TORONTO: Canada’s largest city and one of the world’s hottest property markets has a supply problem.
The nation’s housing agency admits it is not quite sure why soaring prices in Toronto have not spurred more construction.
New homes replace demolished ones at a sharply lower rate than earlier in the decade, completion times for multi-family projects have doubled and prospective buyers have far fewer new homes to choose from than they did only a few years ago.
Part of the reason could be the ambitious growth plan for the greater Toronto area that the Ontario province forged over a decade ago.
With new “density” targets favoring multi-family housing, designated urban growth areas and tougher environmental rules, the 2006 plan sought to check urban sprawl while supporting the area’s further growth as North America’s major economic hub.
The market, though, did not follow that vision.
Detached homes are still most sought-after and their tight supply keeps prices high even as some condominiums and multi-family projects languish.
Developers say the growth plan, updated in 2017 with higher density targets, both created a demand-supply mismatch and added a layer of new municipal regulations.
“The growth plan has throttled growth severely,” said Matthew Cory, principal at planning consulting firm Malone Given Parsons.
Ryerson University economist Frank Clayton said part of the problem was the plan’s emphasis on protecting the environment and heritage sites at the expense of development.
“That superimposed more planning on a planning structure that was already bureaucratic-heavy,” he said in an interview.
Toronto’s troubles are of national concern given its role as Canada’s top financial and technology hub, which, together with surrounding towns, accounts for a fifth of the nation’s economy.
The city, alongside Vancouver, Canada’s third-largest city, is also among top North American destinations for international property investors and a major draw for Chinese capital.
So far, the authorities have sought to cool what they call speculative demand with stricter lending rules and by taxing foreign buyers. Now they also begin to look at supply bottlenecks as a driver for prices that have risen by 43 percent in Toronto and 63 percent in Vancouver just over the past three years.
“If I were concerned about anything from a long-term housing market point of view, it’s the supply of housing in Toronto and Vancouver,” Evan Siddal, the head of the federal housing agency, the Canada Mortgage & Housing Corporation, told Reuters.
“We’re replacing houses in Toronto at a much lower rate than we were five or six years ago,” he said.
The agency’s data, first published by Reuters, show just over 20 new homes were built in Toronto for each one demolished in 2016, down from around 70 to one in 2011.
Data from property research firm Altus Group offered a different perspective: It estimated last year prospective buyers had about 11,000 properties to choose from in the greater Toronto area, less than half the level of just two years earlier.
Siddal said “simpler, more flexible” approval procedures would help, but developers were also contributing to the bottlenecks by “land banking” — delaying projects in anticipation prices will rise further.
In a report this month, the agency said that it needed more data to fully understand the factors behind supply constraints.
Industry representatives said complex regulation, rather than speculation, drives the delays.
Michael Pozzebon, vice president of low-rise developer DG Group, said his firm used to sell houses once it got approvals because in the past it knew how long projects would take.
“To sell at that point now, there’s a risk that we can’t deliver the product on time. So there’s a perception that we’re holding on to land without developing it,” he said.
A 2016 survey of land use regulations by the Fraser Institute, a public policy think-tank, bears out the developers’ assessment. The survey found Toronto was Canada’s most regulated city, with approval times nearly double that in other centers, and the highest compliance costs, followed by Vancouver, Edmonton, Calgary and Montreal.
Developers now have to satisfy about 200 conditions, from protecting at-risk species to transport requirements, to get municipal approval, according to Bryan Tuckey, former head of the Toronto area’s building and developer lobby. That compared with about 25 at the start of the last decade, he said.
East Gwillimbury, a town just north of Toronto, is a case in point.
The plan designated it as a significant growth area, but the municipality is at least six years behind with construction of a new sewage plant needed for the town’s population to grow from 30,000 to 86,000 by 2031. The reason? A municipal funding shortage and delayed environmental assessments by the province, says James Young, town councillor and former mayor.
“Without the servicing, we stop. It’s been very frustrating,” Young said.
Developers said municipal cash is tight in part because planned condominiums take longer than expected to complete, or do not get built at all, and that means less income from development fees that help fund infrastructure.
