AlbertC
Superstar
View of the current houses on site
- Thread starter AlbertC
- Start date
Midtown Hank
Active Member
My issue here is we know that this developer is not going to build this proposal for many many years in this economic environment. By approving the development, the value of the land is getting jacked up. The developer will then try and sell at the higher value. I don't blame the developer for asking for a higher return, but the planners/city/politicians need to put a stop to it, or the result will be a bunch of empty sites all approved for very high densities and no movement on actually getting anything built. By forcing a developer to start building within a reasonable timeframe (2 years or so) things will start getting built. By penalizing the developer's approved density (reduce 10% every year beyond 2) they need to act or the value of their property gets reduced.
There are certainly a large number of constituents not happy about the skyhigh densities getting approved, but the politicians are looking to get things built. Most projects are stalled, so the politicians need a mechanism to get things going and a density reduction penalty should get things going. The alternative is to keep approving ridiculous densities as an incentive, but that is clearly not working.
I understand there are sites just north that are approved for similar density, but there's also sites just south (nearing completion) that are midrise (around 13 stories). BTW, those developments to the south are looking great.
There are certainly a large number of constituents not happy about the skyhigh densities getting approved, but the politicians are looking to get things built. Most projects are stalled, so the politicians need a mechanism to get things going and a density reduction penalty should get things going. The alternative is to keep approving ridiculous densities as an incentive, but that is clearly not working.
I understand there are sites just north that are approved for similar density, but there's also sites just south (nearing completion) that are midrise (around 13 stories). BTW, those developments to the south are looking great.
ProjectEnd
Superstar
As a theoretical thing, we're in the same boat - I too can't stand paper zonings with no real plan behind them besides value-increase. Sean Galbraith had a fantastic fight with Brandon Donnelly about this on Twitter like a month ago (Sean was / is completely correct: if this is what you're doing, you're not a 'developer', you're a 'speculator'). That said, trying to force someone to build a project that doesn't make economic sense for them is just as silly. All that will happen is folks will stop zoning things, not build the things they have zoned in the past. With that would come a general economic slowdown as all the downstream work required to get that zoning in place will stop. That could also mean a loss in jobs and a general shrinking in this sector of the economy - not good for anyone. Developers, consultants, architects, engineers, etc. are already laying folks off, why accelerate that stagnation?
Northern Light
Superstar
With respect, I don't think this is the correct argument PE.
If I were to rephrase the above it might sound thus: "We need to employ planners, planning buildings that aren't real, architects and engineers designing projects that won't be built, underwriting assessing value and performance for imaginary projects...because otherwise many might be unemployed, and presumably unable to find work, and so sit at home, doing nothing, and the economy would shrink.
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There are lots of talented people in the above group, yourself included. IF, we were truly unwilling/unable to resuscitate housing in the near term, that talent should be wasted on fiction. Some of it could be reallocated to other sectors of the economy with no new education. The principles and skills in various forms of engineering, architecture, planning, finance, marketing and sales can, in varying degrees be reemployed in other facets of marketing, finance, design, some with urban planning experience can get good work in retail too (I don't mean at the store level but in planning/logistics etc.) . Others might need to return to school to amend their knowledge in new directions.
Now that said, we can all agree that the housing sector is very much needed to deliver more accommodation. Where the problems lie are both in form (tenure in particular) but also market issues including carrying now over-priced assemblies, and gluts of unsalable units as well as units that prospective residents my have difficulty financing with falling property values; as well as stagnant middle and lower incomes that suppress the ability of people to either buy or rent new units that really can't be delivered at less than $3,000 a month in carrying costs and even that's ambitious.
In that context, I think penalizing time-wasting activities is not a bad thing. There's no shortage of approved zoning at this juncture, I don't expect builders to build at a loss; but I think in conjunction with the right carrots (and sticks) on/for the industry, and the market, we can get things going again.
Industry: We need to address the glut........I don't want government wholesale bailing out investors, or the industry for dumb shoes boxes that never should have been planned, or built, but realistically, something is required to fix the issue. Whether its a tax-credit, low/no interest financing, or something else, capped per unit/per investor/per builder to minimize grift/moral hazard, we need to see many of these renovated/combined into 1s and 2s of more realistic size, and put them on the market below current pricing. Maybe that comes with a condition.........for every 10 units we help with you offer one up as affordable or deeply affordable, or something else.
There are additional steps needed to bring down construction costs, a recent piece noted how much more expensive elevators are in Canada, we need to look at these issues and look at scale, competition, supply chain and drive those down.
Clearly, more CMHC financing is required.
But we're going to get nowhere even if we don't address the need for income growth. First, through wages; and second through income supports to close the gap between what the market (customer) can afford and what builders can deliver.
We also need to look at nationalizing, (with compensation) some sites for public delivery to both bring in more deeply affordable units, but also to clear some backlog/pipeline off-the-table for industry.
Finally, as part of that, we need to also admit some of that private expertise is going to have to shift to public employment.
Red_Bulmer
Active Member
This is on the edge of Yonge and Eglinton zone that was chosen as a growth centre by the province.
It might be zoned for single family, but that doesn't mean that it should be or that is going to stay that way.
There are very tall buildings going up right across the street and this is a block away from a subway station.
Personally, I hope that the growth zone is expanded west to Avenue Road and South to Davisville.
I do think that there should be a gradually decline in heights, but much further away from Yonge Street and Eglinton which both have transit lines.
