Rising commercial real estate prices has made the news across Canada, but external factors are not necessarily to blame. Rising real estate prices is an issue of supply, not demand. While the media has focused on foreign speculators buying property by the millions as a force that drives up the housing market’s pricing, that’s just fixating on the wrong side of the equation.

Are foreign speculators really the core issue?

How many foreign buyers are there in existence to single-handedly sway the real estate market in Canada’s largest urban population? The GTA’s population sits at 6.8 million for 2016, including the regions of Peel, York, Durham, and Halton. These are front-and-centre in the debate. Vancouver’s Foreign Buyer’s Tax may displace purchases to the GTA, but research indicates that foreign buyers may not be the most important factor in Toronto’s rising property prices.

Digging deeper than foreign buyers

The surface issue is that housing prices have outpaced annual inflation rates by a huge margin. Where inflation usually sits at 2-3% historically, property prices have nearly doubled over the last decade. But what is driving up the prices? According to Ryerson’s Centre for Urban Research and Land Development, the GTA’s supply of new real estate has dropped by nearly 50% over the last decade—inversely proportional to the industry’s pricing.

The same report indicates that the nearly 15,000 absent commercial real estate developments each year would have been single detached houses, which are best suited to Ontario’s Green Belt—now largely off-limits for commercial development, and requiring nearly five times the administrative approval to undertake.

What developers are saying

The halved supply seems to be the smoking gun—but why has it dropped so dramatically? That is the key question. Developers have claimed that the Green Belt and Ontario’s Growth Plan have prevented them from establishing new commercial properties in the GTA.

  • The Green Belt is a stretch of protected land in Toronto’s hinterland, however, developers often say that too little of it has been zoned for the development of single detached houses across the various regions in the GTA—read our thoughts on the Green Belt’s impact here.
  • The Growth Plan is a provincial policy that outlines targets for real estate development according to specific deadlines—particularly the requirement to provide land for development over the next three years at any given point. This was intended to provide a steady flow of serviced land for developers to provide housing and other commercial spaces in the future.

A golden opportunity

There is a disconnect between what many developers believe to be available serviced lots and what exists out there. A study from a non-profit called Neptis claims that as much as 80% of the land set aside for development under the Growth Plan remains unused. As The Toronto Star put it:

“But the Neptis research shows that 80 per cent — 45,660 hectares of the land that has been approved for urbanization in the Greater Toronto Hamilton Region — is still available for building, easily enough to last the region to 2031, and likely well beyond that, said Burchfield.”

While the report from Ryerson’s Centre for Urban Research made it clear that most regions aren’t tracking the availability of their serviced lots closely enough for us to make province-wide assessment possible, we agree with the Neptis report’s insight that the public debate on the GTA’s development has missed some key elements.

We also think that 45,000+ hectares of land cannot be ignored, which is why we are here to help developers navigate the regional and provincial steps toward making the most of this opportunity. Start a conversation with us at MarshallZehr to learn how you can grow your capital in the GTA, too.