In October, I had the pleasure of giving a presentation on housing market trends in the Greater Toronto Area (GTA) to BILD, an industry association for the land development, homebuilding and renovation sector. One of my charts demonstrated that ground-oriented housing (single-detached, semi-detached and townhouse) completions in the GTA declined from 29,242 in 2004 to just 12,156 in 2015 per CMHC data. The development industry is building nearly 60% fewer ground-oriented (or low-rise) housing than it did a decade earlier.
The future pipeline of units is very small as well, single-family new home developers have witnessed unsold supply decline by 90% from 2004 to 2016 – there are just 1,600 units available to purchase in builder sales offices across the GTA. This major decline in supply has resulted in rapid price growth. The average low-rise new home price increased from approximately $370,000 in the mid-2000s to over $990,000 in September (per Altus Data Solutions). If you’re looking for a built and ready to move-in new single-detached house in the Toronto Census Metropolitan Area, you better have a big budget, because the average price is $1.95 million!
If demand is exceeding supply and pricing is rising so quickly, why aren’t developers launching, selling and building more new homes? One theory that has been proffered is that developers are hoarding land, waiting for property and unit prices to go up. At my BILD presentation I requested a little audience participation, asking for any developers that were hoarding land to put up their hands. Not a single developer did. Builders and developers are in the business of constructing and delivering homes, they have not collectively decided to become land speculators overnight. They have office rent to cover, employees to pay and keep busy, and a desire to provide accommodation to the growing population across southern Ontario.
A second theory is that millennials want walkable communities and no longer desire suburban ground-oriented homes. There is a lot of truth to that hypothesis, as many singles and couples want to be close to transit, downtown Toronto employment, amenities and entertainment. However, as many of these millennials start to have families, their desires change, they look for more interior space, a backyard, and access to less expensive daycare. When kids get added to the mix, many of these more suburban considerations start to outweigh some of the factors that drew them to dense walkable communities.
My firm has a couple small townhouse developments in the suburbs, both with less than 30 units and each of these communities has received over hundreds of online registrations. We have a single-detached development outside of the GTA where interested buyers waited in line days in advance of the launch to secure their dream home. I see competitors selling-out 300 unit ground-oriented communities in the outer suburbs in a matter of weeks, sometimes hours! There is clearly very strong demand for this type of housing, so what is holding developers back from launching more communities?
The developers I speak to say they can’t find land that has the sewer and water infrastructure in place. There is very little approved and serviced lands that are “ready to go” – many developers are buying land that won’t have the infrastructure in place for 10 to 15 years!
The industry wants to build more low-rise homes, but the supply is being constrained. What that means to you is that prices will continue to go up. If you’re looking for a new home in the GTA, you better act fast, because if you blink, prices just might be up another 20%. Good luck.
For more in-depth research on housing trends, download Fortress’ Fall 2016 Market Manuscript, a 70-page market report at www.FortressRealDevelopments.com/news.
About the author: Ben Myers is the Senior Vice President, Market Research and Analytics for Fortress Real Developments