Should we stop building condos in Toronto?

By Ben Myers
November 08, 2016

In early November, a local councillor in Toronto wrote a letter to the Toronto and East York Community Council suggesting that the City of Toronto put a moratorium on accepting any more rezoning applications for new tall condos in Toronto. The letter implied that there were various reports suggesting that there was an oversupply of Toronto housing. I’m not sure what reports the councillor was referring to, as commentary from market research firms Altus Data Solutions and Urbanation have pointed to less new unit supply as a key driver of house price inflation. CIBC’s chief economist, Benjamin Tal, recently noted that supply is the number one factor influencing the growth in housing values this year. The Toronto Real Estate Board has pointed out that a major lack of listings in both the resale and rental markets has resulted in bidding wars to lease and buy properties.

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I agree with the councillor’s assessment that we need better and more reliable transit, more parks and more daycare, but putting the brakes on development won’t make those key city-building initiatives more likely to occur. New development projects add millions of dollars for the city’s disposal through development charges, Section 37 fees, new property taxes, and incomes taxes on construction workers. You can put a moratorium on tall buildings, but no one is putting a moratorium on people having children and immigration into Toronto. Continued high demand coupled with lower supply in the future will result in a much worse housing affordability situation.

Real estate developer and blogger Brandon Donnelly recently posted some figures from the New York City condo market, which he noted was priced at just above $600 per sq. ft. in 2002 and now sits closer to $1,800 per sq. ft. Keep in mind that the global financial crisis occurred in that stretch. Urbanation notes that as of Q3-2016, the average resale condominium sold for $667 per sq. ft. in the former City of Toronto, while the average new condo sold for $674 per sq. ft. ($511 and $590 per sq. ft. respectively in the GTA overall). Could Toronto possibly hit such a ridiculous figure of $1,800 per sq. ft. in less than 15 years? If the City of Toronto puts a stop to building tall towers, we might get there sooner than that.

Given the choice between a city with a crowded subway and expensive daycare, versus a city where a 1,000-sq.-ft. condominium costs $1.8 million, I would suspect that most people would choose the former.

The condo boom in the region hasn’t benefited everyone, but it has created thousands of jobs, is transforming Regent Park, has helped bring an amazing new park to Toronto (Corktown Common), contributed to the revitalization of our waterfront, brought fantastic new retail and restaurants to town, and helped hundreds of thousands of people find a new home.

Let’s hope the City doesn’t take the councillor’s advice. Otherwise, you’d better call the bomb squad, because condo prices are going to explode!

About Ben Myers

Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with landowners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects. Follow Bullpen on Twitter at @BullpenConsult or find Ben at bullpenconsulting.ca

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