Toronto, Urbanization and the Future

Yesterday, we discussed how urbanization was affecting the developing world; for the most part, these nations are encountering these levels of urbanization for the first time, and thus the effects of the process have been exacerbated. A tremendous amount of strain is being placed on these nations’ infrastructure, in addition to an upward pressure on urban housing prices.

 

The developed world will not experience an urbanization process quite like the one in China, which has seen almost half a billion people migrate to its cities over the course of 35 years. That’s because the majority of this process occurred in the early-mid 20th century. However, urbanization is still occurring, even in Canada, albeit at a much slower rate. This post will examine the effects that continued urbanization will have on the Greater Toronto Area.

 

According to a survey conducted by the Ontario Ministry of Finance, the GTA is home to over 6.5 million people. This is an increase of 22% from 2001, where the GTA was home to only 5.3 million people. Where are these additional people living? The majority of these additional inhabitants have settled in Toronto’s surrounding suburbs, it would seem, and not the city of Toronto itself. Over the same 2001-2013 period, the population of Toronto increased only 10%, a rate which is far below the figure exhibited by the entire GTA.

 

This indicates that recent immigration has been heavily skewed towards Toronto’s surrounding locations. We have seen this trend persist for decades, as the suburban areas of Oakville, Richmond Hill, and Vaughn have seen massive population increases. In contrast to major urban areas, largely due to the lack of high-rise condominium buildings, suburbs such as these tend to expand outwards in order to accommodate an increase in population, rather than increasing saturation. To illustrate the expansive nature of the GTA, consider the fact that Manhattan has a population density of 27,000 people per square kilometer; comparatively, Toronto has a population density of just 4150 people/km2 Toronto does not have an issue of urban density – it has an issue of urban sprawl, which typically tends to exacerbate the demands for a city’s infrastructure.

 

The expansion of Toronto’s suburbs, however, is beginning to slow, as citizens begin to yearn for shorter commute times and more convenient housing locations. In 2013, 92% of new office construction occurred in downtown Toronto. This is a reversal of a trend exhibited in recent years, which saw a number of businesses seeking cheaper rent in North York and other up-and-coming districts. The city also has a stated goal to put 80% of Toronto’s new buildings on ¼ of its land. Clearly, this is a sign the city plans to focus on developing land that is currently accessible via existing infrastructure, and away from expanding city limits. The specific areas of land which are expected to be of primary concern are mainly concentrated in the downtown core, as well as the surrounding areas of transportation hubs such as Yonge and Eglington and Union Station.

Over the years, this trend is expected to continue. What does this new process mean for the city of Toronto? Just like in Bangalore and Beijing, Toronto’s infrastructure will be put to the test. This is typically a primary concern for urban communities, and has been a pivotal campaign point for local politicians. Toronto’s infrastructure, in particular, is almost comically inadequate, and massive investments will be required to update the city’s public transit, roads, sanitation, and water systems. Unlike developing cities, however, Toronto is already an economic hub, and it cannot afford long-term disruptions to major transportation routes. Unfortunately, this is exactly the type of infrastructure overhaul that is required, and the evidence of its early beginnings is evident among Toronto’s busiest transportation hubs, such as the Gardiner Expressway or Union Station.

 

To give you an idea of the magnitude of Toronto’s infrastructure problem, consider a recent report which compared the average commute time for the citizens of 19 major cities, including New York, Barcelona Los Angeles. The results indicated that, on average, a Torontonian commuter spends 24 minutes longer per day than the average commuter in LA, and 12 minutes longer than a commuter in New York. In addition, it is estimated that these traffic delays cost the province $6 billion year in lost time and productivity. Clearly, there is the need for a complete overhaul of Toronto’s decrepit transportation system.

gardiner

To address this issue, recently re-elected Premier Kathleen Wynne has promised an investment of $2.9 billion per year in infrastructure investment over the next 10 years. However, the proposed Liberal spending plan has drawn a tremendous amount of criticism for it’s allegedly flawed financial arithmetic, and as a result, ratings agency Moody’s Investor Services has downgraded Ontario’s debt outlook to negative. With a plan to eliminate the budget by 2016/2017, investors and citizens alike have voiced their concerns as to where the Premier will find funding for the proposed plan, and contend that the current state of the initiative is unfeasible. In order to properly execute all of her stated objectives, Premier Kathleen will need to aptly juggle a number of pressing concerns, and will likely be under the microscope every step of the way.

 

In addition to placing an increased demand on infrastructure, urbanization will also have significant effects on Toronto’s already-expensive housing market. Currently, the average single family home in the GTA costs $542 000. In downtown Toronto, the average Condo costs approximately $400 000, while the average single family home checks in at about $965 000. One effect of urbanization will be to exacerbate this contrast between urban and suburban home prices. A recent report by TD bank showed that new housing prices in the GTA are going down, while existing housing prices are on the rise. This validates the thesis that Toronto’s city limits have expanded too far, and the idea that new houses are being built in increasingly inconvenient and less desirable locations. Meanwhile, as home development has far outpaced investment in infrastructure, existing homes – especially those in proximity to transportation hubs – have seen their values increase due to decreasing supply and availability.

As the urbanization process continues, existing, single-family homes in desirable locations will likely become increasingly valuable. The ambiguity, however, lies in Toronto’s condo market. As supply increases, and Toronto’s skyline remains permanently littered with crane towers, many have doubted that there will be sufficient demand to occupy these units. However, as single-family home prices sky-rocket and the urbanization trends continue, the occupation of these projects may simply experience a demographic change. At a recent Bloomberg summit, Toronto’s top developers noted that they are seeing an increasing amount of families electing to raise families in condos. They attributed this to the urbanization process. For example, in other major metropolitan areas, such as London, New York, or Los Angeles, it is common for couples to raise families in apartment buildings. As a relatively younger city, Toronto has yet to fully embrace this idea, but as the shift in mind-set occurs and urbanization continues, condo developers are likely to see an increase in demand from the new family demographic.

 

Overall, urbanization will undoubtedly be one of the great disruptors of the 21st century, and both developing and developed nations alike will need to deal with their own respective difficulties. The world is changing, and these cities will need to adjust accordingly in order to efficiently handle these changes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Twitter IconVisit Our LinkedIn Page