Have the Government's Good Intentions Led to Higher Prices in Toronto?

It made a lot of sense ten years ago. It appeareded as though the government was acting responsibly, but good intentions may have led to some negative consequences for those looking to buy real estate in Toronto.

If you recall, around 2004 the provincial government put in a policy that would discourage sprawl and encourage density. This provincial policy claimed that there can be no more development in the greenbelt surrounding the GTA. All development would need to be done inside the GTA or outside of it. Such policies had very good intentions behind them. A greenbelt would protect the farmland around the city and the surrounding area. So, if there were ever a failure in an external food supply from an outside country or another part of Canada, Toronto could still grow their own food to feed their population. Furthermore, it pushed developers to take up land that was previously a parking lot or an industrial land site, clean it up, and make it useful again.

From an environmental point of view, densification made the city more efficient. A better use of space and a protected greenbelt.  From a money point of view, the new policy allowed the city to collect more tax dollars. If an area that has 10,000 Torontonians had a number of new condos that added another 10,000 residents, then you would double your tax dollar revenues. There's no guarantee the province or city would spend the money wisely, but it would be there. It would put more stress on existing infrastructure, but it would be less expensive than building new roads and new water supplies in a brand new area. Simply put, it would not be cost effective to build more low rise housing.

It all sounds good and noble, but one of the results of this policy has led to a very distintive housing trend, partially a result of the greenbelt policy and partially policies of densification at the city level. Because the province and city encourage densification, developers build more high rise condos. The low rise supply of homes, like  houses or condo townhouses, are built less because developers make more money selling high rise condominiums (more units on a smaller piece of land).

So, if we look at the average price of high rise condo at the end of 2014, it would be $454,406. For a low rise condo or freehold house at the end of 2014, the price has shot up to $705,813. That's a $251,337 gap. It's the largest gap there has ever been between high rise and low rise homes, and that gap will continue to grow. In the late nineties, 40 % of the new construction was condominium. Now, it is over 80%. The supply of high rises keeps on growing. The supply of houses and low rise condos grows very little, far below the demand for it.

So, what does that mean? It means houses and low rise condos will likely become more valuable as time marches on. It also means for those folks who buy a condo in a high rise as a starter home will have a tougher time moving up.

It would appear the solution would be to get rid of the green belt policy implemented by the Ontario government, and let the developers build on the green belt. They will have more land to build low rise homes. The cost of losing the green belt would allow for lower Toronto home prices, at least for the short term. Of course, this would be poor urban planning. We still need to protect our food supply, and densification still allows for better uses of space and a fiscally responsible approach to city building.

I believe there are two solutions needed for the government to help remedy this situation. First, the government may need to insist that developers build more units that are suitable to growing families. Currently, we see condos getting smaller and built for couples or singles. There's little room to move up. If you want to keep families in the city, then you need to have more three bedroom condo units with amenities that appeal to children or couples or singles who want bigger spaces as they age and make more money. Second, we need better transit from Oshawa to Hamilton. If there is a desire for low rise homes, then we need to be able to move people to where the stock of houses and low rise condos are affordable to many people. We need a regional transit system like they have in big cites like Paris and London and New York that will take you from downtown Toronto quickly to Hamilton and Durham region. We can't keep thinking that Toronto functions as a separate entity from it's neigbhouring cities and town.  Some of this is happening already with improved GO transit coming to Hamilton, but it has to take place a lot faster and a lot more extensively. 

Transit will be the key thing all levels of government will need to focus on for the decades ahead. Toronto will very likely be an expensive city to live, where the downtown core will be pricey, but we need access to a wide variety of home price points and options that will accomodate the city we are becoming, not one that we were twenty years ago.

                               

Why The Local Coffee Shop Makes Home Prices Stronger

I say it a lot: Emerging neighbourhoods begin when a neighbourhood's local main street opens an indie coffee shop. You may think: "Big deal. What's so special about a coffee shop any way? What does that have to do with residential real estate? I don't even like coffee."

