Although the condominium supply has been significant in the GTA and continues to grow, the cost of land and construction has maintained very high prices for new condominiums.  Builders have been able to control price increases by reducing size, the average size having come down by over 130 feet over the last 2 ½ years to an average size of 790 square feet after the first quarter of 2012.  While everyone has focused on the hot condominium market in the GTA, the real problem lies in the lack of low-rise single family homes in the GTA.  This is a direct result of the Places to Grow legislation that has limited available “green” land supply for low-rise housing and pushed municipalities both in the GTA and elsewhere to intensify within built up areas.

As a result, the land supply has shrunk dramatically and, coupled with ever expanding government regulation in lengthening delays in obtaining approvals from the myriad of government agencies involved in low-rise housing development, the lack of supply of new housing has resulted in a total reversal of the numbers in the past 10 years between low-rise and high-rise sales.  What used to be a 70:30 split between low-rise and high-rise 10 years ago, has now resulted in a 66:33% split between high-rise and low-rise in 2011.  Though the average price of a house in the City of Toronto hit $568,436.00 in April 2012, the average price for a single family detached home averaged $831,214.00, doubling over a decade.  Interestingly, the average price of a single family detached home in Vancouver currently is slightly over $1M with clear signs of softening of the marketplace.

All of the experts agree, including Doug Porter of the Bank of Montreal, George Caras of RealNet and Barry Lyon of N. Barry Consultants, that the market for low-rise housing in the GTA remains extremely tight, whether for new or resale and the lack of supply and continuing immigration into Toronto can only mean that prices will continue to escalate.

Although the government looks at our supply factor and says there are plenty of new home sales, so why should there be any adjustment to the current regulatory system, the reality is there is a dearth of family-related housing.  With minimal low-rise becoming available, and high-rise housing being focused on smaller and smaller units aimed at singles and couples, the lack of affordable family-related housing is going to become very serious over the next few years.  When all of the people downtown start looking for homes, where will they live?

To the extent they will find these homes, they will be priced beyond affordability or require significant commutes from outside of the GTA to make them affordable.  This will run into the transportation gridlock that we currently face and the conundrum Metrolinks is trying to unravel.

At the end of the day, the government policies have to be revisited in light of the clear lack of land supply in the GTA, as well as the delays in obtaining approvals for low-rise housing, and the excessive cost that continues to be loaded onto the backs of new homebuyers.  In many municipalities, the cost of taxes exceeds $100,000.00 and with municipalities like Markham looking to finance grandiose schemes like a NHL style arena by requiring “voluntary contributions” from developers of anywhere from $2,000.00-$6,000.00, which contributions will be passed on to purchasers, affordability issues become even more exacerbated.

Notwithstanding doom and gloom, the supply and demand factors for both low-rise and high-rise, seem to indicate a very strong market condition and strong price growth in the GTA.  Good news for current homeowners looking to downsize but not those looking to get into the marketplace for the first time.

Apparently, 50% is to be financed privately by a consortium of Rudy Bratty and W. Graeme Roustan, a sports entrepreneur and Chair of Bauer Performance Sports.  The other 50% which the Town is to finance, is intended to be sourced from “the collection of monies from developers in Markham based on a formula and they’re paying down the $162.5M,” Roustan said in an interview with the Toronto Star.  This is to cover 95% of the Town’s contributions.  As noted in our previous blog, the intention was to obtain “voluntary contributions” from developers, who are processing low-rise or high-rise developments in Markham with charges ranging between $2,000 and $6,500 per unit/house in the area.  As the Town has no legal right to charge these costs through to developers, developers are being “encouraged” to make these contributions as it purportedly will benefit everybody including developers whose properties supposedly will appreciate in value.

In a letter sent to Mayor Scarpitti, BILD took a clear position prior to Council approval, that these charges were not “voluntary” as they were being tied to development approvals and stated quite clearly that it would not support any of these contributions outside of the Development Charges Act. 

David Rider in his article in the Toronto Star http://bit.ly/Jbno1r  refers to a confidential report which anticipates that developers would cover 95% of all of the Town’s share of costs via “voluntary contributions”, with the remaining 5% to come from payments under Section 37 of the Planning Act, paid by developers in exchange for increased density rights. 

The proposal is clearly creating tremendous controversy both within the Town of Markham and the development industry.  The need for such a massive project is questionable, considering the limited spinoff of the economic benefits from a NHL-style arena, and as well, the difficulty in obtaining the franchise in the first place in light of the Buffalo Sabres and Toronto Maple Leafs veto rights.

