Toronto’s housing supply challenge and growth plan paradox

Toronto, Canada’s largest city and one of the world’s hottest property markets, has a supply problem and the nation’s housing agency admits it is not quite sure why soaring prices have not spurred more construction. New homes replace demolished ones at a sharply lower rate than early this decade, completion times for multi-family projects have doubled and prospective buyers have far fewer new homes to choose from than only a few years ago. The reason, in part, may lie in an ambitious growth plan for the greater Toronto area 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 demandsupply 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 longterm 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. ‘Land banking’ and red tape 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, however, 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 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 species at risk 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.