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Welcome to Altus Insights Podcast Series. This podcast brings together some of our leading brainiacs at Altus Group to discuss, debate, and on occasion complain about the evolving state of Canada's residential and commercial real estate. Join Ray Wong, Marlon Bray, and Avi Zelver for monthly podcasts covering the latest market and construction cost trends across major markets in Canada.
Welcome to Altus Insights podcast series with Ray and Marlin hosted by me. This podcast will cover monthly market updates and construction cost impacts across major markets in Canada.
Ray Wong: Welcome back to part two of our podcast on on residential land prices in the G T A. And today we have back Mike Czestochowski, who is the, the Vice Chairman at at C B R E focusing onland. And, uh, John Galluzzo who is our, senior Director for Altus, focusing on land valuation and of course Marlon and myself hosting this session.
So, Last time when we discussed, we, we talked about, we started again into discussion about urban versus suburban, especially with the, the, the investment, especially the last number of years. The both the, the provincial and as well as the federal level with the increase in development or in investment in infrastructure into the province.
So, And to a certain extent when in our previous session, the, some of the allowable zoning and nimbyism it continues to be in practice despite all the changes and as well as the, the intensification of that, that growth in that, that area. So either Mike or John, do you want to sort of continue on the discussion with urban versus suburban land prices?
Some of the challenges that both guys see in, in these two areas for for land prices.
John Galluzzo: Mike, you wanna go ahead on that one or would you like me to take it? You go ahead. Yeah. So what we're seeing is greater demand, definitely on the suburban side. And I think more flexibility from the municipalities in, in those suburbs.
And when I say suburbs, I am including G G H, so Greater Hamilton area, KW area Guelph. Barry Inis Field and out in Durham region and Claton area. What we're seeing in terms of calls and activity is much more demand now for stock townhouse sites and for, for, call it low to mid-rise apartment sites, which historically we really haven't seen other.
The downtown areas of, of kw, if you will in Hamilton, but there's now a, a willingness from those municipalities to support. I'll call it gentle intensification in keeping with the communities rather than your traditional single family detached lots. There's still obviously some demand for those.
However, there's greater demand from an affordability standpoint to provide housing below the million dollar mark. And the only housing you can provide below the million dollar mark, even in those outlying areas would be staff town. Small, small, traditional towns and, and obviously a condo, apartments.
So we're seeing greater flexibility on those outlying areas. And I think from a suburban perspective, from an urban perspective, we really need to update our blanket zoning. Hopefully Bill 23 is a step in the right direction to, to. Both small builders, large builders bring real product to the market and end flexible form of housing.
There are many people myself included, that would rather live in a, in a small boutique building in my older years or a triplex or sixplex if it had the right. Good access as opposed to a 30, 40, 50 story high rises. Not to say that there isn't a requirement for those, there is, but there, I think we need to expand in term of the, in terms of housing formats and open up our eyes to other cities like Paris and London.
And, and some of the American cities that have more of a, I'll call it gentle intensification and, and a greater neighborhood feel.
Ray Wong: Okay, Mike?
Mike Czestochowski: I guess Covid helped those outer G G H markets. We saw a lot more activity, a lot more demand for land in the Hamilton, Niagara. Barry Peterborough, Lindsey areas than we ever saw before.
You know, those are areas where always traditionally slower absorption. And we saw more local developers going there than we saw our Toronto guys, COVID stimulated the, the housing market in those areas for single family homes. It was drive till you couldn't afford. I'll never have to go back to the office.
And we saw those areas pick up. What's gonna happen now that some of us are being called back to the office more and more? So is that gonna affect those markets? How are people gonna commute from Collingwood? I don't know. We'll, we'll see what happens there, but I didn't move to Collingwood, but I know people that did think they'd never have to go back to the office.
I agree with John. Right now, the suburban markets, the 9 0 5 markets, the areas that can release through op expansions and green belt release are strong demand. We saw that when we were marketing our lands. Certainly there isn't as much available when something does come available. There's a good interest in it.
