Toronto's condo market booms

[urbandreamer]

Oh, Jane Renwick and company finally admit the truth? In today's National Post ....

Well, I'll admit, I have a "secret" crush on Jane.

But today's National Post indicates some inexperienced builders could be in trouble....(Hmmm, I think I may have an idea....)

http://network.nationalpost.com/np/blogs/toronto/archive/2008/08/19/krejhtkrjhtkrjeter-tret.aspx

Condo boom is ending, report predicts
Posted: August 19, 2008, 9:35 PM by Barry Hertz
Real estate


By Jenny Wagler, National Post


New condos are still shooting up to crowd the Toronto skyline, but behind the scenes the condo boom times are ending, a new report predicts.


“We’re expecting a slowdown in 2009,†said Jane Renwick, editor and vice-president of Urbanation, a condominium market research company.


“So we would say that we were at 22,000 [condo] sales at the end of 2007. We’re predicting 16,000 sales to round out this year. And we’re expecting sales to dip beyond that in 2009.â€

Urbanation released a report yesterday about the Toronto condo market’s second quarter of 2008.


Following record condo sales in 2007, she said, the market is now back to 2005 and 2006 levels.


Currently, she said, the market appears “more normal and predictable,†with sales volumes returning to earlier levels and prices climbing slightly.


But economic woes in the United States, a high dollar and a loss of manufacturing jobs, she said, are pointing toward a recession and a condo market contraction.


“We’re not predicting a crash by any means,†she said. “I would say that we’ll have a correction in terms of sales volume, but I don’t think we’ll have the same correction in terms of price.â€


The good news, she said, is that this contraction shouldn’t be on the level of the condo market crash of 1989 to 1991.


Starting in 1986, she said, prices started increasing by 6 and 7%, quarter over quarter. In 1987, the price increases exceeded 20%, year over year.


At the end of 1988, condos were selling for 39% more than the year before. And in 1989, there were a couple of quarters with 40% price increases, year over year.


“Those things say a correction is inevitable — it’s price inflation,†she said.


And the result, she said, was that in 1991 and 1992, condo pricing dropped by 17%, 16% and 15% year over year.


But this time, she said, the price increases are more modest.


In 2007, she said, price inflation was between 10 and 12%, year over year, relative to the year prior; now it’s at 8%.


“There was some price inflation last year which always happens in a heated market, but it didn’t get out of control to the point where it was requiring a correction to bring it back down in line with value,†she said.


The number of condos being built, she said, are likely to decline from both a rise in construction costs and a credit crunch in the banking sector, which is making it tricky for less-established developers to find financing.
“So ABC developer launches a building, thinking everything is fine with what they consider the historic pre-sale requirements in order for the financing to kick in,†she said, “and the banks are saying we actually don’t have an appetite for this because we can’t.â€

Even if supply diminishes, she said, Urbanation predicts that prices will flatten out as opposed to rising.


“We’re also saying that the demand will wane — hopefully those two things happen in unison and create some kind of balance,†she said.


Maureen O’Neill, the president of the Toronto Real Estate Board, said that the advantage to the current softening real estate market is its stability.


“Because it’s declining, it™s correcting, it’s balancing to make it a lot more stable,†she said. “At least now we know what we’re looking at.â€

 

[dpylyp]

I found a Houston Based website that is worthy of a look;

http://houstonhousingmarket.org/

"Houston Homes Market posted declines in the number of homes sold with July of 2008 posting 5,885 total closed sales compared to July of 2007 which posted 6,856 Houston Homes sales. These numbers show a slight improvement over June of 2008 on a percentage basis, as July posted a 14.2 percent decrease in Houston Single Family Home sales on a year over year basis, while June showed a decrease of 14.7 percent on a year over year basis. This trend has again increased Houston Housing Inventory now pushing 6.9 months with a total of 36,287 active Single Family homes on the market."


The number they are quoting as number of units sold and declining numbers seem similar to the ratio's posted in Toronto, yet as population by city they appear to be about half the size of our market.

http://www.infoplease.com/ipa/A0763098.html
Houston Population 2005 around 2.0 MM

From reading posts like this from other cities I realize how few homes are for sale [in Toronto plus the GTA's Mississauga, Newmarket, Oshawa] based on a percent of population.

