Week-long lineups, fights and a $25 million dollar price tag were all part of the drama this past week as units in the yet-to-be-built 1 Bloor Street East went on sale this week. Damn, I could have skipped work for a couple of days and earned myself an easy two grand to hold the line for some schlump wanting to get in on a place that won’t be ready for at least another three years.
Of course, that was soon bumped off the headlines by this announcement of a new ‘tallest’ condo development, called ‘The Aura’. It’s estimated, according to a Globe and Mail article, that around half the buyers will be ‘investors’. Or as I argued earlier, gamblers and speculators. According to a recent press release sent out by Re/Max, between 60 and 85% of condo sales activity in Toronto is currently attributable to these so-called investors. The most frenzied activity is in the high-end luxury condo market. Each month it looks more like a big ole’ condo real estate bubble to me.
This current mania and all the arguments attempting to rationalise it seem to me little more than the greater fool theory at play.
There’s only so long prices anywhere can rise before people can no longer afford to buy at all, and only so many people stupid enough to buy more house or condo than they can really afford. Parts of the US have run out of such stupid people or the stupid people themselves have run out of credit. There’s been no corresponding run-up in median salaries and now the TSX is getting a little shaky. According to the United Way, 30% of families in Toronto are now living in poverty. Exactly who are these ‘investors in luxury condos’ renting to, or who are the speculators planning on selling to apart from other speculators who are even dumber than they are?
Even the arguments used to justify ballooning prices in other cities (where prices are now falling) can’t be used in Toronto. It’s not built on an island, there’s no mountains nearby and with lots of vacant spaces and brownfields there’s plenty of land to build on, and compared to Miami or Southern California, the climate sucks.
I’m going to be blunt: only a fool would buy a condo in either Vancouver or Toronto right now. Especially as an ‘investment’ property. Toronto is not going to be in a few years how London or New York are now, despite what some people argue to the contrary.
Here’s why: Toronto doesn’t have enough rich people compared to London or NY. Celebrities and other rich folk don’t make this place their second home, and a lot of the capital leaves the city and for that matter the country. If Toronto is “New York run by the Swiss” then the Swiss have really let themselves go; it’s more Birmingham run by the Chinese. Toronto’s left-leaning, woolly-headed city council will never take real steps to stop enabling all the drug-addicted vagrants and vandals that can be found on every single street corner. Or clamp down on all the graffiti and boarded-up, dilapidated buildings. Or balance their budgets.
Toronto’s a very ugly city. It could be beautiful but in the past 60 years or so no one in charge of planning or development has had any vision or aesthetic sensibility. All it could hope for at this point is LED lights on more buildings or to emphasize the bad 60-70s edifices as ‘retro-kitsch’ and try to look even more tacky in a Vegas-style way. Rich people are still going to want to live somewhere that’s nice to look at – something of which there is a serious dearth in Toronto.
There isn’t nearly the volume of tourists that there are in NY or London. And both cities are homebases for lots of rich people. At least for now.
If you don’t believe me, take a walk through Yorkville, which is supposed to be Toronto’s poshest area, and you can see for yourself all the boarded up buildings and empty shop fronts. If there really were so many well-to-do flooding into Toronto there’d be a new designer store opening every week.
As for all the baby-boomers that are supposed to down-shift and move into an urban life-style after decades in the suburbs, I doubt that will happen to the extent that some people expect it to happen. If you’re used to living in a house, moving into an apartment sucks. Especially a one-bedroom apartment, which is what most of the new condos are. Even more especially if it costs nearly as much as your house in the ‘burbs sold for. Even really nice one-bedrooms can feel cramped after a while. Then there’s the noise, the pollution, the traffic, the homicidal taxi drivers and suicidal bicycle couriers. Even the retiring baby-boomers who do move downtown won’t likely last too long.
Part of me wonders if some of these grandiose projects will even end up actually getting built. In case you haven’t read the headlines lately, all the major banks are getting hit by the whole sub-prime crisis in the U.S. So far there’s been hundreds of millions in write downs – and that’s just what they’re admitting to in this past quarter. These developers are just as dependent on credit as their buyers and there’s a good chance that the banks will soon be a lot less generous and a lot more careful who then lend money to.
When there are more people buying a condo because they think the price will increase than there are people buying one because they want a place to live, you know that things are going to get real ugly at some point in the near future. When, is impossible to tell for sure, but things are never ‘different this time’.
I just won’t be there when it happens. We’ve just sold our condo.