This week, Urban Toronto reported a record number of residential development applications submitted in the City of Toronto over the last quarter. A total of 25,598 residential homes were proposed across 12 condominium projects, 16 rental projects, and two projects that also include an office component.

The total area was around 20 million square feet. The total number of buildings was 66. The median height was somewhere around 23 storeys (~86 meters), with the tallest being 67 storeys. And the average parking ratio was around 0.3 spaces per home. (The below chart seems to suggest that parking minimums were previously constraining the market.)

This is, according to UT, the highest number of proposed new homes in a single quarter over the last five years:

So, should this be taken as some sort of leading indicator that the market is set to rebound? My view is no. It certainly shows some degree of optimism for the future of our market, but there are lots of reasons why a developer might submit a development application in a down market.

Developers could be seeking more density as a way to reduce their land basis. If you bought a site for $25 million and you have approval to build 250,000 sf, your land basis is $100 per buildable square foot. If you can now build 350,000 sf, you've just reduced your land basis to $71 pbsf. That effectively means it's cheaper, which is good; but importantly, it now means have more space to absorb. So there's a trade off.

Another reason could be that developers are reworking their sites for purpose-built rental (from for-sale condominiums). The figures provided by Urban Toronto show that the majority of the applications were for rental projects. I suspect that this could be a big driver. Converting a project from condominium to rental isn't as simple as just flipping the legal tenure.

Lastly, I will say that developers could be pulling the trigger on new development applications simply because they need or want to do something. We all have sites, and we're programmed to move and get stuff done. Sitting around doesn't accomplish anything and it frankly doesn't feel good. Question now becomes: who will be in a position to be patient once they get their approvals?

It's hard to pinpoint exactly what drove this surge, but it should not be assumed that it will translate into more new housing in the short term. The real indicator is market absorption. Without it, development density has very little value.

Cover photo by Bennie Bates on Unsplash

We have spoken before, here and here, about so-called "use-it-or-lose-it entitlements".

The catalyst behind this idea -- and it is just an idea at this stage, at least here -- is the belief that too many developers are sitting idle on zoned land. And they're allegedly doing this because they believe it will be worth more tomorrow.

Why bother building anything when you can instead just wait and make money that way?

To counteract this speculative force, some believe that one answer is to just strip land of its zoning entitlements if it's not used within a certain period of time (right now it lasts forever). I get why this is sometimes proposed, but my response to this has consistently been: it's a terrible idea.

It is a terrible idea because developers are generally always incentivized to move as quickly as possible. And it is a terrible idea because every now and then a period in the cycle will arrive where, it's not that developers don't want to build, it's that many/most can't.

And guess what? Right now is one of those times.

Whenever we submit a development application for a new project, we typically get a ton of inbounds from people who are looking to sell us something, partner in some way, or buy/rent space in the development. These can be positive connections and we have completed deals based on these sorts of inbounds.

But what is clear to me is that many people do not understand the development process and how long it takes to actually bring a new building to fruition. By the time a development application is filed, it is not uncommon for the developer to have already been working on the project for at least a year, and oftentimes longer in the case of more complicated projects.

And after the application is filed, it is not uncommon (at least in this city region) for the approvals process to take another few years. We have projects that are on year 7 and we still can't put shovels in the ground. This is a bit of a unique situation, but even still, when it's all said and done, a "typical" mid-rise or high-rise project could take 7-10 years from beginning to end. And sometimes longer.

A decade is a long time. So it's no wonder that low-rise sprawling cities with permissive land-use policies tend to have more elastic housing supply. Quicker builds. And quicker approvals.

I say all this not because I expect everyone to understand how the development process works. I'm saying it because maybe if more people knew how long everything takes, they'd be more open to streamlining the delivery process and to encouraging the construction of more missing middle housing.