Commercial Real Estate News

The greenbelt’s collateral damage


Ben MyersThe Ministry of Municipal Affairs and Housing announced in May that Ontario is proposing to grow the Greenbelt. Ontario’s Greenbelt is an area of green space, farmland, forests, and watersheds, and is one of the largest bands of permanently protected land in the world.

The fundamental intent of the Greenbelt is to protect the natural and farmland features from urban development. Those that support this decision believe that urban sprawl in southwestern Ontario has reached a “crisis level” and reducing long commutes, lowering carbon emissions, and preventing municipalities’ from taking on the financial burden of servicing mono functional developments should be top priorities.

In the interest of full disclosure, Fortress Real Developments has been involved in approximately 72 developments in our history, 29 of which I would describe as urban developments, 25 suburban infill projects, and 18 greenfield sites. We like suburban greenfield developments, but it could be argued that 75% of our portfolio actually benefits from further land restrictions.

The average price of new single-detached and semi-detached homes absorbed in the Toronto Census Metropolitan Area in December of 2005 was approximately $382,000; fast forward to April 2016 and that figure was just over $886,000 (per CMHC). The number of available low-rise homes in builder sales offices has declined 85% over the past decade and 48% over the last 12 months (per Altus Data Solutions). With high prices and limited selection, many buyers are choosing suburban infill projects and downtown high-rise projects for affordability reasons, in addition to a desire to be in a walkable community with access to better transit. This urbanization trend has garnered much media attention, but are buyers choosing these places to live because they want to, or because affordability and limited choices are forcing them to?

Numerous surveys have been conducted in an attempt to understand current and future buyer preferences. A Pembina/RBC survey in 2014 asked buyers where their ideal home would be located if home costs were equal: 39% wanted a location-efficient city location with a commute time less than 30 minutes, 42% wanted a location-efficient suburb with a short commute, while 19% wanted a car-dependent suburb with a longer commute.

In their Fall 2015 FIRM Survey, Altus Group asked if people preferred a smaller home in a central area or a larger home in the suburbs: 25% of respondents under the age of 35 disagreed, about 37% of 35-69 year olds disagreed, while 46% of respondents aged 70 or above disagreed.

Fortress conducted a survey via social media for our Spring 2016 Market Manuscript report which asked what potential buyers would do with a $750,000 budget for a home: 36% would buy a 2,000 sf townhouse in the inner suburbs, 28% would buy a 1,000 sf condo downtown, and 14% would buy a 2,500 sf house in the outer suburbs, while 11% would buy a 3,000 sf bungalow in the country, and 11% would buy a 1,500 sf condo outside the downtown core.

If you combine the three survey results, about 40% of respondents would sacrifice home size to live in an urban centre, while 60% prefer a larger home in the suburbs. If you break the numbers down further 20% to 25% of people will go to a car-dependent outer suburban area to get the type of home they prefer. To put it in another context, there were just over 140,000 GTA housing transactions in 2015 (100,000 resale and 40,000 new, per TREB and Altus). Could the Greenbelt be potentially limiting the preferred choice of housing for about 35,000 people a year!

Many of those 35,000 people are choosing to stay in rental and condo apartments longer, buying stacked townhouses in the outer ‘416’ area, or settling for much smaller homes than desired. However, many are doing exactly what the Greenbelt proponents don’t want – driving even farther out, increasing commute times, and jumping the Greenbelt to find the single-family house they covet. PMA Brethour recently pointed out in a presentation that areas like Innisfil, Caledonia, Bowmanville, Collingwood, Angus, and Tottenham are all experiencing mini new housing booms. This increase in activity is due to buyers driving to affordability.

I’m not going to come out against the Greenbelt, but I simply wanted to point out the unintended consequences of its implementation and expansion: GTA ground-oriented new housing supply has diminished and prices have skyrocketed, a portion of the about 35,000 potential “sprawl” homebuyers have reduced their commutes but a portion have significantly increased theirs (the net benefit?), some GTA sprawl has been reduced but some has just been moved elsewhere.

Trying to find a balance between an affordable and desirable housing supply and a green environmentally friendly metro area is not a simple undertaking. Forcing or coercing prospective buyers into urban settings via their affordability concerns or tolerance for commuting pain only works some of the time. So what’s the best solution?

Fortress Real Developments is a diversified real estate development and investment company that partners with established builders and developers across the country. Fortress sources equity capital for the partnership, in addition to providing value-add services such as market research, structuring of debt, marketing, and other realty services. Ben assists in evaluating both the market conditions and projects that Fortress is active in. Follow his blog posts and commentary on the Canadian Housing Market at www.fortressrealdevelopments.com/news or follow him on twitter at @BenMyers29

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Ben Myers

About the Author ()

Ben Myers has over a decade of real estate research experience with several firms in both the United States and Canada including Hanley Wood Market Intelligence in Dallas and Altus Clayton in Toronto. Most recently Ben was Editor and Executive Vice President of Urbanation, a condominium apartment market research firm. Ben’s clients, and subscribers to Urbanation’s quarterly report included Toronto’s top high-rise developers, Canadian schedule A and B banks and secondary lenders, mortgage insurers, municipalities, planners, new home brokerages, appraisers, and suppliers. Ben was widely viewed as the voice of the condominium market in Toronto and made television appearances on CTV, Global, City TV and Rogers TV, as well as being quoted regularly in the Globe and Mail, Toronto Star, National Post and several magazines including Toronto Life, Canadian Business, New Homes and Condos, Homebuilder Magazine and others. Ben has also contributed data to articles and blogs by the New York Times, the Wall Street Journal, Huffington Post, Bloomberg News, Buzz Buzz Home, and New in Homes. Ben has been the keynote speaker for events held by BILD, OHBA, Toronto Construction Association, The Property Show, Canadian Apartment Investment Conference and many more. Ben’s expertise includes residential market studies, condominium apartment feasibility studies, letters of opinion on development scenarios, due diligence reports for high-rise land purchases, focus groups, consumer surveys, data mining and statistical manipulation of real estate related data, macro level economic and housing analysis, and rental demand studies. Ben has also done OMB prep work and assisted with municipal and regional studies on urban boundary expansion, housing incentive programs, and long term residential dwelling forecasts. Ben has a degree in economics from the University of Texas at Arlington and has taken additional courses in urban land economics from the University of British Columbia.

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