You don't have to like coffee to know how real estate can be effected by a simple coffee shop. When a neighbourhood begins to change, one of the first signs that it may be an emerging neighbourhood is the elusive coffee shop. Take Supercoffee in Mount Dennis. This new neighbourhood coffeeshop does not shy away from telling us its intentions. On its web page mission statement, Supercoffee owners state: "We aim to be a neighbourhood hub, to provide space and inspiration for exciting cultural activity and social change. We welcome partnerships and collaborations with local residents, organization, businesses, nature lovers, trouble makers and instigators." Wow. I understand they sell coffee too!

Mount Dennis has historically and notoriously been a depressed, not-too-transit friendly area that has recently attracted a number of first time buyers because of the low prices in comparison with the rest of Toronto. And when I saw Supercoffee at the corner of Weston Road and Eglinton, I knew this 'hood was ready for some change.

But why an indie coffee shop? Why not a hardware store? Or an appliance shop? I mean, one of the most successful, long-standing Mount Dennis businesses, Caplan's, sells appliances in Mount Dennis, just up the street from Supercoffee. Why is that not a sign of neighbhourhood success? Well, the coffee shop is often opened by independent business owners who live in the area, though not always. New, independent coffee shops tend to function as a place for new folks to go. When you're new to a neighbourhood you may seek out something new yourself. You share that fresh-to-the neighbourhood connection. Also, coffee shops often lead to people talking about the neighbourhood. And if there is a focal point,  a spot to gather together in a casual manner, then coffee shops do it best. It's the place where people will offer other neighbourhood services like music lessons or renovation services. It can function almost like a community centre.

Caffeine gets the conversation going. The new coffee shop  brings in and connects the newcomers who want to be a part of the community. They encourage community gatherings and form stronger lobby groups and business improvement associations. Places like Caplan's, although serving a great purpose, does not build community. Many, come from out of the neighbourhood to go to Caplan's to buy appliances at a reasonable price. It's not necessarily local clientele. Supercoffee is likely almost all local folk.

Now to be clear, not all coffee shops apply here. Starbucks usually comes along later in the gentrification process. Take its entry into Leslieville in 2006. It was a way of saying the neighbourhood has arrived, even if you're not a fan of corporate warriors like Starbucks. Why? Because Starbucks does their research and does not land in just any old neighbourhood. Their business model is to invest in neighbourhoods on the upswing with a clientele who has the disposable cash for pricier coffees. So, if they're there, Starbucks have heavily weighed their options, and expressed great faith in your neighbourhood. I don't know if the same can be said for Tim Horton's, Canada's non-Canadian, reasonably priced coffee and more store. Their business model looks to work on convenience, not neighbourhood. It appeals to those driving by, not local per se.

So, if you're looking to invest in an early emerging neighbourhood on the upswing, keep an eye out for the local indie coffeeshop. In some advanced emerging neighbourhoods you may find 3 or 4 coffeeshops packed close together. Take the Junction. There's Locomotive,  Starbucks, The Good Neighbour and Crema all within one block. In a brand new emerging neighbourhood, it may be the first to arrive. It doesn't mean that that the neighbourhood will change into the trendiest place in the world within months, but it is a starting point and a good sign.

The top notch restaurants, yogas studios, better schools, doggie daycare and microbrewery pubs may follow. Coffee shops is where it starts. For some, it could mean that this gentrification process displaces the poor or disenfranchised longstanding residents. It can, however, be argued that the improvement in a neighbourhood - more community based activities, safer streets, more business options, positive real estate price appreciation - can benefit many of the locals - old and new.

Your Future Awaits! Sorting Out The Real Estate Predictions of 2015

By nature, predictions are whimsical. That's why many of them are wrong. The real estate predictions of 2015 that I have come across are often a mix of doomsday scenarios and rosy outlooks, like every year for the past decade. So, let me filter these predictions, analyze them for you and offer a few thoughts of my own for Toronto real estate in 2015.

Let me start by saying what is a little different in the predictions for this year. Generally, they are fewer of them that are alarmist than in the past. Yes, we are hearing that prices can fall by 15% according to RBC, and yes we have someone named Hilliard MacBeth, an Albertan based porfilio manager who wrote a book entitled When the Bubble Bursts: Surviving the Canadian Real Estate Crash, calling for a nasty downturn in Canadian real estate. She predicts that house prices will fall 50%. Ouch. This may sound scary, but keep in mind that a book like this comes out almost every year. Why? Because these books sell! Think of Garth Turner in 2008 who wrote The Greater Fool: The Troubled Future of Real Estate calling for a 30% drop in Canadian real estate that year and more to follow in the subsequent years.

