RealNet President: Toronto Real Estate Conditions the Inevitable Result of Legislation
RealNet tracks commercial and residential real estate transactions in key markets across Canada. We caught up with RealNet president George Carras, who provided us with the lay of the land for 2014.
The big picture: Places to Grow
“There is a structural shift that has taken place in housing form over the last decade,” Carras said.
The driving force behind that shift is policy. Provincial legislation, called Places to Grow, essentially drew a line around the GTA and made large areas of farmland and forest beyond that line off limits for development.
In effect since 2006, the legislation’s intent was twofold: to protect and preserve our unique environmental assets like the Oak Ridges Moraine and farmland that feeds our city, and to halt costly urban sprawl.
What the province wants is intensification, with denser forms of housing, like high-rise, located around transit nodes.
“The markets today are responding to the policy framework,” said Carras.
The biggest trend in the coming years, Carras tells us, will be the shift from ground-based housing to high-rise as the predominant housing form we construct in the GTA.
This has, in fact, already happened.
RealNet stats show that total sales in 2013 reached 28,406, the second lowest in a decade. The reason sales were slow was lack of supply. Supply was down 22 percent for all housing forms compared to 2012.
“Builders can’t sell what they don’t have,” said Carras.
Of the total units sold last year, 16,201 were high-rise, making high-rise 57 percent of the new homes market.
“You’re seeing the Toronto high-rise market really become the market,” Carras noted.
Lack of supply caused both high- and low-rise sales to decrease 11 percent from 10-year averages last year. Low-rise took the biggest hit, down 33 percent. That may please politicians who feel mortgage restrictions have cooled a market considered too hot, but prices for centrally located ground-based housing have never been scarier, and a slowdown may fail to take into account the GTA’s future housing needs.
The even bigger picture: population growth
In spring of 2013, the province projected the GTA’s population would be Ontario’s fastest growing region, increasing by 2.5 million to reach over 8.9 million people by 2036. Though this calculation may be oversimplified, at 2.5 people per household, we would need to build 45,454 new homes a year to keep up with future need.
From 2004 until now, the only year we sold 45,000 homes was 2011—the year the panic around over supply in the condo market began.
The completions on 2011 and 2012 sales will show up over the next two to four years. This past month there were 64,903 units under construction in 254 projects. Of these, 87 percent are already sold and will be completed over the next four years.
A quick look at historical numbers shows that the built-yet-unsold number of condos has hovered around the 1,000-unit mark since 2007. At the end of 2013 the standing supply was only 1,291.
Price gap highs and lows
In 2013 the price between low- and high-rise was at its greatest ever. According to Carras, prices moved in lockstep typically with a gap of around $75,000 in previous years, but began rapidly moving apart around 2011. Last year, the gap reached an all-time high of $226,000, settling (however briefly) at $217,000 in December.
“You’re going to see the price gap between one form of housing and the other continue to widen,” said Carras.
But there is little hope condos will get cheaper. Prices are relatively stable, but units are getting smaller in order to keep them affordable.
Land prices, development charges, and lack of ground-based housing options will continue to exert upward pressure on price.