Early Thursday morning, on April 4th, 2013, members and guests of BILD (the GTA’s Building Industry and Land Development Association) met at the Westin Prince Hotel to discuss, in a forum format, to discuss the following:
- What issues are keeping you awake at night, and what are your thoughts on how to resolve or overcome them?
- What new challenges and/or new opportunities do you see for the condo industry in 2013 and beyond?
As a seasoned (read: sometimes jaded) Real Estate professional, I went to observe this forum thinking that I might hear a lot of congratulatory, self-serving, and negativity from the condo development industry big boys.
Instead, I was very pleasantly surprised to see that the leaders in this industry are worried for condo buyers, due to the continuously upward pressures they are facing from development charges, levies, etc. They are constantly polling consumers and looking for ways to give them the product they want, and are frustrated by the inability of government to work with them to provide the top notch living experience they feel condo buyers deserve.
The panel was a selection of some of the industry’s most qualified and respected members (moderated by Jeanhy Shim, of Housing Lab Toronto):
- Sam Crignano, Cityzen Development Group
- Jim Ritchie, Tridel Corporation
- Gary Switzer, MOD Developments Inc.
- Alan Vihant, Great Gulf Homes
Here are some of the discussed points, which include identified challenges, industry frustrations, and proposed solutions (note: some is verbatim, some is paraphrased, and some includes my own comments to clarify certain points):
- Sensationalism in the media over the past two years has highlighted a condo bubble, picked on isolated incidents of construction or quality issues, and warned of doomsday scenarios (one recent article quote someone as saying “this is where your grandchildren are going to come to buy crack”). More moderate, informed, and realistic articles only pepper this minefield. The Result? Consumers are confused and don’t know whether they should buy now, or wait.
- Ineffectiveness of government:
o Infrastructure lacking
o Public transit is antiquitated
o Developers feel they have been building a world class city, and the government is not keeping up
- Unpredictability in the market:
o Fewer investors
o Fewer end users
o Market is constantly shifting (size of units, size of buildings, unit mix, etc.)
- What the media and consumers don’t understand, is that it is so difficult to prepare a product which will be sold/occupied in five or seven years. It is so very difficult to aim so far ahead. To make this point think about how silly it would be to ask a dress designer to design a dress which would be worn in five years. It would be completely out of fashion!
- The quality of non-residential developments in Toronto (commercial and institutional) is phenomenal, and in sync with the condo developments in shaping this city.
- There is an erosion of consumer confidence and understanding, and it should be noted that no other industry is subjected to as much and as frequent scrutiny and criticism. One big problem is the media’s hunger for very frequent statistics, which are confusing and not particularly reliable (what does it matter if there are less or more condo sales between February and March?).
- Lame duck municipal and provincial governments. Nobody wants to do anything since they all have the wait and see attitude towards 2014 elections.
- Nothing but lip service is coming from the (especially municipal) government. A good example of this is that the area known for Corus Entertainment, George Brown College, and condos at the foot of Yonge Street was promised LRT service two years ago. Nothing yet. Now they’re being told it will come in two years. For now, thousands of people make due with buses servicing the area (which are absolutely not sufficient for the job).
Some proposed solutions and comments on the market include:
- More private sector initiatives. There is a good track record of public/private sector partnerships being win/win.
- A few years ago the trend was to build larger buildings: 300, 400, 500, 600 units. Developers are now being very cautious about the size they build.
- Yes, 28,000 units sold in 2011, but the industry feels that was an anomaly, not a benchmark year. With 14,000 units sold in 2012, condo developers feel that the media should clearly explain that it is neither logical nor responsible to use 2011 as a benchmark. Instead, know that 14,000 units selling in one year, in most international cities, is considered a very healthy number.
- A relief line is very much needed for public transit along King West, or Queen West. Unfortunately politics come into plan, and it sounds sexier when a politician says they’re building a brand new subway line from York University to Hwy 7. and Jane, rather than addressing a growing problem downtown.
- We have a first world city, with third world public infrastructure (wooden telephone poles, pathetic streetscapes, etc.).
- Our city is intrinsically dysfunctional, with Planning, Heritage, and Publics Works departments not communicating amongst themselves. A great example of this is the $1.5 million spent on The Esplanade by a developer to build new, attractive sidewalks, with trees and all the fixings. A few months later, it was torn up to do underground servicing work.
- When the public is happy with work being done in Toronto, it’s usually done by a developer. For example, at King and Spadina, where new light standards and sidewalks were installed and paid for by a developer.
- Some decision makers in the government and banks don’t understand the condo market much at all, and are only sometimes calling on industry expertise to educate them.
- Developers are more price conscious of what they pay for land because they have to pass high land costs on to buyers, so they are sometimes buying in edgier areas to get better land deals.
- Selling to end users versus investors takes longer. It usually takes 18 months to fully sell a project to mostly end users, versus three months if sold mostly to investors.
- There is a deficit of infrastructure spending in Toronto. Some methods to raise money:
o Raise property taxes (won’t happens because it equals political suicide)
o Toll roads
- The municipal government has spent the past decade whining about not getting money from the federal and provincial governments. They need to roll up their sleeves and create funding opportunities instead of repeatedly going after a perceived easy target: the condo industry.
- Developers are trying to be flexible on the fly regarding buyer requests such as moving walls, combining units, and changing floor plans.
- If governments keep going the way they have been, additional costs risk killing this major industry.
- Developers have heard buyer feedback and are refusing to build units any smaller. Instead, they feel the demand is back to the trend of five years ago, where larger units were the norm.
- There is a trend for condo developers to start their own property management companies, to manage for the first 5-10 years of a condo building’s life. Nothing is worse than mediocre or bad property management, as it reflects poorly on the developer, and damages its brand.
- NIMBYism (Not In My Back Yard) is absolutely rampant. Many councillors wash their hands of dealing with development issues, due to future elections. Developers much prefer partnerships and constructive discussion with stakeholder groups in a neighbourhood, but must sometimes resort to the OMB (Ontario Municipal Board).
At the end of the day, you can’t look to the media to report the facts as they are, unless you read the column written by George Carras, President of RealNet Canada, in the last Saturday paper of every month in the Toronto Star. He brings facts and reliable figures in an objective, factual was, which is much different from the sensationalistic “fame of the day” headlines which too many journalists have an unreasonable affectation for.
Reporters sometimes don’t understand the industry well enough to interpret the statistics properly, and otherwise tend to look for hype and edgy stories to get people buying papers. All this serves to do is create mass confusion which the media thrives on. Throughout the past decade, I have personally seen at least three enormous Real Estate bubbles declared, and not a single one has either existed or popped.
Are developers perfect creatures with only altruism in their hearts? Absolutely not. But this group, while expecting to make a profit (most of us don’t work for free, after all), does seem to want to provide top-notch products for consumers by being flexible and creative with solutions to the growing challenges they face. These include government inconsistencies, poor city infrastructure, and a misled – thus confused – public.
For a clear look at how the condo industry is fairing, look at the long term trends instead of buying into one-story media spin. Yes, there’s been a decline in the number of units sold since 2011, but that has only brought us to a more realistic and sustainable volume of sales.