Toronto and Ontario’s Terrible Moves for Real Estate
Most of you are probably unaware of the various moves that the city of Toronto and province of Ontario have initiated that will terribly injure Toronto’s real estate economy. Most of these moves are going to drive real estate prices significantly higher to levels never imagined in this decade. I now predict that per square-foot condominium prices in central Toronto for quality ‘high design’ buildings could rocket to $1,500 per square-foot by 2027. A 500 square foot one bedroom without parking or locker space could sell for $750,000 in 10 years. You can thank Premier Wynne and Toronto’s planning department (lead by former chief planner Jennifer Keesmaat) and our local city councillors.
Despite their lip service to try and keep real estate affordable, these actions show a clear intent to the contrary. Here’s why:
- Liberal leader Premier Wynne’s elimination of the Ontario Municipal Board (OMB). What exactly does this body do? It sits as a ruling body in land disputes between a municipality and a private citizen or enterprise. For instances, if a private citizen could not convince the city of the merits of a development, perhaps the city felt 10 floors was appropriate and the private citizen believes that 14 floors made more sense, then the OMB would rule on the matter based on the Ontario government’s land use policies. While many developments ended up at the OMB to be judged by the merits of the development based on Ontario land use policies, just as many if not more are settled by both parties through compromise. Without the threat of the OMB, it is unlikely that the city will see the need for a compromise. With the OMB intact that 14 floor proposal likely would have settled at 12-13 floors. Without the impact of an OMB hearing it woud likely become 8 – 10 stories. Ultimately a non development. A condo is just a manufactured product. There is a point where the cost doesn’t allow for its manufacture. It is likely that many potential developments will never see the light of day. While a replacement to the OMB has been created it has ‘no teeth’. It will not rule as a “court” in land use matters and will not hold any sway with the city of Toronto’s Planning Department or it’s councillors. If the pipeline of development closes in central Toronto, so too will the development of office buildings and hotels. The existing restaurant and retail scene will suffer terribly. The result will be less rental housing and less homes to purchase. Toronto’s growth will stall. Real estate prices and rents will explode. Most developers have already moved their attention to the 905 and outlying areas. The province has doomed Toronto’s core.
- Introduction of rent controls for buildings built after 1991, by Liberal leaders and Premier Kathleen Wynne. Rent controls on units built prior to 1991 was a disastrous policy, so it follows that this will be the same. Here’s why, when rent controls were introduced in 1975 it definitively ended all new purpose-built apartment buildings. The industry was dead for over 40 years until recently when developers started to see a window of opportunity. If new buildings didn’t have the pre-1991 legislation to worry about, in some locations, apartment buildings looked like they might work financially. Why? Due to significant rent inflation over the last three years. This, plus the flexibility of raising rent when possible, convinced some developers to go the route of rental instead of condos. This was huge for the city because the rental stock was 50+ years old and in bad shape. As soon as the announcement was made last spring to create new rent regulatory legislation, dozens of buildings got cancelled and many under construction have converted back to condos. This legislation will prevent the rental stock from growing and improving. Less supply and growing demand means higher rents. Much higher rents. A new 450 square foot one bedroom with parking now rents for $2000 per month ($4.50 per sqft per month). Expect this to hit $2500 per month within five to seven years ($5.50+ per sqft per month)
- Heritage Conservation Districts (HCD) put in place by Toronto Planning department and Toronto City councillors. By example this bylaw has created almost one hundred of “dubiously newly designated” structures in the western precinct (University to Bathurst, south of Queen Street and north of Front Street). These buildings stood undesignated for 50 years with nary a peep from the city’s historical board. Poof – overnight they have become incredibly valuable examples of some such historical character. This is a transparent attempt to stop and/or slow down the density push that the core is experiencing. There is nothing of historical value to any of these structures. If these were important buildings then they would have been discussed and debated as “important” historical structures over the past 50 years. That didn’t happen. The HCD has totally shut down all new development in one of the city’s most important precincts. It has been appealed to the OMB, but in the meanwhile this agenda will drive existing condos even higher in price. It will do the same to rental prices. If the HCD’s stand, prices will continue to spiral out of control. These HCD’s have been created in several of Toronto’s other central precincts with the same likely results.
- Liberal leader Premier Wynne’s introduction of a 15% foreign investors tax. It turns out, according to Statistics Canada, foreign buyers own 4.9% of homes in Toronto. During the implementation of the 15% foreign buyer’s tax from April 2017 to November 2017 the province collected $132.6M from 1,080 transactions. The best the province will do is to collect $300M a year. This is a drop in the bucket to the billions of dollars of land transfer tax that it generates every year from real estate transactions. Approximately 100,000 used – resale homes and 50,000 new homes sell every year in Toronto (35,000 of these new homes are condos). The Ontario government has reported that the foreign buyers recently accounted for approximately 10% of “new sales” in the condo market. These are sales that happen 5-6 years before the units are completed. These sales help developers finance the construction of their projects. They are vital to the success of this new build economy. Local ‘move in’ buyers have historically rejected these opportunities because of the long delivery time. Without investors there is no new development industry. Currently, approximately 3,500 new condo units sell to foreign buyers a year. It is completely realistic to assume half will decide to go to other cities. The city of Toronto will lose approximately $20M in land transfer taxes and $7M in annual property taxes per year (and escalating annually). The province loses approximately $20M in lost land transfer taxes per year as well. More importantly, the city will lose approximately 20,000 housing units over a 10-year period (assuming condo sales increase as a percentage of housing starts). Do we really want to reject foreign investment for 150 – 300M of tax revenue?
These governments have created a perfect storm. I don’t think they have actually considered carefully as to what they have collectively created. They have created a ‘crisis’ environment due to this unbelievably inept meddling. These actions need to be reversed before it is too late.