While
drinking a Dr. Pepper and sitting in rush hour traffic the other day, I was
listening to a radio interview with local realtor (name withheld so I can avoid
a lawsuit as I deal with over 60 of them right now). The discussion was why
real-estate prices were increasing so quickly and the realtor was adamant that
there was simply a lack of available land left for development in the GTA. If
there was more land available, developers could build more residential units
and prices would stabilize. The argument didn’t seem crazy, we have built quite
a lot over the last few decades.
After
the interview ended I changed the station to 93.5 and listened to The Boy is Mine by Brandy and Monica as
I gazed out the window to reflect on this whole land issue. The first thing I
noticed was empty land – the same mysterious leprechaun creature that I was
told didn’t exist just 30 seconds earlier.
As I inched closer to Mississauga, I noticed lots of empty warehouses
and many “For Lease” signs for deserted industrial buildings. No surprise there, lots of our manufacturing
left Ontario when the costs became prohibitively high to produce anything in
this province.
Did
we really run out of land?
To
understand the argument that there is “not enough supply” we first need to
briefly review the fundamentals between supply and demand.
Supply
and demand
When
there is growing demand for a product, an inability to increase supply will
mean that prices rise. If supply is fixed (completely “inelastic”), then prices
will quickly increase as demand increases (for example autographs of George
Washington). On the other hand, if supply can grow quickly in relation to
increase demand, then the price will not fluctuate by much (for example guacamole
spreads).
If there is a sudden surge in the demand for housing, however, prices can rise sharply, since new supply is difficult to generate in a short time. This may be severe in areas where there is little available land and lots of municipal regulations before a shovel can hit the ground.
Now
that the basics are covered, let’s go knee deep into this swamp.
Is
there are any meaningful quantity of land left in the GTA to develop?
The
large realtor boards in the GTA and many developers have publicly claimed that there is simply little
to no land left in the GTA to continue developing and the only solution is to
reduce the size of the greenbelt. Some realtors
and developers commonly state “no new land is being created”. With respect to
the latter statement, I fully agree that no new land has been created since the
last ice age 11,000 or so years ago.
What
is the greenbelt? The greenbelt is a giant ring around the GTA which has major
restrictions on development, the purpose of which is to maintain greenspace as
the name suggests. Many newspapers have been suggesting that there is a land shortage and few places left
to build. If the premise of the realtors’ and developers’ argument is true,
then a serious discussion would be necessary to debate whether the boundaries
of the greenbelt should be changed.
In
a policy paper written by Josh Gordon at Simon Fraser University on March 13,
2017 (the data is recent), it was noted that there is currently 45,000 hectares
of available land in the GTA that is ready to be developed. Let me convert that
number for you into squared kilometers. That
is enough to build 450 squared kilometers! For comparisons sake, the City
of Toronto is 630.2 squared kilometers. All
that is necessary is for the municipality to hook up electricity, water and
sewage and presto, development galore!
In
2013, Neptis researchers calculated that more than 107,000 hectares of land had
been set aside by the municipalities of the Greater Golden Horseshoe to
accommodate growth to 2031. About half of that land, 56,200 hectares or 560
squared kilometres, is in the Greater Toronto and Hamilton Area (GTHA).
We
could basically rebuild the entire City of Toronto with the available land
around the city!
Mind
blown.
They say a picture
is worth a 1000 words. Here is a recent photo of Toronto with open land as far as the
eye can see.
Brownfield
properties
Brownfield
properties is a fancy term for properties that may have been contaminated due
to previous commercial or industrial use, for example old factories and
manufacturing plants. Brownfield properties can be remediated and cleaned up
for re-development, including residential developments. Yes, it costs money to
clean up these sites but the trade off is these properties are usually located
near prime areas and all services already hooked up. Redeveloping these sites means we slow down
the rate of paving over green space. It’s a win-win for everyone involved, even
Elizabeth May of the Green Party would agree.
I
tried to find some good statistics on how many brownfield sites exist in the
GTA but this proved to be rather difficult. Suffice to say, there are many of
them and some have been successfully re-developed into condos and townhouses.
