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The flowering of the City of Toronto's new Green Standards on May 1 of this year caused a showering of new development applications in April, as those applications were exempt from the toughened sustainability rules that were coming into effect. This deluge was to be expected, as we have documented similar behaviour in the past. Toronto received nearly as many new applications in April, 2022 (30) as it did in January (5), February (14), and March (13) combined. This is nearly double the rate of submissions in April, 2021 (17) when tougher standards did not loom on the following month's horizon. Since many of these applications were pushed ahead of schedule in anticipation of cost increases associated with the new Green Standards, there may be fewer application submitted in the following months.
The future of the office has been in question as "working from home" became the norm throughout the pandemic. Developers broke the drought of Office GFA in the previous quarter (see our March, 2022 report), proposing more than 51,000m² in April alone. This is a big jump even compared to the same period in the previous year. Only 47,000m² of Office GFA was proposed between January to April of 2021.
There were 12,617 units proposed in April 2022, up 271% from the previous month. However, about the same number of units were proposed in the first trimester (January to April) of 2021. The unit mix in April was 3% studio units, 55% one-bedroom units, 27% two-bedroom units, and 14% three+ bedroom units. The biggest change from the previous month is a 5 percentage-point drop (from 8% to 3%) in studios proposed.
April also saw the Bank of Canada respond to rising consumer prices by making two announcements, negatively affecting consumers' ability to buy homes. First, the BoC increased interest rates (affecting mortgage lending directly); and second, the BoC announced the beginning of its "quantitative tightening" (QT) regime. In essence, the QT program means that the Bank will not purchase new government debt, placing a new limit on federal spending. This could have indirect effects on the housing market, as decreased government spending also decreases incomes and credit. Home sales and prices in the Toronto area have already dropped in response to these changes.
Material and labour shortages are also slowing down some developments already under construction. With price inflation accelerating, the costs and uncertainty around the immediate future of Toronto's housing market has increased. In theory, these announcements and events should also have resulted in a decline of applications for new real estate developments.
However, reality is more complicated. Real estate development is a long term process; short term fluctuations should not have much impact on decision making. With the central bank and politicians promising that inflation and supply chain issues are under control, and the immediate impact of the new Toronto Green Standards has acted as a countervailing force to incentivize more proposals, today's headlines may be a temporary blip. Another factor is that getting approval for a project does not require that construction begins right away. Even if economic conditions get worse, developers would be under no obligation to begin marketing and construction of a project based on their submission date. As an application can always be revised later, this reduces the cost of submitting early.
It could be some time before the weight of all these changes will show up in the trends for new applications. In the meantime, you can track developments as they happen in the fertile data available at UT Pro.
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UT Pro is UT's premium database service that collects and reports information on development applications across the Greater Toronto Area.
This UTPro New Development Report analyzes new development proposals for large projects submitted to the City of Toronto. (UrbanToronto defines a "large project" as anything larger than a typical detached home.) These numbers are for proposals only, and are subject to change at any time up until (and sometimes even after) completion. Due to the early stage of the development process, some documentation may be missing; the numbers for some components of the data might not add up in some cases.
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If you would like to stay updated on the latest development news, sign up for a free trial of the New Development Insider. And if you are interested in the data used to generate this report, you can get more details about the UTPro subscription database service here or on the official UTPro page.
For more information about UTPro, contact Edward Skira.
