Why are land prices (and home prices) accelerating in many North American cities?
Simple, because of wrong-headed municipal, county, provincial, and state policies.
When I see the price of industrial land in my hometown of Ottawa, it makes me sick. I mean it.
The city of Ottawa believes it has a 50-year supply of vacant industrial land but they don’t take into account that a) a lot of it is owned by the NCC (the National Capital Commission aka the no-commitment-club) and may never come on the market/be available, b) the balance is owned by a very small number of landowners who have a quasi monopoly–they’ll do build to suits but only to lease them to organizations–if you’d like to own your own premises, you’re out of luck, c) it’s in the wrong place or d) undevelopable because it has other constraints like perhaps part of it is EP (environmentally protected) land…
How do I know there is a shortage of industrial land? Or for that matter, commercial and residential development land?
Easy. Prices have gone from around $125k an acre to $1 million plus in le$$ than ten years.
ANY economist (without even looking at any additional data) could tell you that the city of Ottawa’s (and many copycat municipal) policies are wrong—they are causing a land shortage and consequent price spike. They are crippling industrial and commercial development (not to mention making homes much more expensive, especially for first time homebuyers).
Why do you really think Toronto, San Francisco, Portland, Seattle, Boston… home prices are out of control? Greedy landlords? Unscrupulous developers? None of the above!
It’s wrong-headed provincial, state, county and municipal policies.
By not making more supply of development land available, they are perpetuating/creating a situation that is highly reminiscent of a medieval society, one in which desirable locations are all owned and controlled by kings and a handful of nobles.
What’s worse is that they are not only stopping urban development from moving outwards from the city center in what is falsely termed “urban sprawl,” they are duplicitously capping the height of buildings (under pressure from neighbors and often contrary to their own policies), putting the kibosh not only on increased density but also greater intensity (the mixing together of different types of uses–like, say, combining commercial and residential).
Then when rents takeoff, they embrace or tighten rent control laws making shortages worse and driving prices even higher.
Now Ontario is threatening to neuter or abandon/terminate the OMB (Ontario Municipal Board), the only professional planning body with any sense…
At 2810 Sheffield road in Ottawa, they are not only asking $2.36 million for an awkwardly shaped parcel (narrow and long: 200 feet by 655 feet) that is just 2.78 acres ($848,921/acre!), there is the cost for environmental cleanup and building demolition… look at this picture below: there are a lot of old buildings that have to come down, so it’ll be very expensive.
They should be making much more land available for development, and relaxing a lot of development standards… allowing for higher buildings, smaller setbacks, narrower roads etc.
Also, they should permit much more mixed use including homes and light industrial, retail/office/residential etc… ie, allow much more density as well as intensity.
The city of Ottawa recently had some Toronto-based consultants do an industrial land review and their findings were just a political cover for relaxing Ottawa’s long-held goal of having 0.3 jobs per resident in suburban Ottawa.
It was all a sham in my view–political cover for converting large swaths of Orleans (an eastern suburb) from industrial development to more tract housing.
What should they have done?
Allowed development of commercial property that is really in demand—heavy industrial in places, light industrial mixed with housing and commercial uses in others, mixed use communities.
Instead, what you’ll get is more vast soulless suburbs with endless identical ugly, unsustainable, uneconomic, every-trip-is-a-car trip, unwalkable, unanimated, nearly identical boxes with 0 jobs, 0 stores, 0 interesting places and spaces on curvilinear roads that are an indecipherable maze.
Of course, you have to also ask; “Who benefits?”
Sitting owners do. After-all, what’s the closest substitute for a new home, office, commercial or industrial space? Why, an existing one of course.
So when any city makes new builds more expensive via more regulation and more taxes (masquerading as “development charges”), councilors have just voted themselves (as landowners and homeowners) a nice big fat raise.
Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
Real Estate Investment and Business coach
MAKING IMPOSSIBLE POSSIBLE
Postscript: if you know French, this article is worth reading about accelerating home prices in Ottawa, https://ici.radio-canada.ca/nouvelle/1097398/revente-immobiliere-ottawa-guerres-des-encheres-intensifient. If not, use translate.google.com!