If
you consider the various industrial areas which have been sitting idle for the
past decade or so as manufacturing dried up, there would be a massive chunk
additional land that can be converted into condos, townhouses, or even detached
homes. It’s almost as if we could “create new land” out of nowhere.
Wait,
isn’t our city is growing too fast?
Many
people believe that Toronto is growing at its fastest rate ever because of all
the new immigrants moving into the city. The belief is not without merit; lots
of immigrants are moving to our great city and the city is growing. We are, however, bombarded with news story
after news story on how Toronto is growing exponentially.
Let’s look at some real numbers to see if there is any truth to it:
Yes,
you read that correctly. Toronto is
growing at its slowest rate in 40
years! On a percentage basis, the city was growing faster in the early 90’s
when we were in a recession than today when our economy is supposedly bigger and
stronger. Keep in mind that real-estate prices were falling year after year in
the early 90’s.
Mind
blown x 2.
Are
we building enough?
You
likely heard through the media something to the effect of “there is not enough
housing being built” or “all the people coming to Toronto need to live
somewhere”. In addition, anytime a new
development opens you likely heard of stories of hundreds of people jammed into
sales offices trying to get a raffle ticket to purchase a condo or house. Yes, irrational behaviour is everywhere
nowadays.
Are
we building enough? This is an interesting question as we need to consider
population growth and immigration levels which can change drastically from year
to year. Thankfully for us, we have a
graph with 24 years of data to figure this question out.
As
this graph eloquently illustrates, we are building the most since 1991. In other words, we are building more than the
long term historical average (lower number means more construction relative to population growth). There was a
period in the 1990’s when the number shot up and construction slowed which is
consistent with the fact that new home construction was in recovery mode after
imploding in late 1989.
If
you extrapolate the graph a bit more, we are building the most since the apex
of our last real-estate boom in 1989. Coincidence? Nah, impossible!
The
evidence indicates that we are building more than enough to accommodate the
increase in population growth. I’m no
expert on city planning, but it seems, if anything, we are building too much.
Mind
blown x 3.
What
about a sudden increase in supply?
Let’s
assume for the sake of argument that we could build 100,000 new single detached
homes in the GTA over the next two years. Would that really change the current
prices?
During
the great building boom of the 2000’s in Miami, Phoenix, Las Vegas, Ireland,
Spain and various other countries, no matter how much product
developers brought to the market, the prices kept rising. It seems rather
counter intuitive, more supply = higher prices?! Demand was so strong it did
not matter that developers were overbuilding in every city/country despite what
the specific populations required. This was a
demand issue, not a supply issue. In the end, most of the glut was sold at
hefty discounts and the environmental impact of unneeded development will
linger for years to come.
If there is a
sudden, intense increase in demand, it would not make any difference how much
new housing supply is brought to the market. It will simply be gobbled up
irrespective of population requirements.
***
When
I was doing the research for this blog post, I was surprised how I, too, was
hoodwinked by the real-estate pumpers on their claims that we ran out of land. Their
arguments just seemed to make sense, until real facts got into the way. No alternative facts, just simple numbers
that you and I can comprehend. Numbers such as 450-560 squared kilometers of
land that can be developed in the GTA which is enough to last us god knows how
many more years. In addition, there are hundreds of former industrial sites just
waiting to be converted into residential developments.
Yes,
it cost more money to re-develop a brownfield property. Yes, it’s easier to
pave over the greenbelt. Yes, there is a
lot of red tape when it comes to getting approvals for new developments. Yes, municipalities should do a better job
streamlining development applications. No one is disputing any of that.
Time for a reality
check: we have enough land to rebuild the entire city over again; the
population of the city is growing at its slowest pace in 40 years; and, we are currently
building too much.
The
words “we ran out of land to build” is beyond ridiculous and not worthy of the
ink on the paper they are written. If someone still buys that debunked
statement, please send them to this blog.
If after being presented with the facts they are still in denial, it
would be safe to assume they believe that Santa Clause and Sailor Moon are real
people.
