Toronto

A Toronto Condo Bubble?

Wendell Cox — Tue, 14 May 2013 11:02:39 -0400

Toronto has experienced a virtual explosion in high rise condominium construction in recent years, especially in the downtown area. According to Bloomberg, Toronto has the largest number of high-rise condominium towers under construction in the world.

However concerns are being expressed that the market may be saturated and that a housing bubble is developing. The Toronto Starreports that new condominium sales declined 55 percent in the first quarter of 2013, compared to last year.

At the same time, a huge number of new condominium units is under construction in Toronto. According to The Star, 57,000 units were being built during the first quarter. The first quarter build rate is reported as the largest rate ever. For their part, builders have scaled back plans for new towers

Who is Buying?

In an article entitled, “Toronto Condo Investors Under Water,” the Toronto Condo Bubble|Toronto Housing Bubble website (subtitled Largest Housing Bubble Except for Vancouver of Course) asked: “… if condo living is the way of the future, then why is it that the majority of people who buy condos never actually live in them?”

The question was in the context of a report by Scotiabank that between 45% and 60% of Toronto condominium purchasers were investors, rather than people who actually intended to live in the housing.

Single Family Housing in Toronto: The Holy Grail

At the same time, The Star points to indicators that the single family housing market retains considerable strength. Part of the reason is that this most desired type of housing is made far more difficult to build as a result of provincial land-use policies (urban containment, including the Toronto "greenbelt").According to The Star, "That’s made detached homes, in particular, the coveted Holy Grail of housing."

Despite the explosion in condominium units, Statistics Canada data indicates that 71 percent of net new occupied housing in the Toronto metropolitan area was detached between 2006 and 2011.

These market dynamics, rising detached house prices relative to incomes and heightened speculation are predictable outcomes of urban containment (land rationing) policies.

Toronto's Greenbelt: Pushing up Congestion, Local Air Pollution and House Prices

Wendell Cox — Fri, 17 Aug 2012 11:05:36 -0400

I had the pleasure of participating on Jerry Agar's program on Newstalk 1010 in Toronto, with host Tasha Kheiriddin on August 15. The subject was a new report by the David Suzuki Foundation lauding the benefits of Toronto's greenbelt greenhouse gas (GHG) emission reduction role as a carbon sink.

Ms. Kheiriddin was interested in the other side of the issue, which I was happy to summarize. First and foremost, for all of their claimed benefits, greenbelts around growing cities have serious consequences. They force population densities up, which makes traffic more congested. This is because as densities rise, traffic volumes increase. There are various estimates of the increase in traffic congestion from a doubling of density, from (for example) 61 percent (Sierra Club) to 96 percent (Ewing and Cervero). The greater congestion produces more intense local air pollution, with the predictable health effects. Beyond that, as any Economics 101 student should know, rationing anything (such as land) tends to be associated with higher prices. It is no wonder that house prices have skyrocketed since the greenbelt was established.

It is important to understand the dynamics of GHGs. It doesn't matter whether they occur in the Toronto greenbelt or Patagonia. This means that there is no reason for GHG reduction to emanate from the Toronto greenbelt. It would be far better to forest some of the 7.5 million acres of disused farmland in Ontario (since 1951). This is many times as much land as the Toronto greenbelt. In other words, from a global (or local GHG emission perspective), the Toronto greenbelt is irrelevant (Note).

The purpose of the city (metropolitan area) should be to facilitate higher discretionary incomes for its residents, while minimizing poverty, all within the constraints of sufficient environmental protection. The greenbelt reduces discretionary incomes by restricting mobility (more traffic congestion) and raising house prices. It increases poverty by raising costs and preventing job creation. The greenbelt's claimed GHG emission benefits can readily be replaced by strategies elsewhere that do not reduce economic growth.

Note: Large portions of the farmland in Ontario and Quebec have been taken out of production since 1951, as production has been transferred to the Prairie provinces (Alberta, Saskatchewan and Manitoba). Meanwhile, the real value of agricultural production in Canada increased 160 percent from 1961 to 2005.