Furthermore, it is questionable whether there will be sufficient concerts needing venues over and above the existing concert facilities around the GTA including the Air Canada Centre and the numerous large theatres and complexes in the GTA.

At the end of the day, however, from a development perspective, seeking to finance a commercial enterprise on the backs of developers and ultimately, homeowners, under the guise of “voluntary contributions” is something that should be vigorously opposed.  This process really makes a mockery of the strict limitations of the Development Charges Act and the parameters that were originally set forth in that Act to limit excessive municipal spending.

After 12 years and $800M of federal/provincial funding of Waterfront Toronto’s initiatives, it would have been expected that the pace of development, given the demand for development land inToronto, would have been substantially accelerated.  Sadly, other than some very high profile public projects such as Sugar Beach, Sherbourne Commons, Don River Park, the Wave Decks and the Underpass Park, all of which are pleasing facilities, very little additional infrastructure has been created or real development commenced. 

Christopher Hume, the self-styled planner and architect of the Toronto Star (without any such educational accreditations) recently commented ( http://bit.ly/I1WOaA ) that the public was not excited about the new plans revealed by Waterfront Toronto 2 weeks ago.  He further asked the question “What is the rush?”  Why are we hurrying to move the development on the Port Lands along quickly and why are we seeking new and improved ways to develop the lands at a more reasonable cost?

The administration and Council decided in September that it was time, after 12 years of planning on the Port Lands, to see an acceleration of development proposals and infrastructure and a thorough review of the massive cost of flood proofing theDon River.  That there have been only recently a few projects that have finally gotten off the ground such asGreatGulf’s condominium project, Monde, andGeorgeBrownCollege’s new campus on theEast Bayfrontafter 12 years and $800M of investment, the question to ask should be “What isn’t the rush?”

Sadly, without a real financing plan in place, there will be no rush.  Any suggestion that private development bear the brunt of infrastructure costs will not be acceptable to Port Area land owners and future developers.  The Don River rerouting/flood proofing plan has been tweaked with only modest savings, while other more cost effective and development-friendly proposals appear to have been rejected.

Without further significant government funding and a more entrepreneurial and cost-effective structure in place to accelerate development, there will be no rush in the Port Lands for the foreseeable future.

Having the 2008 Olympics would have made a significant difference, I believe, to the pace of development that would have occurred as a necessary result.  It will probably take another Olympics to get the Port Lands off the ground as has occurred in other cities likeBarcelonaandMelbourne.

However, when it comes to tennis, we have in our midst one of the most accomplished and successful tennis stars ever, albeit on the doubles side, Daniel Nestor.  Yet most people inCanadawould not recognize his name unless they were tennis fans.  It is truly a shame that all Canadians are not familiar with this wonderful representative of both the sport and our country.

Daniel Nestor has won over 80 international doubles titles including 7 grand slam titles, most recently, the French Open in 2011.  He has been a doubles winner of all 4 grand slams and an Olympic gold medal with Sebastian Lareau in the Sydney 2000 Olympic games.  He has representedCanadaon the Davis Cup for over 19 years and has the most doubles wins (29), most ties played (40) and the most total wins by a Canadian on the Davis Cup played (44).  At the age of almost 40 years old, he is the oldest active professional tennis player on the circuit and is still ranked #2 or #3 in doubles in the world.

Canadafinally recognized him in 2010 by giving him the Order of Canada and he was awarded a star onCanada’s Walk of Fame in 2011.

Daniel gives his time to numerous charitable events and events to support TennisCanadato promote the growth of the sport.  He appears at local tennis clubs and TennisCanadaevents whenever asked.  I recently had the honour of both playing with Daniel and watching him participate in an exhibition match as part of an evening hosted by Tennis Canada for its faithful supporters at the Donalda Club.

I am proud to be a Canadian and I am proud to have Daniel Nestor on our team.  All Canadians should be equally proud.

One of the first really tall buildings in Toronto to be built was constructed by Minto at the south-east corner of Yonge and Eglinton.  The project contained 2 towers of over 50 storeys and were completed in the face of major local opposition.  It resulted in the local Councillor, Anne Johnston, who supported the project, losing her council seat.  My hats off to Anne Johnston for taking a larger whole city view of the project and not pandering to nimbyism.  Where else would 50 storey buildings be appropriate other than at a major intersection like Yonge and Eglinton, when intensification is the route which is both being mandated by the province and by economic necessity?  Interestingly, Mississauga projects like the Marilyn Monroe building have broken through the 50 storey barrier in a municipality which was a low-rise city for the most part until 10 or 15 years ago.

