Quote:
Originally Posted by Nite
Toronto has a shitton of proposals because it has a shitton of demand for highrises and the market is furfilling the demand
the more interesting question is why does Toronto have so much demand, i am sure others will answer that in this thread
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It's been discussed countless times here but it's something that I like to theorize about so I'll indulge.
The crux of the thesis is that Toronto has very strong fundamentals that drive demand for actual living spaces close to downtown and close to our limited subway network (relative to our size). Multiple reasons for why Toronto has higher demand for central high-rise living compared to other North American cities:
- Attracts immigrants (and a huge number of students) from places where urban high-rise living is the norm.
- Highway congestion is terrible (you could definitely argue top 5 worst in Canada/U.S.) and moving 35 minutes outside the core doesn't solve affordability or commuting issues like it did in the 90's. Greenbelt capping adjacent sprawl, and terrible highway connectivity beyond the greenbelt severely limits options for exurban commuting.
- Toronto's catchment area for recent university grads is pretty massive. There's almost 400,000 students on the 401 corridor between London and Kingston. University enrolment has exploded over the last 20 years, and Toronto acts as the economic centre for this band of recent graduates.
- Combining the last two points, employers have become increasingly convinced that suburban office parks are not in their future plans. Downtown consolidations to attract young talent and be accessible to transit are becoming the norm. Office vacancy rates in Mississauga have ballooned to 15-20%, while downtown Toronto plummeted to sub 2%. As the jobs continue to consolidate, location becomes even more important for young renters.
Now there's other places where there's high demand for downtown living as well that don't seemingly build new monster crappy condos every other day. Why is there not a large pipeline of purpose-built rental buildings in the city? why is condo/strata ownership so common when renting is typically the norm in dense urban centres? This is the second part of the theory as to why the Toronto market behaves like a bonfire with gasoline thrown on it.
well-capitalized foreign (and some domestic) investors have basically taken on the burden of the rental market. To build a 500-unit rental tower, you need to have pretty deep pockets, good credit-worthiness to take on a lengthy mortgage, and a long-term investment horizon. REITS, private capital funds, institutional players like insurance companies, etc. typically dominate this market. It takes a decent amount of time to secure tenancies and you need to be careful about your total market exposure when you plan on owning these assets for 30+ years. Plopping out a massive rental tower every year is a good way to lose your shirt if the market dips.
Come 2008, the market is flooded with foreign capital from personal investors. I don't need to have the financial backing of a pension fund if I have 1,000 people lining up to pay cash for a condo unit that they plan to rent out. You can try and be a long-term rental landlord and make 8% over 20 years, or you could pre-sell an entire condo building in a week and effectively create hundreds of tiny independent landlords while making an 18% IRR over a two-year development timeline. No long-term exposure to the market, I can probably get away with ~20% equity up front when I securitize and borrow against my pre sales, and I'm on to the next project in three years. I don't really even give a shit about the quality of the building itself. I have my reputation as a developer, but no financial obligation if the windows fall off five years later. An apartment REIT at least has a vested interest in maintaining the quality of their asset during its life. Any way you slice it condo development is just a better business model if the demand is there. The demand has consistently been there, and so any formerly small-time developer can put in a rezoning application, set up a sales centre, and you have another proposal you see on your list there.
TL,DR: Toronto has lots of demand for living space in the core. The availability of private capital means that condo development reigns supreme and operates on greatly expedited timelines compared to a market better balanced with purpose-built rental. Low barriers to entry for condo development and generous rezoning practices (from a provincial body that often overrules local planning) is a recipe for lots of proposals.