Darah Hansen – Yahoo Finance

They say home is where the heart is. If that’s true, we can expect to hear more and more of that comforting beat coming from much higher up in the sky.

High-rise living, shunned by our parents and grandparents as a second-rate option for those who can’t afford to buy a proper house, is fast becoming the norm for Canadians.

Just over one million people in this country call a skyscraper home today. The vast majority (nearly 700,000) of condo dwellers can be found in our largest urban centres, including Toronto, Vancouver and Montreal.

Existing condos currently account for about 15% of total housing in the Big-Three cities, and just over 8% nation-wide, according to Royal Lepage.

But, like the Toronto skyline, that ratio is expected to change dramatically over the next few decades. Driven largely by affordability and steady immigration into core urban centres, high-rise condos already account for about 40% of new-home construction in our largest cities. That’s expected to reach 51% in the last half of this decade, and 54% by the end of the 2020s.

Comment: It is more like 60-70% in the GTA, and probably closer to 90% in the 416. Take out infill housing and I think it is almost 100% condo construction in the 416 area of Toronto.

There’s something larger going on here, too.

Turns out, high-rise living, and its associated perks (the onsite fitness centres, rooftop patios and relative ease of living and working in the same neighbourhood), is not just a palatable option for Canadians, but increasingly desirable.

“Clearly the pendulum has swung towards this style of living,” said Phil Soper, CEO of Royal Lepage.

“It (condominium living) is destined to be the dominant form of housing, particularly in our dominate cities,” he said.

Comment: 100 years ago, people lived in houses in what were then becoming cities. As more people moved into urban areas, they started sharing houses. Then, the first tenements were built and apartment living was born. After WWII things changed, and people started moving away from the city cores for houses. This suburban dream continued for decades, until about the millennium. Now, living downtown is more popular. Who knows what people will want in 2050?

Vancouver may be best-known for its sea of blue-glass towers glittering like jewels across the city’s downtown core, but no Canadian city has seen the kind of radical makeover quite like Toronto has in recent years.

With 130 projects underway as of January, Toronto has more skyscrapers and towers under construction than any other North American city, according to Emporis, a website that compiles building data. New York City, by comparison, has 91 buildings under construction, with Montreal in distant third place with 25 high-rises going up.

Comment: Yes, but NYC already has 794 buildings over 100m, whereas Toronto only has 216. They are already more than a little ahead of us. And then there is Hong Kong with 2,354! More than an order or magnitude more highrises than Toronto. Perspective people!

In 2012, Toronto’s high-rise construction nearly doubled that in the Big Apple, Emporis reported. The overwhelming majority of the towers are residential buildings.

Toronto’s construction boom has certainly sparked fears of a potential bubble, as a whopping 40,000 new units are expected to come on stream over the next two years alone.

Comment: But how can it be a bubble when they are already paid for? And prices are not spiking, which is the hallmark of a bubble. The amount of something has nothing to do with a bubble, only the rapid rise (and then fall) of the price does. Condo prices rose 2% in Q1 over Q1 2013. Hardly a rapid price increase! And since inflation has been around 1.5% in the first quarter of this year, that is really only a 0.5% price increase. Also of note, the 10-year average for condo completions has been around 16,000, so a 20% bump to 20,000 is not that big. And that is ONLY if 20,000 are completed each year. Last year saw only 16,668 completions according to RealNet. CMHC had a strangely low number in the 14,000s. Point being, 2013 had less than 1,000 completions more than the 10-year average. And more than 2,000 LESS than the record set in 2011. That is anything but a bubble.

In April, Scotiabank released a report predicting a softening in the overall housing market this year, as soaring prices temper home sales and builders scale back the number of new projects, particularly condominium towers.

Comment: Every year everyone says that – and then it doesn’t happen.

Earlier, the Bank of Canada warned that a glut of unsold condos in Toronto could destabilize the whole housing sector and drag down the country’s economy.

Comment: But there is no glut of unsold condos.

But if that’s scaring off buyers, no one told them.

Toronto condo sales had their best March on record this year, helping to drive first-quarter sales up 68% from a year ago, Bloomberg reported.

Prices dipped to $548 per square foot in March from a record high of $559 last month while the average unit was 797 square feet, up from a record low of 784 in February, according to Bloomberg.

Comment: If prices are falling, where is the bubble?

Soper said demand remains surprisingly strong, adding it may take an uptick in the cost of a mortgage financing before we see some slowdown in the sector.

Comment: Only if it is a significant uptick. The change in amortization from 30 years to 25 years was equal to a 1% rate hike. And that only slowed sales for 10 months – while prices continued to rise. Now, we are back to record-setting months. Thus, a 1% rate hike is unlikely to have a major impact. Heck, we saw a 0.6% rate increase last summer, right as sales started to rise (and continued to rise) and prices kept going up. I am not sure what sort of mortgage increase will actually put the brakes on things.

“We are well into the period where we thought (completed condo units) would outpace demand and it hasn’t occurred yet,” he said.

Comment: Everyone thought there would be this bizarre and massive increase in completions. And then there wasn’t. And there won’t be 35,000 a year either, as TD predicts. When we see around 16,000 a year since the turn of the century, how can it double overnight?

“I still believe it will happen, but it may not be as significant an issue as we first thought.”

Comment: Uh-huh. Even getting to 20,000 completions this year would be around 10% higher than the best year ever and 20% over the 10-year average. That is a rather big jump.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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