Is the greenbelt squeezing Toronto's housing market?

  10/15/2016 |   SHARE
Posted in GTA Real Estate by Paul Solomons | Back to Main Blog Page

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One Friday afternoon last May, IT consultant Zvonimir Petric left work to meet his wife. She had been standing in line for five hours at a sales office offering new homes in north Burlington, a full day before it was to open. When he arrived, he found nearly 100 other people already waiting, all hoping for a shot at a yet-to-be-constructed detached house in one of the Toronto area’s most desirable suburbs – and willing to camp out overnight to get it.

Someone was taking down names and warning that a “roll call” would be held every hour to ensure prospective homebuyers were still in line. Nobody even knew for sure what the prices would be. The couple soon decided it just wasn’t worth it.

“There was just madness,” Mr. Petric said. “In front of everybody, I go: ‘Guys, you are all a bunch of dumbasses if you think you are going to pay this much money for a home and sleep here overnight.’”

Many others would walk away the next morning upon learning the lots ranged from $850,000 to more than $1-million. Still, the development sold out.

Across Toronto’s suburbs, people are trading similar real-estate war stories, as newly built detached homes become a scarce commodity. So it should be no surprise many are now hunting for someone to blame for the Greater Toronto Area’s increasingly unaffordable real estate prices. Pressure is mounting for a B.C.-style tax on foreign property buyers, even though it remains unclear just how much overseas cash is distorting Toronto’s market. The federal government has already tightened its mortgage rules.

But the development industry insists it knows the main culprit: Queen’s Park’s 10-year-old anti-sprawl policies – the Greenbelt and the Growth Plan for the Greater Golden Horseshoe – both now under review. 

In increasingly insistent lobbying, industry voices say these two pieces of legislation have cut off the supply of land for new houses, especially detached or semi-detached ones, and are responsible for driving up prices across the GTA.

But a chorus of urban planners and environmentalists call that idea absurd, and point to statistics that suggest there is enough land already earmarked for development to last decades. They counter by saying that developers are twisting the market by holding on to ready land.

The debate comes as Premier Kathleen Wynne’s Liberal government ponders what to do about the overheating housing market, and whether to tighten – or potentially relax – rules meant to curb suburban sprawl.

In a series of press releases, studies and op-ed pieces, developers and aligned economists have made their case in recent months that the province’s anti-sprawl policies are a driving force behind the skyrocketing house prices many fear are making homeownership a lost cause for a generation. That was the first argument former Progressive Conservative leader Tim Hudak made after he took over as head of the Ontario Real Estate Association last week: “As anybody who has taken Economics 101 knows, if you restrict supply and demand increases, prices are going to go through the roof, and that is happening.”

It does sound like something out of a first-year economics textbook, and both policies, by design, are indeed meant to curb urban sprawl. The Greenbelt protects a swath of farmland around the GTA from development; the Growth Plan forces municipalities to build more new homes within their current boundaries, as well as to build more densely when paving over new land. That means more apartments and condos, and fewer detached houses with front porches and big backyards. Proposed changes from a recent task force chaired by former Toronto mayor David Crombie would tighten the rules.

The industry wants those rules loosened to make more land available so they can build more “ground-related” housing – semis, townhouses and coveted single-family detached homes – that the market demands. Increase supply, they say, and prices will come down, just like your economics textbook says.

Nobody believes the provincial policies are the only driver behind the real-estate boom, which is also being fuelled by record-low interest rates, an improving economy and the migration of 100,000 or more people into the Greater Golden Horseshoe region every year. Likewise, no one believes the policies don’t have at least some effect on prices. But developers are increasingly pointing to the provincial policies as the major problem, as they also complain about red-tape and delays getting new developments approved. 

“You will find that narrative – any builder you talk to will tell you that,” says Brian Johnston, chief operating officer of Mattamy Homes, one of Canada’s largest builders. But he mainly blames the provincial policies. “They have created an environment where low-rise housing, ground-oriented housing, is in short supply,” he said. “That’s what people want, and it has created a problem.”

Economist Frank Clayton, senior research fellow at the developer-funded Centre for Urban Research and Land Development at Ryerson University, estimates the sprawl-busting policies are responsible for a quarter to a third of the run-up in real-estate prices across the region. He admits this is essentially a guess, but says it is a conservative one.