Rents and the housing market dropping does not mean that there is no demand more new housing, that is just a planned and mostly welcome effect of recent cuts to immigration and international students.
Most condo units that can't be sold are very small units normally occupied by students (which we have a lot less of now).
The country and city are still going to grow and we need more housing to keep it affordable, and it needs to be built near transit because car traffic in this city is a nightmare.
Not sure why you think nothing is being built right now, there are still new condo projects and lots of rentals starting construction every week, 280 cranes in the sky over the GTA (As of January 1st 2025).
stfeinberg
New Member
Is this a real issue or a hypothetical one?
Basically I'm asking if it's necessarily true that after the land is up-zoned, the value is immediately "jacked up". Wouldn't the counterparties engaging in these transactions be aware of the current weakness in Toronto's development land market and price their bid accordingly? Therefore the price of development land, zoned or un-zoned is still governed by the market no? So I'm not exactly sure how "culpable" the City is for these "ambitious" proposals, sure many of these plans will never come to fruition, but its the private sector wasting their time and money, not the City.
Northern Light
Superstar
You're right, to a point.
But land on which you have permission to build 45s is still worth a lot more, even in this market, than land on which you can build 5s, all other things being equal (similar site, neighbourhood etc.)
Yes, if you sell it. Although, again, zoned is worth more than not zoned even in a bad market.
Though its certainly worth much less than in a hot market.
But that value isn't necessarily just realized by flipping. It can be realized by borrowing against that value, or using the value to inflate the value of your business in general etc.
rdaner
Senior Member
^Great points but I just want to point out that a lot of people assume that all new projects are to be condos rather than rental which are seeing starts.
stfeinberg
New Member
Again, my intention was to push back on the idea that penalizing a developer's approved density would create an environment where more units are created. From what I can see, in the current environment, even if you were to enact such a penalty, nothing would be built regardless. The economics as they currently stand simply just don't make sense.
rdaner
Senior Member
stfeinberg
New Member
Unless you're a pension fund with an infinite time horizon, PBR is significantly less attractive than condo development. In a "market" economy you can't "force" anyone to do anything. If something makes sense economically it will get done, if not... it simply won't.For rentals as well?
HeartoftheTempest
New Member
In some cases this is true, In the case of the site/homes above - there's no way there is enough cash flow to support increased leverage and there's no way banks are comfortable increasing their risk exposure here on a negative cash-flow asset.
In a vacuum, I'm not sure I see the strong business case of spending $1M+ in cash today just to rezone to gain increased paper value and turn around to use that to borrow against when I can't even service the debt. Different story if this were an older commercial/office property with a decent NOI and lease terms of 5-10 years min.
Midtown Hank
Active Member
This is very much the point. Inflating land values by allowing increased density is happening all over the place. That phenomenon reverberates throughout an area and makes land acquisition and the cost of development more challenging, reducing the economic return and incentive to develop. In the case of this project, who in the immediate neighbourhood is now going to sell their modest house for under $2MM (or whatever the # is). Basically, the value of all the residences nearby have increased, raising the costs of inputs. Economics of 4 plex or 6 plex is prohibitive, so we get 45 storey proposals.
innsertnamehere
Superstar
if anything the more zoned sites there are, the lower land values will be.
The problem we have is that the City permits very very little density "as of right" which means there is value in rezoning. If the city permitted everything as of right, you could build a tower anywhere, and no property would be inherently more valuable than another.
The more zoned sites there are, the less premium a builder will pay for a zoned lot as they could simply go buy another one elsewhere. The large number of zoned sites drives down land costs for new development.
Deregulating (i.e. upzoning) always helps affordability.
Multiplexes will still pencil in areas which are seen as low potential for higher densities, because higher densities are seen as the "highest and best use".
Regarding the wider trend @ProjectEnd is discussing of zone and flips - I agree with your intent about flippers not creating real value - but you have to understand that they exist in the policy framework the City has created. By creating highly restrictive zoning which can't support basically any growth without a rezoning, land values are artificially suppressed. Then you layer on the ability for landowners to increase their lands development potential through a complex, expensive process, and you create financial incentives to chase fake rezonings.
Go down the QEW to Hamilton to see what could be instead. The City has as-of-right 30-storey zoning across the entire downtown. There are no speculative proposals by fake developers as there is no incentive to do so - real builders can buy basically any site in the downtown and automatically have their rights to 30 storeys. Few even bother trying to zone for more as the process and "battle" is not worth it for the marginal gains, it's easier to just do 30 storeys and move to the next project.
The City creates a system of consultants and rent-seekers chasing densities on paper by not just permitting it in the first place and requiring the farcical chase of "approvals". They could write the entire industry away with the stroke of a pen by implementing performance based zoning across a large chunk of the City if they wanted to. They basically already have internal guidelines and systems as to where they will approve towers - why not just write some wide-ranging by-laws permitting them pre-emptively and avoid millions of wasted consultant fees and time spent?
the solution isn't to penalize people for doing fake rezonings, it's to remove the incentive to do them in the first place and let the market focus on actually building it.
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Midtown Hank
Active Member
Interesting hypothesis, and in theory makes sense if you completely deregulate the entire yellowbelt. In practical terms, an individual land parcel does not drop in value once it is upzoned. It increases. That is why many developers are doing it (and at a significant investment for all the consulting & legal fess).