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In the 1920s, Toronto, eager to overtake Montreal as Canada’s financial centre, had several building busts


By Joe Martin

Financial Post




n Wednesday’s Financial Post, Steve Hanke of Johns Hopkins wrote of the relationship between large buildings and investment crashes — the theory being “that businesses overestimate the value of long term investments and an investment-led boom ensues ... The boom ends in busts.”


He cited 40 Wall Street and the Empire State Building in the early 1930s and more recently the Burj Dubai in Dubai.


Canada, and more specifically Toronto, experienced this same phenomenon in the late 1920s, early 1930s with the construction of a major hotel, the Royal York, and the head office buildings of the Canadian Bank of Commerce and Canada Life.


The background to this investment excess was the boom, bust, boom phenomenon Canada experienced in the early part of the 20th century. In 1907/08 the U.S. economy experienced a severe setback which required J.P. Morgan personally to “save the street,” which led to the creation of the Federal Reserve Board. While the setback was not as severe in Canada it was a bad year. GDP per capita declined by nearly 8% — far, far worse than the decline in the current “credit crisis.”


Then the economy took off and boomed until 1917, with the exception of one year of sharp contraction in 1914. But from 1917 to 1921 the country experienced the second worst depression of the 20th century. Then, once again, the economy boomed and grew rapidly from 1921 to 1928, the year the Great Depression began in Canada, a year ahead of much of the industrialized world.


Growth was particularly dramatic in Toronto, which even then was showing evidence of its desire and ability to overtake Montreal as the major financial and commercial centre in Canada. Ontario and Toronto were helped a great deal by U.S. foreign investment — American corporations preferred to invest in English-speaking Ontario rather than French-speaking Quebec and geographic access was easier to southern Ontario, as well.


Three companies that responded to the dynamic growth of the 1920s with major investments in Toronto were Montreal-based Canadian Pacific Railway [CPR] and the two dominant Toronto financial institutions of the day: the Canadian Bank of Commerce and the Canada Life Assurance Company.


Almost from its inception the CPR entered into the hotel business as a complement to its rail business, building chateau-like hotels such as the Chateau Frontenac in Quebec City and the Royal Alexandra in Winnipeg as well as resort hotels in Banff and Lake Louise.


In Toronto, though work on Union Station had begun in 1905, it was not opened until 1927. To take advantage of this event, the CPR began constructing the Royal York in that same year. The location had long been a favourite hotel site in Toronto and the opening of the Union Station only made it more attractive. The hotel opened in 1929 as both the largest hotel and the largest building in the British Empire.


While it remained the largest hotel for decades it was surpassed as the largest building in the Empire the next year by the Bank of Commerce’s new building on King St. The Canadian Bank of Commerce, which had been founded the same year as Confederation, was by far the largest of the Toronto-based banks, although not as large as Montreal-based Royal Bank or the Bank of Montreal. In 1927, the bank began planning a new head office, one that would be the largest building in Canada at 34 stories. Completed in 1930, it was the largest building in the British Empire/Commonwealth until the early 1960s.


While not nearly as big as the Bank of Commerce, Canada Life was both the oldest and largest insurance company in the country in the early part of the 20th century. Work began on the new head office on University Avenue in 1929, after the country had entered into recession. It opened in 1931 as the country was reaching the depths of the Depression. While not as tall as the Bank of Commerce, Canada Life was a massive building with over 90,000 square feet of space.


During this same period, North America, and Canada in particular, were the hardest hit nations by the Great Depression. In Canada, the Depression began earlier and lasted as long as it did in the United States with dramatic declines in employment, trade and GDP. The stock market, which peaked in 1929 after an even more frenetic increase than in New York, declined with even greater rapidity. Other Beaux Arts building plans for University Avenue were shelved indefinitely.


Thus Toronto experienced the phenomenon described by Steve Hanke — overinvestment in buildings immediately prior to a major crash.


Financial Post


Joe Martin is Director of Business History at the Rotman School of Management, and author of Relentless Change, A Casebook for the Study of Canadian Business History.

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