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UrbanToronto began monthly reporting on development applications beginning in 2021. After two years, we can now have enough cumulative data to begin reporting on annual trends.
Our UrbanToronto Pro data service collects development application information on every project larger (either in footprint or density) than a semi-detached home. We then use this information to create an entry into our Project Database, and a corresponding pin on our Map. This includes any townhouse developments, detached home subdivisions, industrial facilities, shopping centres, and of course condo or office towers. We also track many institutional developments, such transit stations, parks, university or government buildings, and more. Almost all of these changes require either a Rezoning, Official Plan amendment, or a Site Plan Approval, which is what our analysis tracks.
Although sometimes a Minor Variance can be an important development (at which point we will include it in our database), typically these changes are for small additions to existing buildings. Similarly, sometimes a small update to a school requires a Rezoning application, and so this would not be captured in our database either.
While this report focuses on applications submitted to the City of Toronto, our actual coverage area includes virtually every municipality in the Golden Horseshoe, from Niagara Falls to Barrie to Oshawa. To see if your city is covered, consult our Map.
Now onto the data and analysis:
Compared to 2021, the City of Toronto received fewer development applications in 2022. Applications on average were much smaller as well.
The report found that in 2022, there were 293 applications submitted to the City of Toronto for review, a decrease of 24 (7.5%) from 2021, when 317 applications were submitted. The number of the buildings covered by the applications totalled 403 in 2022, compared to 601 buildings the year prior.
Fewer buildings also meant fewer units. In 2022, despite record levels of immigration to Ontario, Toronto developers proposed to build only 101,924 units— a 19% decrease from the previous year's 125,201 units. Despite this, however, the residential GFA proposed per unit remained relatively stable: 766.0 ft² proposed per dwelling unit in 2022, which is only .01% less than the 766.6 ft² proposed per unit in 2021.
Overall, looking at total GFA (Gross Floor Area), 89 million ft² was proposed last year — with 90% being residential space — while 112 million ft² was proposed in the previous year; 87% being residential space. In terms of GFA proposed, there was a noticeable drop in commercial (that is, retail and office) GFA in 2022 compared to 2021: 9.8% vs. 11.1%. In particular, we warned earlier this year about the lack of office space being proposed this year. This may be related to Toronto being among the slowest cities in North America to "return to office" post COVID.
There was also a notable decrease in site area from 41 million ft² last year to 27 million ft² this year; a 35% reduction in total site area. Furthermore, FSI (Floor Space Index) decreased from 2.74 last year to 3.29 this year – an increase of 20%.
One area that saw improvements this year was bicycle parking spaces. Vehicular parking proposed, both in total and per dwelling, fell drastically: from 73,189 parking spaces (0.58 per dwelling) in 2021 to 51,518 spaces (0.51 per dwelling) in 2022, for a total reduction of 21,671 vehicular spaces. This is directly attributable to the removal of minimum parking requirements by the City. Instead, the number of bicycle parking spots proposed by developers popped: from 35,797 spaces (0.29 per dwelling) in 2021, to almost doubling to 60,502 spaces (0.59 per dwelling) in 2022, for a gain of 24,705 spots.
This means that for every 100 car spots that developers did not propose this year, they instead proposed 112 bicycle spots. As the City densifies while improving bicycle infrastructure, developers are clearly expecting the demand for bicycles to increase in the future. As vehicular parking is a significant cost as well (averaging over tens of thousands of dollars per unit), the removal of parking requirements means lower costs for developers as well — which can translate to lower prices for buyers in the future.
To understand these numbers, several factors have to be taken into consideration. First and foremost, of course, is the interest rate story of 2022. At the beginning of the 2020 COVID pandemic, the Bank of Canada slashed interest rates to near-zero levels, and mortgage rates dropped just as quickly. This resulted in lower carrying costs for developers, meaning they could build with smaller budgets while still maintaining profit margins — which likely led to the decrease in FSI.
However, interest rates began to rise in response to the leading story of 2021: inflation. With prices of construction materials rising by double-digit rates (remember the LiUNA strikes of May of last year?), which put pressure on developers to keep costs down. This is why the Bank of Canada began to raise rates in March of 2022: to curb the rapid rise of consumer and producer prices. However, rising interest rates had very negative effects for the Toronto (and international) housing market: mortgage rates began to soar, housing prices began to drop, and financing for new projects became more challenging to find, which increased carrying costs.