Even though we have some negative predictions this year, there are  fewer doomsday predictions than in previous years. I have a feeling that the public may be suffering from what I call "CLF" or Chicken Little Fatigue after years of hearing the sky is falling in real estate.  I suppose at some point, someone will be right. Some Canadian cities will have a slip in real estate prices, but not this year in Toronto.

All in all, I find all predictions a little more cautious for 2015. There will be smaller gains, but gains nonetheless. That seems to be the general consensus. Price appreciation but not as much as 2014.

The focus of the 2015 predictions has been largely around interest rates. As the American economy improves, many believe the Americans will start raising their interest rates, and in turn, Canada will raise their rates as well. Most predictions I have read point to the forth quarter for such things to happen. Some worry that the rise in interest rates will effect the housing market. I agree, it will slow it down. Others, however, think the interest rate hike will be the straw that broke the camel's back for the indebted Canadian, leading to a downturn in the real estate market. I don't believe it will cause the real estate market to crash, but it may put the breaks on some very big price increases that have happened over the past few years. I imagine if the rising interest rates start to effect the housing market too negatively, the government will put the breaks on the increases or even reverse them. Housing has become too big of an industry to just let slip.

From a more localized,  more Toronto-centric perspective, some of the trends that have been happening the past few years will become more pronounced in 2015. The low supply of houses and townhomes will remain in great demand since very few of them are built any longer, and the demand continues to increase as the city and region grows. Houses will increase in value at a much faster pace than condos.  Small boutique style condos in improving or established areas will generally perform better than giant condos. The dream of owning a house will still be affordable for some first-time buyers in the right emerging neighbourhood, though condos will increasingly be the terrain of first time buyers were the prices are more reasonable and the supply of new condos keep growing as the city grows.

For those who want a house with a smaller price tag, house hunters will turn to second tier cities like Hamilton where detached houses with a yard are comparable to the price of a one bedroom and even a bachelor condo in Toronto. Access from Hamilton to Toronto will continue to improve. Hamilton will be a good choice for many who love the urban lifestyle. It is still a city of 500, 000 people. Unlike Mississauga or Brampton or Oshawa or any other Toronto suburb, Hamilton does not suffer from suburban sprawl or a dominant suburban culture. Its downtown is coming back after decades of decline. This phenomenon is not exclusive to Toronto. Such migration to second tier cities is happening all over North American. In San Francisco, many house hunters head toward Oakland. Expensive cities like New York or Chicago have triggered some middle class folk who want more space to head to Austin, Denver, Nashville or Charlotte. The thing about Hamilton is that it is close to Toronto and the new GO station will link up quite nicely. So, you can have your Toronto job or social life, and live in Hamilton. Commuting time is required though.

In terms of Toronto neighbourhoods, we will continue to see some of the advanced emerging neighbourhoods steal some of the sparkle from the more estalblished neighbourhoods. The general shift of wealth from duller north Toronto to the more vibrant south destinations will continue. The cool quarters will continue to attract more demand. Roncesvalles, the Junction, Leslieville, West Queen West and Brockton will continue their quick ascent. Danforth Village will continue to draw in many first time buyers, though not all houses will be in the first-time buyer price range in this neighbourhood in 2015. Areas along the Eglinton Crossway that is currently under construction will be a good bet for a long term investment. This includes Mount Dennis, a neighbourhood with some of the lowest prices in Toronto. Mount Dennis even has its own indie coffee shop opened in 2014! And that's always a good sign for a burgeoning community hub. Like last year, bargain hunters will see the western flank of Scarborough that borders Toronto begin to take off.  Corktown and the Distillery District will really start to shine as all the construction wraps up and the Pan Am Games begin. This may be one of the top spots to buy a condo this year and next. It is a well planned area with a lot of amenities near by. High Park, Leslieville and the Junction Triangle are all places where condos have not been overbuilt and fit in nicely with the neighbourhood.

All in all, it appears it will be a tame year. Of course, anything can happen! No one called for the price appreciation we saw in Toronto houses and a healthy condo market in 2014. 2015 could be just as surprising.