Development Industry

Development Industry

Developers build and own all types of urban property, from high-rise apartments to industrial buildings and shopping centres. Though most developers think of themselves as individualists opposed to government regulation, the land-development industry is in fact the creation of postwar industrial development policy. Ottawa set out to foster large construction companies that would provide employment while needed housing and other facilities were being built. A crown corporation, CANADA MORTGAGE AND HOUSING CORPORATION, was established to provide the necessary support. Ottawa helped ensure the availability of the necessary investment capital through financial institutions and investors, and provided the industry with special tax concessions so that developers paid little or no tax on their profits.

After 1945 entrepreneurs in every city saw opportunities in suburban house building. Some entrepreneurs realized that land development was more profitable than construction. In the 1950s other entrepreneurs saw the potential of high-rise apartments. By the 1960s and 1970s developers were producing many commercial and retail projects along with housing.

The postwar city the developers built was a radical departure from the past. Five building types are particularly important: high-rise apartments in the central city and in the suburbs; new suburbs, featuring a new style of house on a larger lot on streets laid out in a circular pattern rather than on the rectangular grid (the prototype was Don Mills, built next to Toronto in the 1950s by industrialist-promoter E.P. TAYLOR); suburban industrial parks with single-storey buildings on large lots serviced by road rather than rail; downtown office-commercial complexes, combining huge amounts of office space with some shopping (the prototype was Montréal's PLACE VILLE MARIE, built 1956-65 by US developer William Zeckendorf); and shopping centres, where a developer-owner provides all the retail facilities, renting space mainly to chain retailers (the prototype was Vancouver's Park Royal, built by the Guinness brewing family).

Developers of these projects are often embroiled in controversy. In the mid-1970s the industry was criticized for the rapidly increasing prices of the housing it produced. The focus was on land, because serviced building lots were selling at prices that had no relationship to the developers' costs. Some analysts suggested that the few large firms supplying a major share of serviced lots were taking advantage of their market power. Others argued that the high prices and profits resulted from artificial regulation on the supply of land, imposed by planners and municipalities (see ZONING). In 1980 the market reached a postwar peak when an ordinary 3-bedroom house in suburban Vancouver cost more than twice as much as the same house in suburban Montréal. Montréal was unusual in that building lots were produced by hundreds of small developers.

During Canada's urban boom land-development companies grew quickly. More than a dozen firms with assets of $100 million or more had emerged, partly from internal expansion, partly from takeovers. Some were entrepreneur-owned; others were owned by Canadian and foreign investors. One industry leader was Cadillac-Fairview Corporation Ltd, the result of a merger between a Toronto-based entrepreneur-owned firm and a Montréal-based company owned by one branch of the Bronfman family. Another was Olympia & York Developments Ltd, a private company owned by the REICHMANN FAMILY of Toronto.

As the boom slowed in the late 1970s many Canadian developers expanded into the US. The deep recession and high interest rates of 1980 only worsened their problems. Some firms had difficulty paying interest on money borrowed to finance this American expansion and had to sell valuable assets to generate cash. The same high interest rates caused the demand for housing to collapse in Canada. During the early 1980s many leading developers experienced severe problems, and some large firms went through receiverships and major asset sales. The greatest difficulties were faced by companies who operated in western Canada, particularly Alberta, where the collapse of high land prices (and real-estate values generally) was most dramatic. The survivors of this shakeout were often not the entrepreneurs but the largest firms such as Olympia & York and Cadillac-Fairview, which focused on building and holding downtown office buildings, shopping centres and other rental projects.

As an industry, land development is a remarkable example of what can happen when entrepreneurs are combined with profit opportunities and large amounts of investment capital. Canadian financial institutions and other lenders provided $14 billion for real-estate financing in the 1960s, $90 billion in the 1970s and $140 billion in the 1980s. The developers earned very substantial profits, and paid little or no corporate tax. They provided much-needed accommodation in Canada's cities, though the standard building forms they used came to be questioned on social, economic and ecological grounds. The Canadian funds invested in property, which arguably could have gone to other, more productive uses, fueled a real-estate price boom and overexpansion by the developers. Ultimately, this led to the collapse of many of the large development firms and to severe problems for financial institutions, particularly those in western Canada, which lent mortgage money based on these inflated prices.