Until 2005, the Greater Toronto Area was developing in a manner not unlike that of Los Angeles: vast urban sprawl. Recognizing the hazards of this approach to development, the government of Ontario passed the ‘Places to Grow Act’ in 2005.
In short, it has fundamentally shifted the nature of home construction from single-family detached and semi-detached homes in the outlying regions of the GTA to condominium units in in building scattered across the city.
It did this by creating a ‘Green Belt’ around the city that contains development within its borders, forcing developers that want to build in the city to get into the high-rise game.
Every major city encounters a point where its growth hits a wall and it has to build up instead of out. Some cities become limited by geographic constraints but in the case of the GTA, the wall is policy-based. Either way, it triggered a fundamental shift in the marketplace.
Even though the state of the economy is not particularly strong and the condo market is cooling off, we are still seeing robust numbers in the single-family dwelling market segment throughout the region which is undoubtedly resulting in part from the legislation and expected to continue well into the future.
As the adage says, “Put your money in land because they are not making any more of it.” This applies even more so to anyone buying property in the GTA.
As a consequence of surging construction of high-rise residential units and a decline in the same for single-family dwellings, we will see in in the medium- to long-term the prices of the single-family dwelling housing stock perform better as their prevalence becomes increasingly rare.
The dream of families to live in such properties will continue, but it will become more expensive as more lower-income families must opt instead to occupy two- and three-bedroom suites in more intensified areas.
For the investor, however, this presents an opportunity to get into the market and benefit from the value appreciation that will occur – a benefit intrinsically tied to the fact such properties sit on their own of land. The investor with the longer-term horizon will benefit the most.
Condo suites will still present an investment opportunity especially for foreign buyers unable mortgage more than 60 per cent of the purchase value and in it for the long haul.
But in a city where condo construction continues to run strong with no end in sight, the future performance won’t be as strong compared to single-family homes, for example. It runs the risk of taking hits to its value in those times where demand fails to absorb supply as we are presently seeing.
The fact is that the 20,000-plus units coming on-line in recent years is hard for most cities in the world to absorb, and Toronto is no exception.
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