That being said, prices haven't adjusted, but the terms have, so in one way or the other, prices have adjusted on the high rise market. The more urban market, that's always been strong. It's just finding the right site. I'm more, I think the, the concern on what the government's gonna do to us, the four 16 with development charges and other part policies, inclusionary, zoning.
I see more concern of that with that and increase in construction costs than I do in the suburbs. So, you know, I, I think we're a bit of our own worst enemy in, in the policies that could be coming down the pipe, the increase in charges. I think our government has to realize if they want affordable housing, continuously increasing the charges of making it more difficult, is it gonna help?
Ray Wong: Marlin from a policy standpoint, what are your thought?
Marlon Bray: No, I think I've said it over and over again. I think the city of Toronto was the worst place to do business in North America, or one of them. I think it's it has a self-defeating attitude to affordable housing than means developers have to work way too hard and take on way too much risk.
And I think as you move out, there's a lot more reception to development. Obviously the city of Hamilton came out all in on intensifying downtown. That's what's pushed a lot of out. Obviously they're a lot more resistant on the sprawl idea, but I think some of the smaller cities have realized that, that this is an opportunity for them to sort of develop and grow.
I always like to use Milton as an example cause I live out there where I'm with the attitude of one and a half million people wanna move into Ontario. We're gonna build one and a half million home stick all there. I don't care. So it's the opposite of Nimbyism. We tend to get a find as you move out to some of the suburban cities.
Less interested in NIMBY ism and more interested in revitalizing the neighborhood, re revitalizing the downtown core. Whereas, I find the mentality in Toronto is just beggar's belief down at the, the council level or the municipal level. It's like they live in an alternate universe. And I think that's gonna be the challenge.
Like the, as of right zoning, I mean it should be a no-brainer. The zoning should be changed. Can you imagine how long that would take and how many arguments they. It's just part of the problem is it's the, the municipality is allowed to block versus help. And we're seeing it a little bit now in Mississauga too.
But then again, how far out do you go? I made the joke at the Land Development Conference last year. At this rate, the only place left for anyone to live will be Windsor. So eventually that race out sprawl out's gotta change as well. There's only so far you can travel for work. To Mike's point I don't think I'd fancy driving in from Collingwood every day.
I think that I'd get a little bit, a bit tiresome. I mean, even the, the train to Barry's gotta be a pretty decent length of train trip as well, which twice a week might not be the end of the world. But I certainly won't wanna spend five days a week on the train from Barry down here.
Mike Czestochowski: No, but Marley, you're right, isn't time that our provincial, federal.
Government looks at these outer G G H markets and says, I'm gonna move the jobs there. I don't need to be in downtown Toronto where the space is so expensive. My employees are gonna be happier when they can buy a house for $600,000. And they're all living in rental apartments now. Maybe it's a change in in thought process of, you know, our ability to move some of those government jobs and encourage other companies to put jobs into these smaller communities that would love them.
Where affordability and land is such that we can deliver homes that much cheaper. But the lack of jobs force people into the Toronto. Now if we move some of these government jobs outside of downtown Toronto in the periphery into some of these smaller areas, maybe that would loosen things up here too. Probably not much, but still it would be a start.
It would help bolster some of the communities that are desperately in need of office and jobs like London, Ontario that is sitting with a big vacancy in downtown. So certainly we could take. We could have much less cost for occupancy for our government related users, and I believe those employees would be happy to go buy a job a house and put a bunch of money in the bank.
Marlon Bray: Yeah. Even if you look at Ottawa with the Feds has been an ongoing discussion about how centralized they are and how many employees they have based in Ottawa and Gatineau versus spreading the live out a little bit. Now they, they do have some degree of spread, but nowhere near what they could really relocate that they don't necessarily need in a centralized location.
So if you put the province in them together, they could. Start a catalyst for change. We made the joke I was at the Resk AGM a few weeks ago and that's when we were looking at, and someone said, what's the solution? Actually building a city from scratch without anyone from the city of Toronto involved in any counselors would be the natural solution.
Find a big. Parcel land in Ontario and start from scratch with no government people involved whatsoever, in essence would be a very simplistic solution. That would never happen. The ultimate is everybody moved to Calgary, but eventually they'll run out too. So we can't shift a hu 1.5 million people out to Calgary instantly would solve the issue.