 

[AKS]

I'm not sure if anyone would be interested in this. I found it while netsurfing.
http://www.lai-simcoe.org/Condo Presentation.February 25 2008.pdf

Just What are We Getting Into?
The Impacts of the GTA Condo Boom
Presentation to Lambda Alpha Simcoe Chapter
February 25th, 2008

 

[EverythingZen]

I found a Houston Based website that is worthy of a look;

http://houstonhousingmarket.org/

"Houston Homes Market posted declines in the number of homes sold with July of 2008 posting 5,885 total closed sales compared to July of 2007 which posted 6,856 Houston Homes sales. These numbers show a slight improvement over June of 2008 on a percentage basis, as July posted a 14.2 percent decrease in Houston Single Family Home sales on a year over year basis, while June showed a decrease of 14.7 percent on a year over year basis. This trend has again increased Houston Housing Inventory now pushing 6.9 months with a total of 36,287 active Single Family homes on the market."


The number they are quoting as number of units sold and declining numbers seem similar to the ratio's posted in Toronto, yet as population by city they appear to be about half the size of our market.

http://www.infoplease.com/ipa/A0763098.html
Houston Population 2005 around 2.0 MM

From reading posts like this from other cities I realize how few homes are for sale [in Toronto plus the GTA's Mississauga, Newmarket, Oshawa] based on a percent of population.

Your information is a little misleading to the reader, though probably not intentionally so.

Greater Houston is roughly comparable in population to the GTA (http://en.wikipedia.org/wiki/Greater_Houston) and therefore an absolute comparison in probably quite valid to show the weakness in the GTA housing market.

All signs point to a gradual but steady decline in GTA housing prices. The dramatic drop in sales is of particular concern and in my opinion portends a small price correction later this year and in 2009.

 

[casaguy]

CATALYSTS: A SPECIAL SERIES: WHAT'S DRIVING GROWTH IN DIFFICULT TIMES: CONDO CONSTRUCTION

Sky-high spinoffs

A gleaming new vertical city has sprouted above Toronto's lower-scale buildings. The big question is whether all this condo construction will translate into sustainable economic growth


JOHN LORINC
Special to The Globe and Mail
September 19, 2008


For Robert Whitfield, the eureka moment occurred when he realized his store was filled with customers trapped between drywall and a hard place.

It happened about four years ago, shortly after he opened an upscale furniture store in Liberty Village, a district of warehouse lofts on the west end of Toronto's downtown. Young couples were streaming into his shop, desperate to furnish new stacked townhouses and condo apartments with minuscule master bedrooms and other "spatial challenges."

"All of 10-by-11," recalls Mr. Whitfield, the principal of Casalife Inc., of one particularly constrained floor plan. "It just didn't have room for a bed and a dresser and a tallboy. Where are you going to put your socks?"

Where indeed? Within months, he had launched a queen bed with drawers cleverly tucked underneath, and a niche market was tapped. Today, Casalife specializes in furniture tailored to the cramped confines of the high-rise condos that proliferate in the city.

Mr. Whitfield now has several competitors and spends much of his time attending international trade shows searching for size-conscious items, such as the elusive 18-inch coffee table. "The reality is that this market is still neglected."

But there's no doubt it's a market. Indeed, Casalife's commercial success is directly attributable to Toronto's sustained condo boom, which traces its origins to some key land-use reforms made in the mid-1990s. A decade later, the market shows little sign of slowing, despite moribund real estate markets in the United States and Britain.

Between 1994 and 2007, the annual dollar value of residential building permits in the City of Toronto jumped more than three-fold, largely on the strength of the condo boom. It's as if a gleaming new vertical city has sprouted amid Toronto's lower-scale buildings.

Between 2001 and 2006, a staggering 17,000 residential units were built downtown, the vast majority of them high-rises. At the end of 2006, another 39,000 units, in 155 projects, were in the pipeline.

