The Rancor of Vrancor

 

I was briefly in Hamilton, Ontario last week and the spillover from the GTA is starting to have an impact on Hamilton’s skyline downtown as new residential construction begins with many more proposed.   Along with some picturesque and redeveloped older buildings that retain their charm, there are entirely new projects on old sites such as the old Kresge building site downtown.

 

 

 

Some of them are indeed quite large with proposals for building ranging from a few to as many as 45 stories.  Many have attracted the rancor of residents in downtown residential neighborhoods as some of the proposed buildings are so large and dense, they effectively will more than double the population of some downtown neighborhoods and cast large dark shadows across leafy neighborhoods.

 

What is more interesting is that given the shortage of housing and the need for urban infill combined with the desire of many not to see valuable farmland filled up with subdivisions, the opposition is actually not anti-development or anti infill.  There is an acceptance that taller or more dense buildings with family sized housing units need to be built.  What is causing concern is that the proposed units violate height restrictions already in place – the scale and intensity of the development – as well as create units that really in the end are not family sized units but tiny condos destined for investors - domestic or otherwise.

 

Now there is a lot going on here and the issue is quite complicated but here is what seems to be going on with respect to several projects at the corner of Queen Street and King being both built and proposed by a company known as Vrancor which along with being a hospitality company is also property management and development company. First there a residence and hotel at the corner of Queen and King currently under construction which appears to have stalled because Vrancor now wants one of the buildings to exceed the height it had originally proposed.  The original proposal was for a 10-storey hotel and six storey apartment building. However, Vrancor has modified that to 12 storey hotel and now wants the six-storey apartment to increase in height from six to 25 storeys. The City of Hamilton has apparently approved the increase for the hotel but the other one is now at the Ontario Land Tribunal (OLT) and construction has been stalled since and now stands at a 12 storey hotel and a flat base with a construction crane.

 But then, as much as there is a building boom in Hamilton there are also some curiously stalled projects and empty lots with pictures of buildings that will probably never exist.

 

 

 

 

What is even more interesting is the proposal for the parcel of land immediately north of the Vrancor development under construction which is currently a parking lot.  Here the proposal for Vrancor Towers II is for four towers – two of 15 storeys and two of 27 storeys for a total of 762 dwelling units along with 1003 metres of commercial space and 369 parking spaces on top of a three to seven storey base.  Needless to say, this development will dwarf the adjacent residential area of single homes in the Strathcona neighborhood, effectively double its population, add to the infrastructure needs of sewer and water, cast large shadows, and generally create a spate of negative externalities.   

 

So the full scale of the development of four mega towers has attracted protest and debate. The City of Hamilton is apparently instructing its legal counsel to oppose these proposed developments at least at the scale they are intended because they do not comply with their own guidelines regarding transition, height, scale, massing, shadow, and density.  This will inevitably also end up at the OLT.

 

 

 

Given the sudden rush to add to housing stock, these types of situations will become more common across the country.  The need to intensify urban development to accommodate a larger population and preserve green space makes a lot of sense but the scale of what is being proposed seems to be a lot all at once that will overwhelm rather than complement existing uses.  Even politicians who are trying to rapidly “solve” the housing crisis after years of neglect must admit that development needs to increase density and be forward looking but it also needs to recognize the needs of existing residents who have already made investments in the area based on expectations of a certain style and quality of life.  And the residents of the area themselves are not opposed to apartment units but probably wonder why something more European in scope rather than modeled on 1950s Toronto might not be a better fit.

 

In the end, these buildings are not really family sized units but merely stacked little boxes for investors to buy and sell irregardless.  The only good thing is that for the next two years, foreign buyers are facing more restrictions and interest rates are going up.  Never mind pinning your hopes on the OLT to stop the project.  Higher interest rates alone may put an end to some of the more oversized development proposals that have been popping up in Hamilton. 

 

 

Advanced Industries: A Northern Ontario Economic Challenge

A recently released report jointly released by the Brookings Institute and the Martin Prosperity Institute lays out Canada’s path to future prosperity via advanced industries and the challenges Canada faces in this economic sector.  The report is titled Canada’s Advanced Industries: A Path to Prosperity and is authored by Mark Muro, Joseph Parilla, Gregory M. Spencer, Deiter F. Kogler and David Rigby. These industries are not just in manufacturing but span a number of diverse industries with the commonality being the application of advanced technology and innovation.  Brookings defines advanced industries as: “industries as diverse as auto and aerospace production, oil and gas extraction, and information technology—are the high-value innovation and technology application industries that inordinately drive regional and national prosperity. Such industries matter because they generate disproportionate shares of any nation’s output, exports, and research and development.”

The report argues that Canada’s advanced industries are not realizing their full potential and that these industries need to be targeted to build a dynamic advanced economy for future growth.  About 11 percent of Canada’s employment – about 1.9 million jobs – is currently employed in these higher wage advanced industries and they generate 17 percent of GDP, 61 percent of exports and 78 percent of research and development.  Services account for about half of the Canadian advanced industry worker base followed by manufacturing at about 36 percent.  What is more interesting is the variation in scale, intensity and diversity of this sector across provinces and Canadian CMAs. 

Ontario, Quebec, Alberta and British Columbia together account for 91 percent of advanced industry employment which is just a bit more than their total employment share which is about 87 percent.  Not surprisingly, the CMAs with the most advanced industry jobs are Toronto, Montreal, Calgary and Vancouver.  However, productivity growth in this sector has been lagging relative to the United states. What is particularly disconcerting from the point of view of northern Ontario economic development however is the fact that every Canadian CMA added advanced industry employment between 1996 and 2015 – the exceptions being St. Catharine’s-Niagara, Greater Sudbury and Thunder Bay.  Thunder Bay also ranks low when it comes to the regional value added generated by advanced industries (See figure taken from page 22 of report) whereas Sudbury does better because of the intensity of its mining sector. Moreover, Greater Sudbury and Thunder Bay are also at the bottom of the CMA rankings when the number of advanced industry specializations is compared in terms of local concentrations of activity.

 

Boosting advanced manufacturing in Canada according to this report requires a strategy of “four C’s” – capital, competition, connectivity and complexity.  Capital is of course the most fundamental – that is, investment in machinery and equipment but also knowledge capital such as information and technology systems.  The weakness in business investment has been a long-known factor in Canada.  As for competitiveness, Canadian industries have traditionally had less exposure to intense competition and this may be limiting the capacity of its advanced industries to innovate.  Fixing this requires greater market competition and indeed deregulation and easing foreign ownership restrictions.  Connectivity involves Canadian firms participating more in global value and production chains and networks.  Finally, complexity requires firms to master the technological complexity and specialization of the modern economy and this is often measured by patent activity which in Canadian CMAs is generally below American ones.  Policies for building connectivity and complexity in the end also involve the unleashing of greater competitive forces within the Canadian economy in order to achieve the market size or scale within which advanced industrial output can grow.

Thus, a major obstacle for Canada when it comes to growing its advanced industrial sector is its highly regional nature which in the end results in barriers to internal trade, less competition and small market sizes that militate against the scale needed to grow output.  In the case of northern Ontario, even with the growth in local entrepreneurship which has been quite noticeable in its larger cities such as Thunder Bay and Sudbury, it remains that without growth in market size, new innovative ideas will be like so much seed fallen in rock if the companies cannot grow their output.  In the end, any regional economic policy must focus on increasing the scale of output by boosting market size either via exports or via immigration and local population growth.