This is Not the Way to Fix Toronto's Transit

Wendell Cox — Fri, 13 May 2011 23:07:22 -0400

Results and not ideology should guide transportation policy.

Large city officials have been lobbying for a major program of federal transit subsidies for years. The push will likely intensify after the federal election.

A principal resource in this campaign will likely be the Toronto Board of Trade’s third annual Scorecard on Prosperity, which finds Toronto’s transportation system to be among the worst in the world, ranking 19th out of 23 metropolitan areas. Other metropolitan areas also ranked poorly, such as Montreal at 12th, Calgary at 13th and Vancouver at 21st.

However, a deeper look yields difficulties with the Board of Trade report.

Automobiles dominate travel in all but two of the metropolitan areas (Hong Kong and Tokyo). Yet, only two of 11 indicators involve automobiles. Eight relate to non-automobile modes such as transit (one deals with freight). The Board of Trade comparisons are skewed because they give disproportionate weight to modes that are relatively minor in metropolitan mobility.

However, the greatest difficulty with the Scorecard is the implied belief greater reliance on transit is preferable. In fact, transit is slower than cars for the majority of trips. Travel time needs to decrease to encourage metropolitan economic growth, as research at the University of Paris indicates. There is probably no more important transportation indicator regarding the economy.

A Globe and Mail article rightly expresses particular concern that Toronto’s round-trip average work trip time ranks last at 80 minutes per day. However, at least two of the metropolitan areas had longer work trip travel times. The average work trip travel time in the Tokyo metropolitan area was 96 minutes in 2003 (the latest data available), according to the Japan Statistics Bureau. The Board of Trade failed to find a number for Hong Kong, which the government reported at 92 minutes in 2002. Yet, these travel time laggards rank first and second in the Board of Trade rankings.

It should be a source of embarrassment that Dallas-Fort Worth, a bane of urban planners and with less than half the Toronto density, should have a work trip travel time one-third less and one-fifth less, respectively, than Calgary and Vancouver, the highest ranked Canadian metropolitan areas.

It’s worse than that. Among all of the large American metropolitan areas, in or out of The Scorecard on Prosperity, all but New York have better work trip travel times.

Except in the romantic minds of planners, little of the present car travel demand can be replaced by transit. Further, in virtually all of the metropolitan areas ranking above Toronto, the trajectory has been toward cars, so that the present figures are less favourable to transit than they would have been a decade or two ago.

For transport to make the greatest possible contribution to economic growth and job creation, the transport system must provide quick mobility throughout the entire labour market (metropolitan area). Transit-favouring ideology will not do.

The problem is evident. The $8 billion just committed by Mayor Rob Ford and Premier Dalton McGuinty to build an Eglinton subway should be used to reduce travel times as much as possible.

A huge expenditure on a single street will not do that.

So long as ideology trumps reality, Toronto’s calcified traffic will put it at a competitive disadvantage. The focus should be on results — the time it takes to get to work, rather than on means — whether the trip is by car or transit.

Wendell Cox writes here as a Senior Fellow at the Frontier Centre for Public Policy in Winnipeg and is a regular contributor to NewGeography.com. This piece also appeared in the Toronto Sun.

Revisiting Toronto’s G20 Costs

Steve Lafleur — Thu, 15 Jul 2010 16:40:22 -0400

In the lead up to the G20 conference, the security costs were projected to approach a billion dollars. As high as this number sounds, sources are now speculating that the total bill could be closer to $2 billion. Shocking as that number is, the costs incurred by local businesses may have exceeded that total.

