large condo unit

Build large condo units and families will come?

Real estate analyst takes aim at ‘fallacy’ reflected in planning framework
Tuesday, June 19, 2018
By Ben Myers

The term “complete communities” is used quite frequently these days. One of the most important features of a complete community is accommodating a wide range of community members through a mix of housing types and uses. This is an admirable goal, but it is much easier said than done.

The City of Toronto has crafted an updated planning framework “to ensure that growth and the timely provision of infrastructure is addressed so that Downtown remains livable and economically competitive.” The planning framework for downtown Toronto, called TOcore, aims to ensure children, youth, and seniors are accommodated by “providing housing to a wide range of residents that is affordable, secure, of an appropriate size, and located to meet the needs of people throughout their life cycle,” which “is essential to the creation of complete communities.” In buildings that have 80 units or more, the plan requires at least 15 per cent of the units to be two-bedroom suites measuring more than 936 square feet, at least 10 per cent of the units to be three-bedroom suites measuring more than 1,076 square feet, and at least another 15 per cent of units to be two- or three-bedroom suites that are not subject to size minimums.

The fallacy here is that having large units will attract children, youth, seniors, and families to downtown Toronto, which certainly hasn’t been the case in the past. One only needs to turn to data from the 2016 Census to confirm that hypothesis.

Dissemination Area 35204872 — which is bounded by East Liberty Street to the north, Strachan Avenue to the east, the Gardiner Expressway to the south and Atlantic Boulevard to the west – is best known as Liberty Village. This area is a great test case. The bulk of the community is made up of recently completed condo apartment projects: Bliss, King West Phases 1 to 3, Liberty Central, Liberty Market, and Liberty Towers — about 2,464 private dwellings as of 2016. In terms of large suites, the developers built one-bedrooms plus dens, two-bedrooms, two-bedrooms plus dens, penthouses and townhouses measuring more than 1,000 square feet. About five years ago, it was possible to purchase a 1,400-square-foot two-bedroom-plus-den unit for about $765,000.

According to Census data, there were only 140 couples with children in south Liberty Village (six per cent of the households), just 35 couples with two children, and not a single household with three or more kids. One could argue that Liberty Village is much more desirable for a young family than King West, the Entertainment District, or the Yonge Street corridor, because of amenities like Trinity Bellwoods Park, the Martin Goodman waterfront trail, Fort York, Exhibition Place, and BMO Field (less expensive real estate too). There is the King streetcar, the Exhibition GO Train station, and quick access to Lake Shore and the Gardiner to keep residents moving.

A lot of families would be more than willing to live in a larger condo suite, but a major factor precluding those purchases has been the huge increase in pre-construction condo prices due to rising costs, land values, and development charges. Many prime downtown developments are launching at $1,100 to $1,200 per square foot. Even at $1,000 per square foot, a 1,076-square-foot three-bedroom unit would cost more than $1.1 million if parking was purchased as well. Considering today’s interest rate, taxes, condo fees, and insurance, a family that made a down payment of more than $200,000 would still be looking at monthly payments of more than $5,000. In addition, many families don’t want to buy and wait three to four years for the project to get built (or get cancelled).

In reality, the TOcore plan will result in more units measuring more than 1,076 square feet than are demanded in the pre-construction market, developers will have to lower prices to move them, and raise the prices on smaller units to make up the revenue. The lower price on these large units won’t likely be enough to attract families, and the plan will actually result in affluent buyers getting slightly cheaper units at the expense of first-time buyers and investors (higher prices for investors means higher rents for tenants).

In the long run it will be beneficial to have more large condos in the resale market as the alternatives (singles, semis and row) skyrocket in value over the next 25 years, but trying to artificially create complete communities in the short term will create a subsidy for affluent buyers, raise prices/rents on small units, and reduce the overall new home supply as some developers drop sites due to the increased absorption risk.

Ben Myers is the president of Bullpen Research & Consulting Inc. He produces market demand reports and residential pricing recommendation studies for builders, lenders and landowners in Toronto and Ottawa. He assists in the underwriting and due diligence of real estate development opportunities from a revenue and land value perspective. Find him on Twitter at @BullpenConsult

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