He points out that builders in the GTA are now producing dramatically fewer new “ground-related” houses than they did 10 years ago, and just a fraction of the coveted detached homes they put up a decade ago. And they are producing many more apartments and condos instead.

According to figures from the Building Industry and Land Development Association, in June, 2006, there were 985 new detached homes sold in the GTA, with another 10,823 available. In August of this year, builders sold just 318 such homes, and only had 592 more available. And while all types of property are soaring in price, the trajectory of the average price for a detached house is the steepest, soaring to $1.2-million in Toronto last month.

Complying with the Growth Plan, Dr. Clayton says, means the suburban municipalities that surround Toronto are not providing enough so-called “serviced land” for developers. That’s undeveloped land, usually farmland, that has had sewers and water mains installed nearby, so it is ready for development. That shortage, he argues, is driving up prices.

While the Greenbelt and the Growth Plan were designed as environmental medicine to contain sprawl, preserve farmland and allow for public transit to serve new, more compact communities, Dr. Clayton says Queen’s Park is ignoring what he says are the policies’ major side effects.

“All I am saying is when you do something major like change the planning system … you’ve got to look at costs and benefits,” Mr. Clayton says. “And all they’ve done so far is look at the benefits, they say, from the environmental side – less emissions from cars and so on. They have not looked at any costs.”

Drive out of town through the 905, pass the last line of new subdivisions, and many of the farmers’ fields you see are already owned by holding companies or developers. Some of that land is already designated for future urban development. Some of it is undesignated and sits in the so-called “White Belt,” sandwiched on the map between the urban boundaries of the suburban municipalities and the Greenbelt, where development is restricted.

And according to the Neptis Foundation, an urban research think tank, there is more than enough land already designated for development to last the Toronto region decades.

Neptis says across that the Greater Toronto and Hamilton areas, 52,600 hectares has been set aside for development, including land added under the Growth Plan – land that was supposed to last until 2031. But in the past 10 years, only about 10,800 hectares was built on, or about 20 per cent of the available land. More than 40,000 hectares – about two-thirds of the entire City of Toronto’s land area – remains untouched. And at the current pace of land consumption, more than half of it will remain undeveloped by 2031, Neptis says.

The pace at which development consumes land has slowed dramatically since the 1990s, as market forces – demand for housing closer to transit, land prices increasing as communities mature – as well as municipalities themselves have prompted the building of more dense housing, long before the Growth Plan. In fact, little of the change in the built form of the GTA’s suburbs in recent years can actually be attributed to the Growth Plan. Even though it was passed in 2006, municipalities took years to update their official plans and then fend off challenges at the Ontario Municipal Board before the new regime took effect, in some cases just in the last five or six years.

Plus, according to figures compiled by the provincial government, 800,000 detached houses, semi-detached houses and townhouses were in the planning pipeline for the Greater Golden Horseshoe in 2006, and about 540,000 are still to be built. Those 800,000 homes alone could accommodate as many as two million people, or 80 per cent of the projected population growth headed to the Greater Golden Horseshoe outside of Toronto – even without the hundreds of thousands of apartments also going up.

So this leaves the question of how much “serviced land” there is, and whether Toronto-area municipalities are keeping up with the demand. It has long been provincial policy that municipalities are required to have at least a three-year supply of serviced land ready and set aside for development. The chief planners of Peel Region, York Region and Durham Region all maintain they are meeting or exceeding this requirement.

Valerie Shuttleworth, York Region’s chief planner, says that, while she supports the goal of the Growth Plan, she has her own problems with proposals to tighten it. She says rules to make new greenfield development even more dense need to be phased in. But she maintains that her municipality still has a four-year supply of serviced land designated and zoned for “ground-related” housing, ready to go. For whatever reason, some landowners are not choosing to build on certain plots: “Developers choose when they go to market.”

The idea that developers are sitting on land, waiting for prices to go up instead of building, is a factor many cite as a potential source of Toronto’s housing squeeze. A TD Economics report from last year says rising land prices “reflect a significant amount of underutilized land in the GTA” and that landowners “continue to hold onto significant idle land, likely with the aim of hearing a higher profit on sale due to appreciating values.”

