The 'Manhattanization' of Toronto will change family-housing dreams
The housing dreams of families wanting to live in central Toronto will undergo a sea change in the coming decade as the supply of detached homes dwindles and the remaining ones soar in price, real estate experts say.
The pressure is already mounting with single-family homes being snatched up in fierce bidding wars for tens of thousands of dollars — and in a few cases for $200,000 or more — over asking, often with no conditions attached to the offers to purchase.
Along with a shrinking stock, prices for single detached homes and townhomes are projected to go up 30 to 50 per cent in the next decade, while condo prices are expected to rise only moderately or stay flat as the oversupply in that market continues to grow.
That scenario effectively eclipses ordinary families out of the market, making condo living the default housing option for those who want to remain in the core.
It's a phenomenon real estate mogul Brad Lamb refers to as the "Manhattanization" of Toronto.
"In New York City, even if you're an investment banker making $1 million a year, you still can't afford to buy a house in Manhattan, so you're buying a condo," says Lamb.
It's the same phenomenon, he says, that you see in other big cities of the world, such as Hong Kong, Tokyo, London and Paris.
"If you want to live in central Toronto, you're going to have to live in a condo. Families will be forced to buy into high-density living. It's the natural evolution of a city," says Lamb who develops condo projects in Toronto, Ottawa and Calgary.
Shift in expectations
For families, the transition to condo life will require a change in mindset and shift in expectations to vertical living in a smaller space, says Ben Myers, editor and vice-president at Urbanation, a real estate newsletter.
It's a mindset that new Canadians coming here from cities like Hong Kong, Singapore and Mumbai are used to and have no problems with, he adds.
"It's more the Canadian mindset where you have to have a piece of property, fenced in with a yard and a garage."
Toronto's condo boom
Toronto has 132 highrise buildings, defined as between 12 to 40 floors, under construction, according to a German research company that tracks data on multi-storey buildings.
Mexico City is second with 88 and New York City is third with 86. Rounding out the top five are Chicago, which is building 17 high-rises and Miami with 16.
With 1, 875 completed high rises and skyscrapers, Toronto is second only to New York City, which has more than 4,000, and ranks just ahead of Mexico City and Chicago.
Culturally and economically, Torontonians haven't arrived at the Manhattan scenario — yet, says John Pasalis, president of Realosophy Real Estate Brokerage.
"You can't buy a house in New York City or Hong Kong. It's so expensive, it's just not an option, but in Toronto we do still have affordable houses."
Buyers can get a freehold house for around $500,000 if they're prepared to go farther east on Danforth Avenue or farther west along Bloor Street and lower their expectations in terms of finishes, according to Pasalis.
"We're at least a decade away before families truly cannot afford houses in Toronto and have to start considering condos as an option," he says.
Size going to be an issue
With Toronto building more highrises than anywhere else in North America, local buyers might think they have plenty of options in terms of buying condos.
About 53,000 new condo units are due to be completed in Toronto over the next 18 months alone.
However, even when families do adjust their expectations and mindsets to embrace condo living, they will come up against a wall over a lack of larger units roomy enough to accommodate a growing family of any size, experts say.
Of the 6,005 condos ready for occupancy this year in the former city of Toronto, 63 per cent are studios, one-bedrooms or one-bedrooms plus den. The average size is 822 square feet, according to a report by Urbanation
Meanwhile, of 9,090 condos slated for completion in 2014, 67 per cent are studios, one-bedroom units, or one-bedroom plus dens. The average size of all these units is only 695 square feet.
The reason for this is that, typically, developers have to sell 60 to 80 per cent of their units before they can secure bank financing to start construction, so they're building what sells now — small units for singles and young couples who want to be urban dwellers.
"There's just no demand for three-bedroom condos downtown. Those units sit on the market a long time," says Pasalis.
Adds Myers, "the developers in the downtown market are catering their product to investors, who are interested in smaller units that are easier to rent or flip. The larger the unit, the longer it takes to rent out or sell."
A looming glut in 'micro' units
But today's trend may well lead to a glut of "micro" units and a looming housing crunch for families who will eventually want to live in condos.
Toronto city Coun. Adam Vaughan, for one, is worried about what he calls the "explosion" of single occupancy units in the downtown core.
"Family housing has to be in all parts of Toronto not just in the suburbs," he says. "If all we do is build this type of housing, we'll just delay sprawl for another generation and create a simplistic monoculture downtown."
Vaughan is pushing developers to build more family housing in his downtown ward with some success — more than 600 units of housing with three or more bedrooms have been constructed or approved in the last four years.
"I appreciate that developers are nervous about building what they can sell," he says, "but we can't allow market forces to do city planning."
The city does offer incentives to developers by approving additional height and density for their projects in exchange for their building larger family-friendly units, as well as condos with knockout panels, which can be combined to make larger suites in the future, and units designed for disabled residents.
"Diversity keeps the downtown core vibrant. Diversity is accommodating different family configurations and different economic price points," says Vaughan.
For his part, Lamb agreed to build 30 three-bedroom units in his 300-unit 32-storey King Charlotte project at King Street east and Spadina in order to get it approved.
But so far, only seven of the 1,000-square-foot three-bedroom condos, priced at under $600,000, have sold.
"They're a tough sell," says Lamb. "We've had to offer all kinds of incentives. It's just not what people want right now. It's a shame."
Acceptance of condo life has gone through several phases, says Lamb who has been selling them since 1988.
When he started, Lamb recalls that people "turned their noses up at condos," seeing them as an inferior housing option.
Then, through the condo boom of 2000 to 2012, builders enticed young buyers and investors with tiny "super highly-stylized Prada shoe apartments," by selling a hip, downtown lifestyle.
Twenty years ago, studio condos — units without bedrooms — were typically 600 square feet. Today they’re more likely to be half that size at 300 square feet.
Lamb predicts the next wave of condo building will reverse the trend to pint-sized units.
"As the city matures, and there is no room for single family homes and the price gap between them and condos grows, that gap will be filled with larger, more luxurious condo units that resemble small homes."