The question now is how should Toronto deal with the new normal of buildings of 40 storeys as well as mega developments like the Aura at Yonge/Gerrard of 78 storeys, One Bloor Street East of 70 storeys (potentially going to 75 storeys) and the new Tridel /Build Toronto joint venture at 10 York Street of 75 storeys.

In the face of these developments, the City commissioned a report called “Tall Buildings Inviting Change in Downtown Toronto” prepared by Frank Lewinberg of Urban Strategies and David Pontarini of Hariri Pontarini Architects.  The report identifies where tall buildings should be concentrated, such as high traffic streets like Bay, Bloor, College and King Street and recommends further that the City establish regulations for maximum heights for high-rises.  It should be noted that height limits were taken out of the City’s Official Plan several years ago. 

There has been much criticism of this report from a design perspective.  The report has been described as “very restrictive” by Robert Glover, a principal with urban design firm Bousilds Inc. and a former Director of the urban design for the City.  Other architects and developers have taken issue with regulations which would sterilize the creativity of Toronto architects.  Clearly, there needs to be some site plan control to a certain extent in respect of high-rises but etching in stone the heights and locations of specific high-rises is not the way to go for the City.  It stifles the potential for creativity and ignores the growing need for high density sites throughout Toronto, not only on major arterial roads. Ryan Starr of the Toronto Star interviewed a number of architects who commented on the study as well as Harry Pontarini, one of the authors of the report.  His report can be viewed at  http://bit.ly/H7W5tY

The one good thing that comes out of this report is that the City is clearly attempting to give some structure to the massive condominium growth in the City.  Although the report may not be the full answer, there is no question that an overall vision for planning of the City is required so that Toronto can become the world class city is aspires to be.

Read an interesting article on Bloomberg.com the other day

(http://bloom.bg/H5QRN2).

The premise of the article, although focused on the U.S. retail marketplace, should be considered by everyone in the retail/consumer sector and retail/development/investment sector.

The author, traces the history of big-box retail and makes the compelling argument that the era of big-box retail dominance may be coming to an end. The consumer market was initially fuelled by an inflated stock market and loose credit. The housing boom provided further impetus to the retail consumer. Then came the crash. Although the consumer is now coming back to life, there is a new threat to the big-box retailers ( and in my mind to many other traditional retailers), that being – the increased confidence being shown by consumers in making online purchasers.

The article details the affects that this trend is now having on the big-box retailers. The “click and buy” consumer is not only grabbing market share from  the likes of  Wal-Mart, Best Buy, Target etc., but also from the more traditional retailers. Several weeks ago, GAP announced that it is re-evaluating both the number of retail locations, and the size of those locations as lease terms start coming due.

There is no question that Amazon.com and its competitors are grabbing market share. Furthermore, the traditional retailers are also expanding their online presence. So will the trend to smaller stores and fewer locations become commonplace?

Although I do not think that this new reality will result in a dramatic shift in “brick-and-mortar” retailers, it should be a consideration to those analyzing the growth prospects of the development/investment market. Additionally, do not be fooled by the robust retail development/investment marketplace in Canada. The shift is and will continue to occur here as well!

Earlier this month I wrote about a tug-of-war between the Canadian Chartered Banks versus the Minister of Finance and the Bank of Canada.

The Banks were providing low rate mortgages to attract customers.

Last week, despite the concerns expressed by each of Jim Flaherty and Mark Carney, 2.99% mortgages re-appeared.

Over the weekend the following article appeared in several publications –

http://buswk.co/GIwL91

The article makes it clear that OSFI is doing the work of the Ministry and the Bank of Canada in pouring water on what they perceive to be an overheated housing market. If this approach is successful, it will hit the less established developers as they are the ones that are most affected by higher pre-sale requirements together with additional equity needs.

Not exactly a fair result as it would still allow a group of powerful developers that have strong equity bases and long-time banking relationships to prosper.

My scan of the marketplace indicates to me that it is the larger powerful developers who are more likely to promote pre-sale speculative activities than the smaller “one off” developer.

In any event, there may lots of projects that will, despite their pre-sales, have a difficult time in arranging construction financing to proceed.

Round 1 – to the Bank ofCanada!!

The Development Charges Act was revamped substantially in the late 90′s to limit the abuses of municipalities that were using development charges for grand community centres, city halls and various other municipal improvements that went well beyond the required local services to be expanded to accommodate a new development.  Various expenditures were eliminated such as hospitals and other municipal buildings that were not considered essential or appropriate for a development charge contribution.  A strict regime for calculating growth and the permitted level of development charges was established  In addition, municipalities were required to contribute 10% of the cost of all of these permitted municipal improvements to ensure that there would be accountability on the use of development charge funds and the type of expenditures to which they were going to be allocated. 