But if you look at Edmonton and Edmonton and the stable market, sprawl. So we don't want sprawl, but what do we want? You have to, we have to pick a solution that still solves the land price issues, and solves the housing issues. And what we're doing right now does not work at all in the slightest.
John Galluzzo: Yeah. But, but Marlon, yeah.
Sorry. I was just gonna add, think about all these. Small to mid-size communities along the 4 0 1 corridor between London and Brockville, if you will. There are so many decent options for people that don't have to commute. They can still work and they can revitalize these, these communities that were once thriving,
Marlon Bray: And then put high speed rail lining.
Let's go high speed lake they have in Europe. Exactly. And then everyone can get into work in a high speed rail airline. They don't need to drive in the four. Oh, if they don't want. We
John Galluzzo: We can, we can learn a lot from the Europeans if we can just forget about the politicalness and step up and put in the proper rail system, light rail system to get across.
We have so many opportunities to intensify along that 4 0 1 corridor.
Ray Wong: Yeah. And, and, and the whole thing here is that we have seen some of those benefits, like Hamilton was shift to, for affordability 15, 20 years ago. And now you're starting to see the fruits of that, that transition, cuz people moved out there, were commuting back and forth for from the downtown through the goal line.
And now they're, if you look at Hamilton, Downtown is becoming little bit more revitalized with hip restaurants and and revitalization of some of the, uh, oldor offices. So instead of having that commute, they're setting up their own. Companies are and and and startups. And same thing with St.
Catherine's. It was the first time in five years that a new office building was built out there. So, and especially at Kitchen Waterloo. With the universities there are, are, are sort of the, the, the tech triangle. So you're seeing some of those benefits that from affordability standpoint, that's where you're seeing a little bit of growth indefinitely with the, the talent movement.
But you know, the funny thing is, is that we're asked this almost every. Sort of when we do a market update, what about the suburbs? Right? So at the suburbs office, vacancy rate remains high downtown, and the ordinary remains, remains high as well. But most of that demand for office space is still in the core class, A space in the downtown marketplace.
There we're not seeing a big change in the suburban office, but I, I kind of like. The, the, the, the, the comments that there's a lot of older offices or re revitalization opportunities in the smaller markets. And especially when we see this evolution of the workplace that, do you really have to be in the office or is it two or three days a week?
And like Marlon's willing to make that trip for twice a week from, from Colinwood. So if we have some of. Then we'll have maybe a little bit more balance and as we'll probably see some, a little bit more coworking space in those other markets that that have that technology cluster and the internet speed to be able to run that.
But we're also talking about the evolution of the. Workplace and how we use the, how we use our, our, our real estate. But the airline areas, are we still seeing, we, we saw the increase in home prices. Are we seeing the corresponding increase in, in land prices as well with, with Kitchen Waterloo and some of the other markets you guys are mentioning?
Mike Czestochowski: Yes. Yes. So, so pro, well, you know, this was during Covid. But we were surprised in some of those other markets, especially that Kitchener area in some of other areas where outside of Hamilton, where we were selling land and the demand was strong and the prices they've jumped, and that's purely that demand during covid of people moving further out.
John Galluzzo: Albeit though, let me add to that. So I got, I got the contrarian view. All be in the last six months. The, because sales have slowed down tremendously. Interest rates are higher. Land values in those areas right now today have declined. They've come down. However, they'll come back again and it'll be the first, the first reduction in interest rates that first trigger.
I'm sure we'll entice many developers to get back in the game and start knocking on doors to buy to buy parcels, but right now it's a wait and see attitude.
Ray Wong: Marlon, I felt that you wanted to say something there.
Marlon Bray: No, I just liked the idea of everyone moving to London, Guelph, Kitchener Waterloo. I actually think it's a great idea right now. If you look at London under the places to build or places to go figure me jiggy, they did the 1.5 million homes London's doing 45,000 homes.
