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How city planning impacts real estate prices

by CRE on 23 Sep 2015
By Julius Tang

City planning is an often misunderstood topic entrenched in the everyday decisions that real estate professionals make. This is because city planning can take years, if not decades and centuries, to complete. Each city planning decision has a profound impact on how cities are shaped and, as a result, how real estate values are influenced. 

With the exception of the rudimentary Simcoe Plan created in 1793, the concept of city planning didn't really gain traction until the 1940s. This is one reason that Toronto was such an unorganized mess in the 1900s. There was no plan for growth, no frameworks for transportation, and no guides on how cities should be designed and constructed. Even the streetcar network, which was built between 1870 and 1930, was a result of Toronto becoming a more industrialized manufacturing city and not down to planning policy. 

So, the city took shape due to private landowners who created streets and avenues leading up to their buildings (how selfish of them). Of course, if something is left to the private sector, they will create a solution in the most economic and efficient way possible. This is why Toronto is based on a grid network with little greenspace. 

After World War II, Toronto's postwar growth strategy focused on the future of cars and highways, which created the suburbs all around Toronto. The automobile, as well as planned infrastructure, allowed cities to grow horizontally (urban sprawl) rather than vertically. In economic terms, the supply of land was able to keep up with the demand for housing. Thus, home prices stayed in line with average household income. 

Fast forward to today as more and more people are moving back into the downtown core. Single-family home prices are the highest they've ever been in Toronto and average household income has not kept up with the pace. This makes sense from an economic perspective because the supply of land is now limited and has not been able to keep up with the demand for single-family housing. 

There are three reasons for this and they all relate to planning policies that were created after 2006. 
  • Greenbelt Plan: This plan protects environmentally sensitive areas and prohibits these areas from being urbanized. Essentially, there is a giant ring around the metropolitan area that can’t be developed. 
  • Growth Plan: This plan identifies where growth and intensification can occur. There are 25 urban centres that focus on high levels of intensification. Some key elements of the growth plan include building compact, vibrant and complete communities, as well as optimizing the use of existing and new infrastructure to support growth in a compact and efficient form. 
  • The Big Move (part of the Growth Plan): This plan focuses on transportation and higher order transit. Key here is that growth will no longer focus on the automobile. Thus, growth will be concentrated. 
Like an embargo that can impact prices of goods, urban planning influences the value of real estate. The Greenbelt Plan limits the supply of land while the Growth Plan and the Big Move dictate how and where development can occur, which limits supply even further. This puts upward pressure on real estate values because demand far outweighs what is available on the market. 

Julius Tang is a co-founder of TurnKii, a Toronto-based company providing an all-in-one tool and service to support everyday landlords/real estate investors. 

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