Unfortunately, municipalities have chafed under these restrictions for almost 14 years and sought various ways to get around them.  Most recently, the Town of Orangeville and other municipalities sought to use different mechanisms for determining population growth that would allow for substantially enhanced development charges.  This approach known as the “gross population” approach ignored reductions in the population due to emigration and other natural changes to the numbers of people living in a particular municipality to determine the actual number of people requiring services over the applicable timeframe.  This approach was successfully challenged by BILD and the accepted “net population growth” approach was upheld at the OMB and Divisional Court.

Over the years, a number of municipalities have sought to “encourage” voluntary contributions from various developers to fund municipal projects that were not covered by the development charges or event if covered, to accelerate contribution to these projects.  These projects, such as hospitals and local arenas were intended to be supported by municipal revenues from across the entire tax base or through the strict regime governing the calculation of development charges.  Although these contributions were supposed to be “voluntary”, those developers that did not participate in these fundraising efforts, somehow saw their developments delayed. 

York Region’s development charge by-law is due to be revised this summer which will inevitably result in significant increases of up to 40% for units where building permits are drawn after the date of the increase.  Markham’s development charge by-law is also being updated with an inevitable increase as well.  Those developers whose projects are near building permit ready will not want to jeopardize the amount of applicable development charges by having their projects potentially delayed.

The disregard of the Development Charges Act and the regimen under which municipalities are required to operate is something which the province should be taking a closer look at and strongly discouraging.  Developers are caught between the need to move their projects along on the one hand and on the other, to minimize their costs which will be passed on to purchasers.  Especially problematic is the imposition of these “voluntary contributions” to projects which have already been planned and budgeted for and which did not include any of these amounts. 

I fully understand the difficult situations that many municipalities face given their budgetary requirements and the limitations on revenue sources, but I have no sympathy for the most current attempt by the Town of Markham to seek contributions from developers to support a large scale arena that can only have as a commercial purpose a professional hockey team. The trend to “voluntary contributions” required by municipalities must end, and a better formula for funding true municipal expenditures established through cooperative efforts between the province, the federal government and the municipalities.

Nationwide, Canada was the fastest growing country among the G8 with a population in 2011 of 33,476,688.  Although it is the country with the least overall population among the G8, immigration and strong economy (relatively speaking) continue to drive population growth.

Ms. Shim highlighted the shift in population growth towards the Western provinces, especially in cities that are natural resource rich, compared to Ontario which grew at 5.7%, slower than the national average of 5.9%.  Nevertheless, it was Milton and Whitchurch-Stouffville, both in Ontario, which were among the nation’s fastest growing municipalities between 2006 (the year of the last census) and 2011. Milton’s population grew by 56.5% to 84,362 in 2011 and Whitchurch-Stoufville, had a population growth of 54.3% to 37,628.

The GTA grew by 5.1 per cent between 2006 and 2011 to a population of almost 5.6 million which is an increase of more than 477,000 people. Ms. Shim pointed out that the suburbs such as Ajax, Markham, Richmond Hill, Vaughan and Brampton continue to experience strong growth.

The City of Toronto (area code 416) experienced a growth of 4.6% whereas the suburbs (905 area code) experienced a growth of 14.0%.

In terms of new housing, the old City of Toronto saw the largest increase in the number of new dwellings of 69,527 new homes over the period of 2006-2011.

Toronto’s Downtown West (which includes CityPlace and Liberty Village) was the fastest growing neighbourhood in the City of Toronto.  Ms. Shim noted several interesting facts that would be of interest to those looking for development opportunity: firstly, the average residents per dwelling fell from 1.9 (in 2006) to 1.4 (in 2011) confirming that it is usually single professionals who are living in the condos and secondly, that while the number of residential development has risen, businesses have not followed pace, particularly, grocery stores and retail businesses.  Developers that can combine residential and commercial development suitable to attract big-box stores may find a great opportunity in neighbourhoods like Downtown West.

Ms. Shim also reported figures that were not part of the census but should be taken into account by those who want to understand the real makeup of the City’s residents and that is the 54,115 foreign temporary workers and the 57,850 foreign students living in Toronto.  Temporary workers and foreign students may not be buying homes, however, many are renting homes and luxury condos and contributing to the overall economy of the City (and the rest of Canada).  She also pointed out that net immigration to the GTA has fallen from 125,000/year in 2001 to 78,000 in 2011.  That still represents a significant inflow of people into the GTA requiring housing.

Overall, major Canadian cities and in particular, Toronto and the GTA seem poised to grow their population as Canada’s stable economy and government continue to attract immigrants and other persons requiring either rental or owner occupied housing.