Canada's housing bubble has already set off many alarm bells. Economists fret over the risks of sky-high home prices, excessive consumer debt and the overbuilding of new condominiums.
But there's a less-known consequence of the condo boom in particular that could be equally damaging to the long-run economic viability of our biggest cities. The boom is gobbling up land almost as fast as it sucks up mortgage debt. Important tracts of urban space, once used to support jobs and produce wealth, have been drawn into the vortex of real-estate speculation.
Fat profits on multiunit residential complexes allow developers to outbid any other user for a given plot of urban land. That jeopardizes the sustainability of manufacturing, warehousing and other industrial uses. The resulting disappearance of decent industrial work will undermine the economic and social well-being of our biggest cities.
In some cases, industrial lands have already been bought up by developers willing to sit on it for years, hoping to cash in on eventual rezoning and development. In other cases, the enormous profits of residential developments are luring industrial employers to themselves consider alternative uses for their own land.
That shift in corporate mindset explains the recently announced closure of the venerable Mr. Christie's cookie factory in west-end Toronto. Over the past decade, the plant has been fenced in by multiple high-rise condos. Former owners Kraft Canada joined with the City of Toronto to oppose further residential conversion of adjacent industrial properties, but they were overruled by the development-friendly Ontario Municipal Board (OMB). Last year, the facility's new owners, Mondelez Canada, clearly decided that there was more money in condos than in cookies. They're shuttering the plant, laying off 550 workers – and readying plans for a multitower condo complex on the same land.
Another Toronto food plant, run by Nestlé, hopes for a better outcome. Condo developers wanted to convert neighbouring lands for residential purposes, but managers and workers knew that would be a nail in the plant's coffin. Even if an existing factory is not directly covered by rezoning, the conversion of surrounding lands is usually the beginning of the end, raising real estate values, complicating logistics and bringing noise and traffic complaints from new neighbours. The company campaigned to preserve the employment lands designation, and won city council's support in November. However, Toronto currently faces 112 other applications to convert employment lands. And any decision, including the Nestlé case, could still be overturned at the OMB.
Toronto's sky-high land costs and constraining geography mean its land-use pressures are especially acute. But the threat looms in other locations, too. Lucrative residential developments in suburbs such as Brampton, Mississauga and Oakville are pinching the region's industrial backbone. The business case for new capital spending in one of the region's keystone auto, aerospace or food factories must now clear an additional hurdle: Would it be better to just close the plant and sell the land for condos?
Vancouver, another real-estate hot spot, faces similar challenges. B.C.'s lower mainland has lost thousands of hectares of industrial land to residential conversions in the past quarter-century. There's little undeveloped space left for industrial use in the entire region. A new proposal to create an industrial land reserve for Greater Vancouver (similar to an agricultural land bank established there in the 1970s) is a promising response.
Real-estate prices are finally beginning to cool, and this may ease the pressure on urban employment lands – for a while. However, the scarcity of land in big cities is long-term, not cyclical, and zoning and economic development policies should make the protection of urban industrial lands a permanent priority. The option of closing factories in favour of condo developments must be eliminated through firm, permanent zoning rules. Provincial governments have a role to play, too: making sure developers can't sidestep city regulations through unelected bodies like the OMB.
The intensification of urban housing is clearly a good thing. But people living in all those shiny new condos need places to work – so employment must be intensified at the same time. Not everyone belongs to the "creative" class who will find work in downtown office towers or design studios. The future economic and social health of our cities depends on residents having access to decent, working-class jobs, right where they live.
Jim Stanford is economist with the Canadian Auto Workers union, which represents the workers at the Nestlé factory in Toronto.