In addition to the physical damage to the hundreds of shops that were smashed in, there were major productivity losses during, and in the week before the conference. The most visible opportunity cost was the sharp decline in retail sales. According to Monaris Solutions, businesses within the security barrier saw a 28.08% decline in sales, and a 40.87% decrease in transactions. Businesses outside of the barrier experienced a 10.78% decline in sales, and a 16.43% decrease in transactions. The total city decline in sales was 9.31%, with 14.96% less transactions. This may not seem like that much, until you consider that the city has $47 billion in annual retail sales. A crude calculation puts the total retail losses in the $386 million range for the 25-27th. Given that this is a summer weekend, it is probably a low estimate.

The implicit costs to the financial sector would be difficult to tabulate. With 223,000 employees, even minor disruptions to the sector are extremely costly. Many of the large banks asked their employees to work from home for several days, which certainly caused some level of productivity costs. Many of them also had to temporarily move their trading floors outside of the downtown core. Moreover, each bank needed to prepare its employees for the inevitable disruptions during the conference. As the security boundaries shifted, and government policies to deal with the conference changed, banks were required to hold multiple meetings in preparation. Assuming each meeting lasted a half hour, and the average employee earns $20/hour (an understatement), the financial sector would have lost roughly over $2 million for every single preparatory meeting.

Unfortunately, it is impossible to calculate the full cost of the summit to Toronto businesses. The banks have been fairly quiet about their own costs, likely because of the Harper government’s strong stand against implementing a global bank tax, a move that would have devastated the global financial sector. Though there have been no public statements from the banks, there are rumors circulating that the financial sector lost at least as much as retailers. Those same rumors have it that the overall economic losses exceeded the security costs (based on the original security estimates). With nearly $400 million in retail losses alone, this seems realistic. Let’s hope this G20 experience has finally put to death the myth that hosting controversial global political meetings in major cities brings economic benefits.

What Seneca Falls Can Learn from Toronto

Wendell Cox — Tue, 09 Mar 2010 16:43:32 -0500

One of the most enduring myths in public policy is that local government consolidations save money. The idea seems to make sense, and most of the academic studies support the proposition. However, rarely, if ever, does the promised reduction in public expenditures or taxes actually take place.

Residents will vote March 16 on a proposal that would merge the village government of Seneca Falls, New York into the more rural and adjacent town of Seneca Falls. Under state law, this can occur without the consent of the town into which the village would be merged.

Paltry Savings and the Risks: A consultant report suggests savings that can only be characterized as pitiful. Out of a combined budget of $13 million, less than $400,000 would be saved, and even that figure is by no means sure, according to the consultant.

Voters may want to consider the following specific risks that could make achievement of the expected savings and tax reductions impossible:

Proponents expect to receive $500,000 annually in funding from a state program that seeks to encourage municipal consolidations. The state program is slated for cuts. Further, with New York’s serious budget difficulties, such a superfluous program could be a prime candidate for discontinuance. Thus, one of the principal factors expected to lower taxes might not survive in the longer run.

Presently, the village has a police department, while the town does not. The new town government is not likely to be able to get away with providing a higher level of police protection in the former village than in the merged town. One of two outcomes seems likely: (1) The first is that the present police protection (and budget) would be spread throughout the merged town. This would dilute police protection in the former village area. (2) The second is that the higher level of police protection in the village would be spread throughout the merged town. This would mean larger expenditures that could easily erase the already minimal projected savings.

The consultant proposes that a new town hall be built. The costs of this building could substantially erode the projected operating cost savings.

A principal reason that municipal consolidations rarely save money is that the necessary “harmonization” of service levels and employee compensation costs inevitably migrate to the level of the more costly former jurisdiction. The police issue in Seneca Falls is a prime example of the service harmonization cost risk.

Learning from Toronto: Seneca Falls does not have to look far to see how local government consolidation can lead to more spending and higher taxes. Less than 150 miles away as the crow flies, Toronto residents were glowingly told of the lower taxes and expenditures that would result from consolidating six jurisdictions into a “megacity” in the late 1990s. As we and others predicted at the time, things have not worked out. Toronto’s spending has risen strongly under the consolidated government. Despite its much smaller population, the risks are similar in Seneca Falls.