The municipality acknowledged it depends on development fees to repay infrastructure debt, but said the fees had not played a part in the plant’s delay.
Despite the growth plan’s preference for multi-family housing, such projects can now take more than three years to complete, double the time needed 15 years ago, because of a surge in required documentation, out-of-date municipal zoning bylaws and residents’ opposition to high-rise projects, according to development lobby BILD.
Larry Clay, from Ontario’s Growth Secretariat at the Ministry of Municipal Affairs, rejected criticism that there was too much regulation, but said new guidelines due this year will ensure its consistent interpretation by municipalities.
The housing shortage is a tough challenge for Toronto and its surrounding cities, with the Ontario government predicting the area’s population will soar to 9.6 million by 2041 from about 6.5 million in 2016.
A survey published by the Toronto Region Board of Trade this month showed 42 percent of young professionals were considering leaving because of the lack of affordable housing.
Matthieu St-Pierre, a video game developer with a 3-1/2-year-old son, is one of them. With his wife, a marketing employee at the University of Toronto, he now rents a one-bedroom apartment. He is planning to move to Quebec City after a fruitless search for a home large enough for his family within their budget.
“If you have a kid, you need more than 900 square feet of space,” St-Pierre said. Ontario’s focus on higher density housing made sense, he said, but developers skewed toward too many small, one-bedroom units.
Housing is set to play a central role in the provincial election in June with the opposition Progressive Conservatives accusing the ruling Liberal party of contributing to soaring home prices with excessive regulation.
According to an Ipsos survey commissioned by the Ontario Real Estate Association last year, 85 percent of residents want political parties to tackle home affordability and 63 percent want less regulation.
David Caplan, who authored Ontario’s “Places to Grow” plan in 2006 while serving as its infrastructure minister, said it better defined the roles of provincial and municipal governments in planning and aimed for a healthy mix of housing options.
Now, 12 years on, Caplan, currently chief operating officer of the Ontario Road Builders’ Association, has acknowledged the province is still trying to find the right balance between suburban and urban growth.
“It’s still a work in progress.”
ONTARIO’S GROWTH PLAN FOR TORONTO AREA
It is one of the world’s hottest property markets, but Toronto is struggling with supply bottlenecks and developers and some experts claim that a growth plan drawn up for the city may have contributed to the crunch.
Here are the main facts about the Growth Plan for the Greater Golden Horseshoe adopted by the Ontario provincial govenrment to manage the expansion of Toronto and its surrounding areas through 2031.
Created in 2006, it was then updated in 2017 following a 2016 review, and aimed to manage population growth largely through more construction in existing developed areas, locating the highest densities where infrastructure and municipal servicing already are in place and ensuring the protection of agricultural land and the environment.
Key points:
Confine at least 50 percent of growth to already built-up areas with existing or planned water and wastewater systems until 2031, and 60 percent from 2031 onwards.
All municipalities must develop strategies to achieve minimum targets, including identifying strategic growth areas, updating zoning and prioritizing infrastructure investment.
25 urban growth centers, central areas of already built-up towns and suburbs, were identified as focal points for growth with a range of mandated densities per hectare (2.47 acres): 400 people and jobs combined within the City of Toronto, 200 in Toronto suburbs and 150 in centers of outer ring towns.
Greenfield areas should have a minimum of 80 residents and jobs combined per hectare.
Municipalities must develop housing strategies that promote a mix of housing options and densities and establish targets for affordable housing; accommodate the plan’s forecasted growth and density targets; and maintain land with servicing capacity for a three-year supply of housing.
Minimum density targets along transit corridors range from 200 residents and jobs per hectare near subways to 160 around light rail and buses to 150 around the regional public transit system.
Public transit is the first priority for transportation infrastructure planning and investment.
New developments should not harm or disrupt key natural heritage or natural water resources.
Prime agricultural areas identified in official plans should be protected.
Planning for infrastructure corridors should undergo environmental assessments that include impacts on agricultural land, natural heritage features and natural water systems.
Water and wastewater systems should support the plan’s minimum intensification and density targets.