A Brief Post-War History Of Real Estate Development

Before 1945 most of the GTA was farmland. Large suburban cities, Mississauga, Vaughan, Maple, Brampton were either small towns, non-existent, or farmland. Toronto was largely relegated to what most now consider the city’s downtown core. Then it was known as Metro. From 1945 to the mid 60s the first true ‘suburbs’ were built. Forest Hill, now Canada’s most affluent neighbourhood tied with Rosedale, was one of them. Government guarantees and mortgage support, along with large scale infrastructure spending facilitated these suburbs.

The 1950s Real Estate Boom

At the height of the 50s economic boom, the Chair of Metro, effectively the head of Toronto’s development and planning, was Fred Gardiner – the namesake of the famous downtown highway. Gardiner claimed that Toronto was so prosperous and growing so fast that the local government could build whatever it wanted. Gardiner claimed that: “Money is not an issue for us, we have the resources to build whatever we choose.” This strong activist government supported a massive real estate boom. From the 60s to the 80s, much of Scarborough, Etobicoke, and North York were completed. Mississauga began its explosive growth in this period. Over time other suburbs and developments were completed.

The 1980s Toronto Real Estate Crash

The late 80s was a time of real estate speculation and overbuilding. This lead to an eventual crash which took 7 years to recover from. From the mid 90s to 2008, the GTA underwent a massive housing and condo boom. This continued after the conclusion of the Great Recession and peaked in the summer of 2017. While significant downturns have occurred, southern Ontario and the GTA have been development and real estate hotspots for almost 80 years running. 

After the Rate Hikes

The Government of Canada is carefully examining the effects of two rapid Bank of Canada rate hikes on the economy, the real estate market, and consumers. The immediate impact of the hikes saw prime mortgage rates increase across the entire spectrum in Canada, with variable rate mortgage holders affected the most. The rate hikes will likely slow down economic momentum, cool the housing market, and encourage consumers to keep on eye on their borrowing and spending habits – which were the intentions of the rapid hikes to begin with.

The economic data to be released in the next few weeks will likely influence the Bank’s decision on rates in October. There is a strong expectation that the Bank will likely increase rates again, as its position has become very hawkish. If the economic and real estate data is exceedingly poor and falls flat of baseline expectations, the Bank is likely to send warmer signals to the market that it will take its time on rates and raise them in a more gradual way over the medium to long term.

Governments around the world are very sensitive to interest rates. Increases that are too fast and too significant can significantly dampen economic growth and can spawn considerable resentment and unpopularity amongst voters. One of the key indicators of a government losing an election is the trajectory of interest in the run up stages. Federal Finance Minister Bill Morneau did not appear to voice his intention or opinion to act further on cooling the housing market. Interest rates in Canada are set by the Bank of Canada, which is fully independent of the government and which has complete and total purview over monetary policy.