Regulatory overkill drives Canada’s biggest builder south

by Ryan Smith20 Dec 2017
Mattamy Homes Ltd., North-America’s largest private residential homebuilder, is boosting investments in the U.S. as regulatory excess sends land prices -- and frustration -- skyrocketing in Ontario, chief executive officer Peter Gilgan said.

Mattamy expects to generate more than half its business from the U.S. in the next five years, including the southern states of Arizona, California and Florida, up from about one-third now, Gilgan said in an interview at Bloomberg’s Toronto office. The Toronto-based company posted annual revenue of C$3.2 billion ($2.5 billion) for its fiscal year ended in May.

A push to curb urban sprawl has pinched supply and helped send Toronto-area land prices soaring, developers say. The cost has almost tripled in some areas over the past five years, according to real-estate advisory Altus Group Ltd. Development consultants Malone Given Parsons Ltd. says zoning restrictions limit space for residential construction to only 17,200 hectares (42,500 acres), much less than the 100,000 hectares the province says is available.

“It’s complete fabrication as to how much land is available,” Gilgan, 67, said. “If you can find all that land that you say is available at an affordable price, bring it to me today and I’ll get my checkbook out. Nobody’s brought me an acre.”

Development Delays
The time it takes to get through the development process is also becoming untenable, he said, citing the company’s Downsview Park project north of the city. In the past, the city would require maybe two detailed plans for development that would include engineering designs for things like sewers and gas lines, he said.

For Downsview, that extended to about 40, said Gilgan. “They seem to consider it a good week if they can say ‘No’ 100 times. That’s not the reason we’re going to the U.S. but it does give you continual insight into how things can be.”

The province has identified opportunities to streamline its residential-approval process to bring housing to market faster, according to Praveen Senthinathan, spokesman for the Ministry of Municipal Affairs. And it has enough serviced land to meet provincial requirements for three years supply of residential units, Senthinathan said in an email. Gregg Lintern, acting chief planner for the City of Toronto, said in an email that development proposals that align with city regulations move more quickly.

Staying Private
As part of its drive south, Mattamy recently acquired closely held Royal Oaks Building Group in Raleigh-Durham, North Carolina.

Gilgan said property in markets such as Florida, Arizona and the Carolinas might cost $40,000 to $60,000 compared with C$6 million ($4.7 million) in Toronto, including land, development fees plus charges to carry the land through a lengthy and convoluted process. “You’ll likely get the entitlements you’ll need in three years instead of seven,” he said.

While many of the big U.S. residential developers such as Lennar Corp. and DR Horton Inc. are listed on U.S. stock exchanges, Gilgan said he has no plans to take Mattamy public. The CEO has a net worth of at least $1.9 billion, according to calculations by Bloomberg. He said his company makes long-term investments that don’t fare well with short-term quarterly reporting focused on the number of units built.

“Homebuilding is more suited to public debt and private equity,” Gilgan said. Mattamy has about C$1.8 billion in debt and will continue to borrow in the capital markets.

Wood Frame
Despite new rules such as mortgage stress tests and a foreign buyers tax that have tempered Toronto’s housing market -- a good thing according to Gilgan -- demand for new homes is still high amid a buoyant economy, he said.

The struggle lies in producing houses that residents can afford. While Mattamy surveys show that people still want their “patch of grass” the company will continue to expand in multi-story residential buildings. Opportunities lie in six-story wood-framed buildings, which were approved in Ontario in 2015, and can be cheaper and faster to construct, Gilgan said.

Mattamy will also start studying how to incorporate technology such robots, artificial intelligence and 3D-printing into its business to lower costs and meet customer needs. “Business is a battle: when you’ve got a battle, you want the strongest most accurate bullets,” he said.

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