be created in the Greater Golden Horseshoe Area. ”

“People were really getting upset that they hadn’t protected enough of the land and the Greater Golden Horseshoe was going to be vulnerable and at risk.”

Okay, let’s step back for a moment and digest this.  The Oak Ridges Moraine.

I still remember the furor this issue caused.  Let’s go back a bit in time.

The Oak Ridges Moraine is “an ecologically important geological landform” in south-central Ontario.  Basically, it’s a large piece of land that stretches eastward from Caledon all the way to around Peterborough.  Much of this land stretches through the northern parts of the GTA.

For developers, this was prime land to develop.  It was cheap, it was easy-to-develop farmland, and it was within the comfortable confines of the GTA.

The problem, however, was that this vast swath of land was very ecologically sensitive.  The water under these grounds serves as the source for a number of rivers that flow into Lake Ontario.  There are also sensitive ecosystems.  The land is also a source of minerals that are important to the local building industry.

The issue raised a political storm in the late 90’s and early 2000’s.  That culminated in the Smart Communities platform that the Liberal government ran on in 2003.

Andrea talks about the intent of this platform:

“This was intended to protect land from suburban sprawl and development. So once they were elected, they made revisions to the provincial policy statement, the overarching provincial planning legislation and this was followed by the Green Belt Act and the Places to Grow Act in 2005.  So I like to look to Vancouver as a comparison of how this legislation affected the real estate market in Toronto. So Vancouver has always led Toronto in terms of land and real estate prices. They really have a finite area to build in bordered by water on one side and a mountain range on the other. So what natural geological formations did to restrict Vancouver’s sprawl, policy and the Greenbelt Act did the same for Toronto. So these key policies, plus a number of other factors like the rising cost of land prices, immigration numbers, a limited apartment rental supply in Toronto, and many more things have really led to this condo boom in downtown Toronto.”

I like how Andrea mentions other factors that contributed to the condo boom.  We will definitely be exploring those themes in this series.

But what is clear is that government policy had a tremendous impact on shaping development.

“So what natural geological formations did to restrict Vancouver’s sprawl, policy and the Greenbelt Act did the same for Toronto.”

The Timing of Housing Development

Housing development reflects the times it takes place in.  The nature of the economy, where jobs are at, and lifestyles affect housing.  Andrea describes how housing developed after World War II.

Andrea:
“So looking at post-war Toronto, Toronto really emerged as a thriving centre for finance and culture in North America in the 1900’s. There was the rise of mass production in consumption, which contributed not only to a spatial shift where manufacturing could occur and the ways in which goods were produced, but also in the reorganization of the spatial arrangement of housing and transportation. So as large scale manufacturing required these larger industrial sites manufacturing underwent a spatial relocation from the inner city to the outer suburbs. So there was a mass exodus from the city centre that led growth to crawl into the suburbs, where this post World War Two, baby boom generation contributed to the growing culture of mass consumption.”

They sought space for homes, lawns, garages and significantly, automobiles which we see at the time was a viable and sustainable method of transportation in the city.

So this mentality began to change in the decades that followed. If we fast forward to the 1990’s, there is a real shift in thinking about land development, and that fuelled a lot of new plans for development of the city core and increased the demand for city living. One of the major influences I see in terms of the infrastructure plans for connecting the city to the suburbs through transit were abandoned, following the recession of the early 90’s. So there was a big plan to link everything up but the funds just weren’t there and it was just abandoned. So this left these car dependent commuters without many options.

“So as large scale manufacturing required these larger industrial sites manufacturing underwent a spatial relocation from the inner city to the outer suburbs.”

Simon:
“So you’re saying initially there were plans to link more the inner city with the outer suburbs?”

Andrea:
“Exactly.  It was called the “Let’s Go Program” but it was abandoned following the recession. So on one hand this continued and really promoted sprawl to continue to grow out to the suburbs because people were still using cars.”

But on the other hand it was leaving these commuters really stranded. So this factor plus a whole lot of other things like the re-structuring of metro Toronto in the 90’s, globalization, wide spread use of the internet and of course this rising knowledge based economy that resulted really pushed re-investment in the late 90’s into the core.  The land downtown suddenly became the most valuable land of all. Gentrification and the re-development of these neighborhoods became wide-spread and they were really catering to this knowledge based, creative economy in the inner core. Part of Toronto’s re-urbanization strategy believed that housing policy would be the central link between economic development and planning to attract the knowledge economy workforce. So the city’s economic development strategy looks to reconcile between livability and quality of life with economic growth and competitiveness. Real estate sector investments really became an integral part of Toronto’s plan to restructure itself as a competitive city during this time of globalization.

“One of the major influences I see in terms of the infrastructure plans for connecting the city to the suburbs through transit were abandoned, following the recession of the early 90’s.”

One of the theories that I looked to was Richard Florida’s “The Creative Class” that had a widespread influence during the 2000’s.

Richard Florida and the 3 “T”‘s of the “Creative Class”

creative1

Richard Florida is an urban studies theorist.  He is the head of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto.

He is known for developing the concept of the “creative class” that Andrea talks about.