Markus Moos, associate director of the school of planning at the University of Waterloo, said little research has been done to reliably measure the real effects of the Greenbelt and Growth Plan on the market. But he said urban economics have always held that a booming central area, where property is most expensive, drives price increases across an urban region.

Releasing more land with an eye to building more single-family homes far away from that centre wouldn’t have the desired effect, he said, arguing that “location, location, location” remains a real estate agent’s mantra for a reason: “There’s a limit to how far people are willing to commute.”

The argument that loosening the Growth Plan rules or freeing up Greenbelt land for suburban developers does not hold water with Toronto’s chief planner, Jennifer Keesmaat, either. She says developers holding onto land are likely partly to blame. But she adds that housing prices clearly show that demand for homes on the farthest fringes of Toronto’s suburbs is nowhere near as great as it is for homes in central Toronto or in some of the 905’s more established suburbs, where walkable neighbourhoods are clustered near transit, employment and shopping.

Toronto’s problem is not unique, Ms. Keesmaat says, as cities worldwide, from London to Washington, D.C., are all experiencing similar skyward house prices: “Every growing city, Greenbelt or not, has an affordability crisis.”

Understanding the legislation

The Ontario government’s Greenbelt and its regional Growth Plan were enacted in 2006. This past year, a panel led by former Toronto mayor David Crombie recommended 86 changes to the legislation.

Among them are two key changes that would affect the way suburban municipalities plan. One would increase the amount of new development that must occur within already built-up areas, to 60 per cent from the current 40 per cent.

The other change would force municipalities building on “greenfield” sites, outside their current built-up area, to plan more dense communities. The current standard calling for 50 jobs or residents per hectare would be increased to 80 jobs or people per hectare, a density that experts say still is lower than the density in Toronto neighbourhoods such as Riverdale.

However, some municipalities are concerned that new rules would require them to redraw plans that are already in the works, and put much-higher-density development in places where it does not belong in order to hit Growth Plan targets.

Meanwhile, developers say the plans will only exacerbate the problems with housing supply that they claim are helping to drive up the region’s housing prices – an argument Mr. Crombie dismisses as a “canard,” saying studies show there is ample land set aside for low-density housing.

Is there enough land in Brampton?

For years, the booming suburb of Brampton has been the leading jurisdiction in the GTA for new “greenfield” housing, with building on its outskirts accounting for more than 20 per cent of the total in the region between 2001 and 2011.

But according to a new study from the Neptis Foundation, an independent urban policy think tank, there remains a large amount of land left for the suburb to expand, even within the constraints of the province’s density-demanding Growth Plan and the Greenbelt.

And not only that, despite warnings from developers that the GTA is running low on “serviced land,” or land that is prepared for development with water pipes and sewers, Neptis says its analysis shows that, at least in Brampton, there is an ample supply.

Of Brampton’s 8,740 hectares of greenfield land designated for development, 2,290 hectares have been built on in the decade since since 2006.

Of the 6,450 hectares remaining, according to the Neptis study, 1,200 hectares are zoned, approved or in the final stages of approval, and already serviced for development. Almost all of that land is for subdivisions full of what the industry calls “ground-related” housing – detached homes, semi-detached homes or townhouses.

Even at Brampton’s brisk pace of development, 1,200 hectares represent about five years worth of building.

“This may vary across the region,” says Neptis executive director Marcy Burchfield. “But this clearly shows it is not an issue in Brampton.”

The land (prices) Down Under

One jurisdiction that has tried to cool overheating house prices by simply building more houses on the fringes of a urban area is Sydney, Australia. The state government in New South Wales brought in policies that sparked a building boom. However, despite a massive increase in the number of houses being built, real estate prices there have continued to rise even more sharply.

According to the Sydney Morning Herald, house prices are up 40 per cent since 2011, even though the number of new units completed has shot up 85 per cent. The reason, some local economists say, is that new houses account for very little of the overall market, which is predominantly resale houses.

The government there contends that housing completions are finally recovering after years of low numbers, and that the added supply of housing will have an effect over the next several years.

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