This story can be seen in the development application data: while monthly applications in 2021 started the year slow and ended the year high, in 2022 applications began stronger than the previous year, but quickly levelled off following the rate hikes in the spring.
It's important to discuss the various regulatory stories from the year, and their implications for development. First was the City's attempt to unilaterally impose "inclusionary zoning" (IZ) on large condo projects. IZ is the requirement that a certain number of units in a large residential development be set aside for low- or moderate-income buyers or renters. This policy was voted in at City Council in early December 2021 for implementation later in 2022.
As this rule would reduce the profitability of residential developments, developers were keen submit proposals before the rule went into effect. Initially, this led to a huge surge in applications leading up to the Council vote. However, it was soon understood that the rule would only apply to proposals submitted after September 15, 2022. This led to a modest bump in applications leading up to this new deadline, however that's when rumours began swirling that the Province would be tabling a new bill that would undo IZ.
Indeed, that's what happened with the introduction of Bill 23—the "More Homes Built Faster Act". These new rules limit municipalities, in that they cannot demand more than 5% of GFA to be set aside for inclusionary zoning. This differs importantly from the Toronto's version of IZ, which was focused on regulating the proportion of units to be set aside as affordable. Under the City's rules, a development proposing 100,000 ft² of total GFA and 500 units would be required to set aside 25 to 50 of those units for below-market rates. Now, they could at maximum be required to set aside 5,000 ft² of GFA; and with an average residential GFA of 766 ft² per unit, that's only a maximum of 6.5 units—saving up to 44 units to sell or lease at market rates. In addition to this, the Act also exempt affordable units from Development Charges, representing even more cost savings.
Of course, the More Homes Built Faster Act went beyond IZ. It also restricted the power of third-parties to appeal minor variances and other matters that are typically dealt with at the Committee of Adjustment level. Under the old rules, the Committee of Adjustment may approve a variance (including an application for consent to sever a property), but then a third party (typically person with a nearby property, or even a Neighbourhood Association) would file an appeal with the TLAB to overrule the approval. This could hold up the development for months or longer, and add more costs in legal fees for the developer. As these minor variances are typically undertaken by small developers for small projects, this could prove very costly indeed for the development of "missing middle" housing.
In the initial version of the Act, this restriction also applied to rezoning and Official Plan amendments as well. This could have saved larger developments much more money in terms of costs and time; however, this was removed from the final version of the Act. Therefore, third parties can still appeal and hold up Council-approved developments at the Ontario Land Tribunal (previously known as the Local Planning Appeals Tribunal, and before that the Ontario Municipal Board). As getting Council approval is a much more expensive task, this spells a big missed opportunity for developers to save time, money, and an additional regulatory hurdle.
Looking to the future, there is some optimism that 2023 will provide more opportunities to build more in the city. After a series of banking crises in the US and Europe, many are expecting that interest rates in Canada will either be held steady or begin to fall during this year. With the uncertainty about rising rates seemingly behind us, already there are some signs that housing prices and transactions are increasing again. This should represent less restrictive credit markets for developers as well.
Moreover, sentiment about the necessity to increase supply is more popular than ever in the political atmosphere. This, coupled with the new "strong mayor" powers (which, among other things, can allow the Mayor of Toronto to veto by-laws that may not be in line with provincial priorities), could mean a somewhat easier time at Council for developers seeking rezoning or OPA amendments. In addition to the new pro-development changes enacted by the Province, this reduces the overall political uncertainty about the regulatory costs of development.
2022 was a very difficult year for developers. While there are still some notable challenges that must be faced in order to increase the supply of housing in Toronto, the More Homes Built Faster Act, stabilizing interest rates, and in general a more positive political environment have certainly gone a long way towards reducing costs and delays associated with residential development. The changes introduced by the Province have laid groundwork for developers to more confidently pursue projects that would not have been possible before; however, the success of development projects will ultimately depend on the market demand, and how well developers can take advantage of these opportunities.
Taken together, it appears that 2023 is setting up to be a much better year for development in Toronto than 2022. With fewer restrictions, costs savings due to the More Homes Built Faster Act and other political changes, and stabilizing interest rates, and rising house prices, this could spell an opportunity for more housing supply to finally meet increasing demands. Time will tell whether this optimism proves true; however, with all signs pointing towards an increase in construction activity in 2023, there seems to be cause for cautious optimism about Toronto's development future.
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For more information about UTPro, contact Edward Skira.