The result has been a remarkable 17-per-cent jump in the population of central Toronto - growth not seen since the early 1970s. Nor is the boom a downtown phenomenon: Clusters of condos have cropped up in traditionally low-rise suburban areas such as North York, Scarborough and Mississauga, with more on the way.

And the developments are growing not only in height, but also in scope. Vancouver-based Concord Adex, which is building CityPlace, a sprawling 20-building cluster near the downtown Rogers Centre, is also planning a 15-tower project on a 20-hectare former industrial site near Highway 401. To be built over the next decade, this new project is worth a staggering $2-billion.

The key to this growth, planners and economists says, is the fact that the population of Greater Toronto jumps by about 100,000 every year. All these new residents need housing and increasingly they are choosing high-rise condos.

This rapid transformation is not without its critics, including homeowner groups upset about tall towers and downtown artists who bemoan the loss of Main Street atmosphere in areas targeted by developers.

"Pumping a lot more people into the downtown core hasn't led to balanced growth," says Toronto Councillor Adam Vaughan, whose ward has the highest concentration of condo activity.

Yet even skeptics don't deny that the immediate, local spinoffs are substantial. Condos today represent 50 per cent of all residential development activity in Greater Toronto and 80 per cent in the City of Toronto proper - a trend that puts the region sharply at odds with most North American urban areas.

The direct investment for condos built since 2001, as well as those under development, likely exceeds $20-billion. And housing starts - whether high-rises or subdivisions - have always functioned like economic spark plugs. Between 2002 and 2007, residential construction as a proportion of GDP rose to 6.7 per cent from 5.5 per cent - a shift that has moved in lock-step with job creation, according to housing economist Will Dunning. "That's where it all comes from."

In the GTA, the most direct beneficiaries are construction workers. Mr. Dunning says $1-million of residential construction translates into nine "person-years" of construction employment, as well as another two person-years for consultants, architects and other professionals involved in planning such projects.

The other big winners are the local suppliers of building materials. Although non-residential construction consumes a larger amount of basic materials, residential development represents "a particularly important source of demand for producers of windows and doors, kitchen cabinets, gypsum and wallboard and heating and air conditioning," according to an analysis by Canada Mortgage and Housing Corp.

The wages and purchases of materials for Toronto's 2007's condo projects, in turn, triggered about $175-million in tax revenues. In terms of local taxes, city officials say that between 1996 and 2005), the 69,000 new condos completed in that period contributed about $113-million annually to municipal coffers.

Then there are the secondary spinoffs - the new supermarkets, dry cleaners, convenience stores, coffee shops, houseware and hardware stores that cater to thousands of residents now living near the financial district.

Stephen Dupuis, CEO of the Building Industry and Land Development Association, says the typical new home buyer purchases about $10,000 worth of goods after taking possession. But Mr. Whitfield, of Casalife, suspects the figure could be higher for condo residents, because of the small size of many suites: "They get their occupancy, they move in and then realize their furniture doesn't fit."

Like Casalife, many retail companies are moving to fill the needs of condo dwellers. General Electric Canada's Mabe appliance division recently launched Loft Kitchen, a collection of fashionable, small-scale appliances and stacked washer-driers suited to tiny condo kitchens. Working with developers, GE tailored the collection specifically to this market. "You need to get efficiency and space and hit the prices point," says general brand manager Philippe Meyersohn.

Unlike locally sourced construction materials, however, durable goods and appliances tend to be imported from Asia, Mexico and the United States, illustrating how the condo ripple effect can spread well beyond the GTA.

Planning consultant Barry Lyon also argues that the high-rise office boom in downtown Toronto (200 floors are currently under construction) is linked to the flourishing condo market. "A lot of the office construction wouldn't be happening were it not for the pool of highly educated technology workers the condos have brought into the city."

The big question is whether all this construction will translate into sustainable economic growth for Toronto.

Mr. Lyon, who describes himself as "a believer," says the condo boom essentially makes the city function more productively. Intensification gives rise to non-economic benefits such as more transit ridership, energy savings and greater efficiency in municipal services such as garbage handling.

