To maintain a healthy inventory of housing in the Greater Toronto Area requires that 40,000 new homes be constructed each year. According to George Carras, President of RealNet Canada this level of supply can accommodate population growth as well as the influx of 80,000 immigrants annually.
Driving around downtown Toronto ubiquitous condo construction suggest a seemingly ample pipeline of new housing. Also, in the first quarter of 2010 RealNet reported a record number of condominiums were sold in the GTA. This high level of activity has led to what George Carras calls the ‘myth of high inventory’ in housing the GTA and furthermore disguises a possible structural problem in the long-term supply to the region.
Contrary to the impression left by a superficial glance, Realnet data shows record low inventory, increased pricing, lack of development ready urban sites and land suitable for low and mid-rise development. An early indication of trouble may be a marked decline in new home construction in the first quarter of 2010.
A shrinking supply coupled with continuing demand points to a shortage of new homes in the GTA’s future. The strain is expected to emerge in the market starting in 2011 and to be fully manifested by 2014 according to RealNet.
RealNet’s findings are consistent with the sentiment of panelists at this year’s sixth annual Land & Development Conference held in Toronto April 27th. Participants pointed the finger at a property development process that is slower, more difficult, less predictable and costlier than in the past. According to Don Given, President of prominent planning firm Malone Given Parsons Ltd. ‘the continued delivery of 40,000 units per year is going to be a challenge’.
The list of Government policy, legislation and infrastructure issues influencing this pending short fall is long, inter-dependent and predates the recession. It includes establishment of the Toronto Green Belt in 2003, a shift toward policies of urban intensification set out in the Provincial Government’s policy document Places to Grow, new municipal legislation calling for preservation of heritage and greener buildings and a Provincial requirement for comprehensive plans from the regions municipalities due to be completed later this year.
Simultaneous with this wave of change there have been economic factors that have held back the development industry; a slow down in credit markets through 2009, a rise in unemployment and its implications for the Ontario economy, introduction of HST, the pending withdrawal of stimulus funding and the impact of a stagnant U.S. economy.
While new infrastructure, as a result of Government stimulus programs has been welcomed by developers and cities alike, the selection process for funding has not reflected municipal priorities said Hazel McCallion, Mayor of Mississauga. Mississauga included every possible project in its submission for funding in the absence of a more rational approach being articulated by senior levels of Government. In spite of being projects flagged with a higher municipal priority, financing was approved for less urgent requests such as two community swimming pools. Consequently, McCallion added, there will continue to be urgent infrastructure needs.
The convergence of all these issues over a relatively short period of time is that the land supply for new housing development in the GTA has not been replenished, the municipal approval process has ground to a snails pace, development charges are climbing and uncertainty about new construction schedules is unprecedented. For the consumer an emphasis on high-rise over low and mid-rise building has compromised the choice of housing types and may ultimately impact availability of new homes entirely.
While the web of obstacles to smooth housing development are significant, true to their entrepreneurial spirit, GTA builders are rising to the challenge and making adaptive changes. John McNeil, President of First Gulf Developments described how his company has moved all its divisions under one roof in response to the growth of mixed use development.
Mid-rise developer Jeanhy Shim, Vice President of Streetcar Developments indicated that although there are significant challenges finding and developing projects, once completed there are eager purchasers and they typically sell out quickly.
There is also a phalanx of public companies that are mandated to pursue private partnerships to develop real estate in the GTA that will present new opportunities for regional builders. Build Toronto, Waterfront Toronto, Ontario Realty Corporation, Toronto Lands Corporation and the Canada Lands Company CLC Ltd. are all tasked to boost Government coffers. Shirley Hoy, CEO of Toronto Lands Company said her organization is expected to generate a $30-million surplus annually for the Toronto School Board.
A panelist at the conference predicted that the current development bottleneck related to planning and infrastructure issues will eventually clear and at that point the land shortage will ease. It was also noted that the prospect of reduced affordability might diminish the demand for housing for a period of time.
While the industry is responding to address a difficult situation, in the absence of a mechanism to break the log jam in housing development in the GTA, the shortfall predicted by RealNet is very likely to occur.