Why can't that be 200,000? And if we got enough business to follow it, I would suggest that London is more adequately set up to take 200,000 more homes. Than 45,000 homes. The same with Guelph, and they have nice downtowns is they have hospitals, they have universities, they have well-respected universities as well.
Like to me, I think we're just missing the, this obsession with Toronto maybe needs to change a little bit. And the, the business is forcing everybody downtown. Does every business need to be downtown?
Ray Wong: Yeah. And those outlawing markets like London and Kitchener, whatnot, they're, they have plus 20% office vacancy rates, so there's more than an opportunity.
And from a cost standpoint, it hurts
Marlon Bray: yeah. So if you build 200,000 homes in London, does business follow? Yeah, because that's 400,000 people . Right.
Ray Wong: And typically it does, right? That's where we saw that growth in the, in the urban areas where companies were locating closer to the employees, especially with that whole you know, downtown restaurants and shopping and entertainment.
So whether or not that, that, that gets duplicated, So what we're, we're going through with slow down with the market based on the high interest rates, lack of lending. Mike, what, what, what are we seeing? Are there adjustments that vendors or purchasers making, especially deals that were done maybe about two or three months ago to get deals over the finish line?
What's the complexity of that?
Mike Czestochowski: Cer, certainly you don't see too many deals from what we signed two, three months ago closing at the same level. Generally there's some form of adjustment, whether it be through price, terms, closing date, or a combination of all the above. Are people asking for adjustments?
Generally, I'd say 80% of the time. Depending on the quality of the purchaser and the, and the type of product and what they found out during due diligence, but there's still strong demand. You know, the first, the first person they stopped calling is the land broker. Like, you know, and I, I've seen this a few times and I can feel it before anybody else if something's going sideways on us because the last thing you're gonna buy is development land.
If you think things are gonna get worse, we're still popular out there. People are still calling us, we're still getting requests to have lunch. So, you know, it tells me with that, still that strong demand for land. People look at this as short term. Nobody's looking at this as a long term change. Everybody knows towards the, this fall, maybe early next year, we're out of it and things are relatively back to normal.
Marlon Bray: Yeah, I mean from our side it's the same cuz my team does a lot of the due diligence stuff and the, we're just as busy as ever running those due diligence reports. We're just as busy as we were last [00:20:00] year, and I think last year was probably one of our busiest years. We're still busier than they were many years ago.
People are still looking at land. People are still doing due diligence. People are still moving forward. We keep getting surprised cuz we expect it to slow down. Then four or five turn up at once from different developers looking at pieces of land and they wanna run through the numbers, do a double check.
So to Mike's point, I, there's still a lot of people looking for opportunities. Is there as many? No. But the ones we work with are looking at more opportunities now cuz there's a real opportunity for.
John Galluzzo: Yeah. And Ray, I would add to that we, I mean, we've had the busiest quarter ever this year, and I, I feel that whenever there's a change in interest rate or financing or some planning regulations, the appraisers get a call and say, well, what's my site worth now?
With this, these new rules, what's, what's my site worth in this market? So we've been really busy and I had the, a great opportunity to go down to Boston during March break. And, you know, not to say that we saw the entire city, but I may have counted three or four cranes in, in the downtown area, and then went out to Harvard as well.
I mean, we have the greatest number of crane activity I think. Either first or second place in North America
Marlon Bray: in terms of K. Think we're first play a long way.
John Galluzzo: Right? Okay. Well there you go. So there are so many people, international locals. We are a safe haven. We really are. And why do immigrants want to come here?
They feel comfortable here. They like the multiculturalism here. So I, I agree with both Marlin and Mike. This is temporary. We just don't know if the temporary, I don't know if the temporary six months, 12 months, 18 months, but it's definitely temporary.
Mike Czestochowski: Okay. We talking about launches, right? Sorry? We launch the on here.
I think we're gonna see some launches in the summer. Yeah. July, August. That do very well. I think a lot of people are sitting on their hands and they're gonna get, I better get back in. I'm gonna, I'm gonna get the, the unit I want. I'm gonna get the lot I want still, and maybe next year I'm not going to, I, I can feel that this summer, towards the end of the summer, maybe fall that we're gonna see some launches with great activity.
