Bring on the Vertical Living

The Toronto condo market continues to defy conventional wisdom, with another record month. RealNet Canada says March was the city’s best-ever with 2,496 newly constructed units sales, more than double the same period last year. The 10-year average for March sales is just 1,753.

Why? Depends, of course, on whom you ask. Developers would likely tell you it’s a sign of consumer confidence, and they’re right. Some, like Canderel VP Riz Dhanji to the Globe and Mail, might say it’s pent-up demand from those who have been waiting for the last couple of years to see if a crash was coming.

Unit sizes continue to shrink (down to an historic low in February before a small uptick to 797 square feet in March, a figure that was closer to 900 five years ago). Prices continue to climb (up 1% in March to $436,898), and yet demand doesn’t wane.

Even new caps on mortgage guarantees don’t seem likely to make too big of a difference. CMHC is tightening guarantees for mortgage-backed securities, and recently notified banks, credit unions and other lenders will restrict new guarantees to $350 million in April under the National Housing Act Mortgage-Backed Securities program, reports the Canadian Press. Although the Crown corporation had been given authority to guarantee up to $85 billion this year, by the end of July, $66 billion was already committed. CMHC said they would introduce a formal allocation process in late summer.

The cap will make it harder for lenders to obtain funds, with additional costs borrowers will likely shoulder in the form of higher mortgage rates. CIBC chief economist Avery Shenfeld said the combination of steps taken by government over the last year, combined with the beginnings of a sell-off in the bond market would “put a bit of upward pressure on mortgage rates.”

“Overall, the days of very cheap mortgages are going to be replaced by cheap mortgages,” he sort-of warned.

I realize there are a number of complicated factors at work and I never claimed to be an economist, but the Toronto market in particular and Canadian urban markets in general just seem to exist in some sort of suspended animation, where what goes up doesn’t ever seem to come down.

We’ve all heard that condominium development is now outstripping demand, and yet the available units get bought, and even though they’re smaller, their prices continue to go up.

I think there’s more at work here than economic factors — I think we’re ready for (or resigned to) vertical living.

CEO of Royal LePage Phil Soper said last week that more condos are being built than are demographically necessary, especially in Toronto, Montreal and Vancouver (44,000 units compared to the 26,000 to 32,000 he says we need), but he also said the condo market isn’t in danger of crashing.

“Demographic shifts, immigration, preference shifts will – our hypothesis is – drive higher density living in our major cities,” he told an industry conference. “There’s a decided shift in preference in our biggest cities towards high-rise living.”

“The same people who have been predicting [a condo market crash] have been predicting it for about 20 years, eventually one of them’s going to be right, but in our estimation it’s not going to happen in the near term,” he said.

Maybe it’s that people are finally putting a bigger premium on quality of life than square footage, and giving up their suburban acreage for a shorter commute (You should try it!). Maybe we are becoming a kinder, gentler people and actually capable of living in close quarters without altercation or litigation. Maybe it’s the influx of people from other countries who don’t have our surfeit of space. Or maybe it’s the money.

According to the Globe, Soper mentioned Mumbai as one global city where families and condos are a natural fit. If it’s cost that’s driving the move, as some would have it, how do we stack up?

According to Numbeo.com, a cost of living database, to buy an apartment in the city centre of Mumbai, India, costs an average of $5,111.81 per square meter, a range of $3,509.58 to $7,245.57. The Toronto average is $6,402.09 ($5,381.96 to $7,242.97). Not too far off, but here’s a difference — the average monthly disposable salary after tax in Mumbai is $573.84 (ranging from $362.28 to $905.70). Toronto, by stark contrast, averages $3,384.64, a range from $2,500 to $4,300.

Let’s look at another couple of high-rise cities while we’re at it. Manhattan: the average price per square metre is $10,662.08 and the average salary $4,835.07. Tokyo: $6,412.23 per square metre, with monthly salaries averaging $3,407.31. Hong Kong: $20,151.73 (!) per square metre to buy an apartment in the city centre, on salaries that average $2,907.11. Rio De Janeiro: $5,195.37 average per square metre and salaries averaging $964.42.

These aren’t cities that have a heck of a lot in common, aside from a propensity for high-rises. Some cold, some hot, some in the Far East, some in the near West. Some have great public transit, others not so much. Hong Kong has nearly no space per occupant, while we still have tons. The demographics are different, the languages spoken are different, the cultural makeup is different.

It’s not the money. Condos may be cheaper than detached homes, but as consumers we have a way of getting what we want, whatever the cost. (That way is usually called “debt,” but that’s a problem for another day.)

We’re migrating into the city centre because it’s a great place to be. We are on the verge of actually choosing to raise children there, and demanding that the infrastructure be put in place to support family life. We are going to turn our condo culture into a long-term lifestyle choice, not a temporary address on our way to the suburbs. I have faith that this city will figure out how to embrace city life. In the meantime, we’ll just keep defying all logic.