Others aren't convinced. Pointing to an earlier generation of high-density towers, Councillor Vaughan says there's a risk that consumers may sour on the glut of tiny suites, leading to losses in market value and condo towers that come to be dominated by low-income tenants.

Douglas Young, co-ordinator of York University's urban studies program, points to another pressing issue: "The state of [the city's] infrastructure - physical, social and natural - is in pretty lousy shape." Yet planners continue to approve thousands of new condo units, he says. "You have these fabulous looking high-rises from a distance, but getting from them to somewhere else in the city can be a real pain in the backside."

Mr. Lyon counters that the $20,000-to-$30,000 per-unit fee imposed by the city (parks levies, development charges and so on) help underwrite the cost of municipal infrastructure improvements ranging from new transit service to libraries.

From his Liberty Village showroom, Rob Whitfield sees no end to the forest of condo towers rising around him, nor a lessening in demand for his products. Casalife recently opened a new outlet in Vaughan, north of Toronto, which has its own big plans to develop high-rise condos and offices in a city-centre to be served by a new subway extension. As he sees it, "I'm a bit of a pioneer."

*****

By the numbers

$4-billion+

Value of condo projects across Greater Toronto in 2007 alone.

80

Number of new condo projects expected to be launched in Toronto region this year.

11,200

Number of new units started in first seven months of 2008.

5.2%

Increase in number of building permits issued in Toronto in July, 2008, compared to June, with much of the activity in the "multi-unit residential" category.

One-third

Portion of downtown Toronto condo buildings that are 30 storeys or taller.

50,000 and 8,000

Number of doors and refrigerators, respectively, that will be needed at downtown CityPlace project.

300

Number of construction workers employed at CityPlace on a typical day.

Sources: City of Toronto; Urbanation; Building Industry and Land Development Association; Statistics Canada; CMHC; Concord Adex

*****

DEALING WITH DEVELOPERS

In April, 2007, Toronto launched a two-year pilot project to establish a "design review panel" to buff up the city's architecture standards, especially for large-scale towers that can radically alter streetscapes and the pedestrian realm.

The move was the city's response to growing concerns among neighbourhood groups that developers are building increasingly enormous condo towers with little regard to their look, especially at grade.

But the other source of inspiration was the City of Vancouver, which has relied for years on a design review panel, comprised of architects, engineers and planners, to vet development proposals. Projects that don't pass muster go back to the proverbial drawing board.

Vancouver's design panel is just one of a series of discretionary planning policies that sharply differentiate Toronto from the West Coast metropolis. Unlike in Ontario, Vancouver developers can't appeal planning decisions to a quasi-judicial body. City planners, in turn, encounter less interference from local councillors, meaning they can fast-track applications and increase site densities while demanding more from builders in terms of benefits to the public, such as day-care centres, arts facilities and landscaping.

"Things tend to go more predictably," Robert Freedman, Toronto's head of urban design, says of the Vancouver model. "It's less convoluted and not nearly as political."

There's an even more important dividend, however. Vancouver's approach, says that city's retired planning director, Larry Beasley, has created "a neighbourhood environment at high density that consumers find very attractive because it is not just housing they are purchasing but a complete residential/neighbourhood lifestyle. This has added huge value to private market projects."

Mr. Beasley says that developers, "after a period of watching the results on their bottom lines, have now generally become happy to make contributions ... to get through the Vancouver system."

The City of Toronto is not placid when dealing with developers who want to build above existing height or density limits. It levies fees, known as "Section 37" benefits, to help offset such projects.

Since 1998, the city has collected $48-million in Section 37 fees. The funds, another form of economic spinoff, go toward heritage protection, day care, public art and other community amenities.

John Lorinc

 

[cuzzin_elias]

keep drinking the kool aid sheeple

 

[TrickyRicky]

I can't believe it's september 19th 2008 and people are still finding optimistic or "measured growth" articles and opinions on real estate in Toronto and Canada. I'm no doom and gloom guy, I bought as late as 1.5 years ago. But I mean just keep following this thread over the next few months but the only phrase I can use to describe the market right now is "calm before the storm". Into the fall it will turn to "scary" and hopefully with some luck we won't enter "nightmare" (the phase that is happening in the US, Spain and the UK at present), as in make sure your bank accounts are CDIC insured, you have the dumb luck to not have a mortgage renewal in 2009, and if you work in any field related to real estate, finance, construction or servicing these industries you have your resume brushed up and ready to go nightmare.