Marlon Bray: Yeah, I think there's a lot. Had no pressure. I, I agree. I think definitely by the fall we're gonna start seeing some of that pre pressure release. And then the question is, is how quick does the wave just go insane? Or how long does it say just stable? And then as I, as I said, by 2025, it's, we're.
Everything's gonna go crazy again, guaranteed. Almost. So it's, it's How quickly does it come back? Then? How fast does it accelerate back up again? And then everyone's gonna start good at affordability, crisis. And the municipality guys going, what crisis? We don't understand. We keep approving sites. What's your problem?
John Galluzzo: So I, I have a slightly different view. So I agree that we're gonna have some successful launches in the fall. Not, not the summer, but the fall. I just hear everyone traveling. They're finally getting back on airplanes this summer, and apparently they're all flying away. So I, I would say the fall, I don't see a huge increase in.
I really don't, I just don't feel that there's that much cash sitting on the sidelines that people are willing to, to bid up pricing. So I think that the, that price inflation we witnessed from the beginning of Covid March, 2020 till February 22. We're never gonna see that again in the next 10 years. Not at that rate of in price inflation.
I think we're gonna see slow and steady Eddie, maybe 3%, 4% price increases year over year. And I think the absorption we're not blowing out. Condos, 50%. Pre-sales in two weekends. I think those days are gone. I think we're gonna have a more normalized marketing period of at least 12 months before you get to construction financing.
So threshold. So 60, 70% pre-sales. I think it's gonna be 12 to 24 months before you get that on most projects. Maybe not the special.
Marlon Bray: Okay, so you've got 24 months then. I think Mike was a little more optimistic with the fall and I'm at 12, so Ray, write that down, and then whoever loses has to buy the rest of very expensive steak dinner with a nice bottle of wine.
Sounds good. John, tell you where you're taking us.
Mike Czestochowski: Yeah.
Ray Wong: The thing is, I'm kind of on the same side as, as John, I'm not as optimistic for. What's gonna happen this year? I still, I agree that we're gonna see a slight uptick in activity in the second half, but I don't see us really getting back to any type of normalcy until sort of mid to late 2024, especially with this, with, I, I don't think this whole foot.
Some of the financial challenges with Silicon and, and a few others. We've really sort of worked through the issues, even though it was a little bit more stable. Now, I, I'm not sure there's a few more surprises there and still a little bit nervous about a potential recession. Not a full recession, but sort of still a slowdown and based on.
Where the interest rates are and refinancing. I know that banks are increasing the, some, some of their amortization to keep you know, keep the, the, the, the, the sort of payments at, at a constant level. But I'm a little bit worried about the, the leverage people and the pressure that people are on under.
And especially with, I know inflation started to come down a little bit, but I still have concern about pricing.
Marlon Bray: I don't know if, when you saying like the pricing and the remo, the way I'm looking at the remortgage idea, someone's mortgage, that they can't afford the house, that means they're gonna sell it.
And I suspect when they go to sell it, there's not enough people selling homes right now. There's 10 people to buy that house. So does the values go down or does it go up? I think it. Ultimately we're gonna start seeing the house prices tick up a little bit over the next few months, not down on the resale side.
And I think the new construction side's gonna be kind of flattish for a little bit just as people feel it out. Or they'll just do incentives anyway, so they'll just incentivize and keep the sales price the same. Welcome back, Ray.
Ray Wong: Yeah, I'll, I'll apparently I think my internet just expired for the room.
Marlon Bray: That's okay. It's what happens when you stay at $50 a night motels in Vancouver.
Ray Wong: Okay, so I think we're up in this, this, this thing up. Thank you for everyone's time and I've, I've written the numbers on the bets. So let's, let's see if. 12 months from now or sooner, see where the market is heading.
So, or head headed. Mike, thank you again for joining us and John, and of course Marlon. And again, thank you again for joining this session on GTA Land Pricing.
Mike Czestochowski: Thank you for the invite.
Marlon Bray: No problem. Thank you everyone for joining.
John Galluzzo: Thank you. Thank you. My pleasure.