Andrea:
“So Florida suggests that there are three main requirements of creative cities, to attract the creative class. Those three T’s are talent, tolerance and technology.  So essentially what it says is that cities will need to attract these highly mobile, knowledge based generation to the city centre. They are no longer drawn to city centers to find work as necessity, but the city will need to draw in these desirable candidates. So there are really varying opinions on the influence of Florida’s theories, especially in relation to the impacts of gentrification.  However, looking at Toronto as a city we can see an impact on his theory is present where we are living today.”

“Gentrification and the re-development of these neighborhoods became wide-spread and they were really catering to this knowledge based, creative economy in the inner core.”

Changes in Lifestyle Preferences

“And then I would say overall, the desire to be close to transit, to culture, to shops, to dining, and to walk able and livable neighborhoods is part of millennial culture and the real estate community has really acknowledged that. The infrastructure challenges that the city faces so far has not been as large of a deterrent in real estate choices for millennials as the cost of living in these desirable locations has been.”

Where We Are Today in Condo Developments

condo (1)

So that gives a glimpse of what led to the boom of recent years.  It was really a culmination of many factors.

So where are we at today?

What’s going on in the condo market right now?

Since Andrea is a data specialist, there was no better person to ask about what’s happening with new development applications today.

Andrea:
“So currently we are tracking about 230 development applications that have a market condominium component in the City of Toronto.”

Simon:
“So this is as of today in 2015?”

Andrea:
“Yes this is as of end of February.  So that is over 90,000 new units potentially entering the market. So we must keep in mind that these proposals are in various stages of the application process and not all will make it to the market stage.  It’s difficult to comment on how this has changed over the past years, this is a new initiative for myself in the company but looking at the types of applications, which we can look at next can provide some insight.”

Simon:
“Sure why don’t we talk about that then, the types of applications that we are seeing.”

Andrea:
“So we are seeing all types of proposals coming through the pipeline currently, we are still seeing applications looking for those really high density towers, and we are seeing some medium density applications as well, so not the huge towers we see more in the core, but things that are a bit more in the medium range.

We are also seeing applications to build additional buildings existing apartment sites so that suggests that applicants are really trying to get the value out of their existing land purchases.”

I suggested that what’s in the pipeline today might be different from what we saw in the 2009 to 2011 period, when the vast majority were for large condo towers.  I suggested that now maybe there’s more of a mix in the types of developments being proposed.

Andrea:
“I think you’re right on in that. What we are seeing is a change in what is being applied for. So what else we are seeing is applications come through for purpose built rental, which is a big discussion in the building community right now. There were a couple of projects already in 2015 that changed from market condo to purpose built rental apartment buildings. So with this really tight rental market we are seeing in Toronto, as I said the applications are changing of what is coming through and we are also seeing applicants approach building with a variety of considerations. So as an example, this past month there has been a lot of attention on a proposal where a community became outraged when the proposal of a condo was going to force a family shelter to close its doors. So there were several legal complications that caused them to arrive at this point. But what the end result was that there was going to be a collaboration between developer and the city to build the shelter facility within the same buildings as the condos.

So what they have applied for is a 118 condos, as well as 20,000 sq ft of shelter facilities which is going to be built by the developer and then funded by the city through shelter fundraising. So I think the approach that applicants are taking is different. We are heading into a city with various complications, and it’s interesting to see the types of applications coming through, so I think this is really reflective of some of the challenges we are seeing. Obviously transit lines will always be a major factor and then of course making the numbers work with density and high land prices.”

Simon:
“That’s interesting, so just from what you are saying, it seems like there is an evolution happening or a shift from very just one type of building, high rise condos to more of a mix that maybe reflects more of what’s happening or some of the challenges in society that we are seeing.”

Andrea: For sure.

Looking Ahead

So that’s where we’re at today.

I sense some big shifts coming in the way housing is developed in the city.

I also don’t want to ignore the suburbs, where much of the population growth is still occurring.

The number of issues to explore when it comes to real estate is very exciting.  I’m looking forward to tackling these many issues one by one.

Thoughts on the Housing Market Today

transit

One theme in particular I want to explore in greater detail is how families will live in the years to come.

The cost of low-rise housing is just so expensive in the city.

Will families keep pushing out to the suburbs?

Will families adjust to living in condos?

This is a very relevant question for me, because I’m about to have my first child, and we’re starting to look ahead.

We love where we live right in the heart of the city.  Downtown has everything we need and want.  Condo life is very convenient.  But will we stay in a condo?

Or will we desire the backyards and open spaces we had growing up?

I hope to enlist people who can help us dissect these issues.

Thank You For Listening!

Thank you for listening to this episode of the Toronto Housing Market Insider.

I welcome all of your feedback.  Please go to our website at www.parkandjung.com and get in touch with us.

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Our mission is to cut through the clutter and shed light on what’s really happening in the Toronto housing market.  I hope you’ll continue with us in this journey.

This… is the Toronto Housing Market Insider.

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About Simon Park

I am a Toronto-based lawyer and a Partner at Park & Jung. You can connect with me on LinkedIn.