 

[lordmandeep]

um, the truth is things here were nowhere as screwed up as in the US and Britain.


If we were directly related we would have collapsed a while ago.


imo Canada's fiscal and monetary situation is the most stable and the most conservative in the Western world right now.


Meaning we will face a downturn but our banks will not fail (we only have 5 anyway).

 

[AKS]

Meaning we will face a downturn but our banks will not fail (we only have 5 anyway).

If we do end up getting hit in worst case scenerio, I think the banks would gladly merge. They've been wanting to merge for a long time. Bank of Canada just won't let them due to monopoly.

 

[Dichotomy]

$500 billion in bail outs south of the border?

Mutual funds are taking a serious beating.

Canada may be in better shape than our cousins south of the border and across the pond, but numbers I am hearing for the GTA alone (retail sales, auto sales, etc.) are worsening - and there is normally a lengthy lag between bad news and plumeting sales anyway.

The biggest danger we face now is panic. Bad news has a way of escalating. We have to exercise a little Canadian stoicism here and just wait this out. That is preferable to the alternatives.

 

[lordmandeep]

500 billion is nothing considering there is close to 3 trillion in bad debts...




imo things have to move slowly or then you get in real troube and they are here in Canada.


We can go down but we can't have massive decrease like we had down south.

So far things are worsening however the good news is that it is happening at a slow rate compared to every other G8 Nation.


Even if the Banks get in trouble, you are right they would love to merge.

Cibc is looking weak now, they could maybe get taken over if things get bad.

 

[cdr108]

The Canadian banks are no where near the direct exposure to the sub-prime, CDOs, SIVs, etc as compared to the US.

However, that does not mean we are not exposed because the products were securitized, under the premise of spreading the risk, and mixed with other debt instruments so things are difficult to breakdown.

Many Canadians seem to have forgotten that Canada also has a credit liquidity crisis with non-bank ABCs (asset backed commercial papers). Many institutional clients bought these under the premise that the funds could be accessed anytime, anywhere and safe. Now many holders cannot get their full amount back and must sell at a loss if they want access to their funds immediately.

There is a Canadian and global credit crunch, and ultimately that could affect some condo developments financing, in addition to the global real estate bubble bursting.

This is not a doom and gloom post, but why would one think that Canada can isolate itself from the rest of the worlds events?

I know that the average condo in d/t Toronto was selling for ~ $200 PSF in 1997, and currently they are ~ $500 PSF. That's 150% appreciation in 11 years - almost 9% compounded annually.

 

[gei]

I can't believe it's september 19th 2008 and people are still finding optimistic or "measured growth" articles and opinions on real estate in Toronto and Canada. I'm no doom and gloom guy, I bought as late as 1.5 years ago. But I mean just keep following this thread over the next few months but the only phrase I can use to describe the market right now is "calm before the storm". Into the fall it will turn to "scary" and hopefully with some luck we won't enter "nightmare" (the phase that is happening in the US, Spain and the UK at present), as in make sure your bank accounts are CDIC insured, you have the dumb luck to not have a mortgage renewal in 2009, and if you work in any field related to real estate, finance, construction or servicing these industries you have your resume brushed up and ready to go nightmare.

this post gave me a good chuckle...

 

[TrickyRicky]

I actually agree that Canada is better positioned than most nations. But the the real question you should ask is positioned for what and how much better? Maybe things will blow over nicely, I'm the first to admit that basically no one can accurately predict conditions more than 6 months into the future no matter what their business card reads. But if things get ugly being 15% better than ugly is still ugly.

 

[lordmandeep]

There is a Canadian and global credit crunch, and ultimately that could affect some condo developments financing, in addition to the global real estate bubble bursting.

I would expect Condos would have to be close to 85%+ sold out instead of 60-70% sold to get Financing now.