Short supply keeps GTA new-construction home prices high in March

The building industry says the market is out of balance with too much demand for too few new homes.

Thestar.com
April 24, 2018
Tess Kalinowski

Tight supply and demand from a growing population continues to buoy the cost of new construction homes in the Toronto area but belies a housing market that is badly out of balance, says the head of the building industry association.

“Until we get alignment on how to fix the supply problem, we’re going to continue to have challenges within the housing market,” said Dave Wilkes, CEO of the Building Industry and Land Development Association (BILD).

Single-family home prices, including detached, semi-detached and townhouses, rose 7.4 per cent year over year in March to $1.207 million, although they dropped about $12,000 compared to February.

Condo prices increased more dramatically -- rising 39.4 per cent year over year to an average cost of $742,801.

Overall there were 1,960 new home sales in the Toronto area in March, most of them condos, according to BILD.

Single-family homes accounted for only 311 of total new home sales in March. That’s up from 265 in February but down 77 per cent year-over-year and 79 per cent below the 10-year average.

Most condo sales in the region were in the City of Toronto where 1,006 units sold in March, down from 3,633 a year ago. But only three new-construction single-family homes were sold in the city last month. More than a third, 133, of the single-family transactions were in Peel Region in March.

The “quiet” March was a more normal month than last year’s unusually hot real estate season that saw both re-sale and new construction home prices soar across the region.

That’s due in part to an extraordinary 2017 that prompted some buyers to move ahead with a purchase ahead of this year, said Patricia Arsenault, executive vice-president of Altus Group, which compiles the building industry statistics.

“After an adjustment period, we expect the monthly pace of condo apartment sales to improve,” she said in a press release on Tuesday.

There was about four months of inventory in the market last month. A healthy market would have nine to 12 months’ supply, according to BILD.

“We have some challenges within the fundamentals of the marketplace in the GTA. The key challenge is affordability and we’ve seen the impact of some government policies on dampening some of the demand,” said Wilkes in reference to the provincial foreign buyers’ tax, interest rate increases and mortgage rules that have been launched in the last 12 months.

“More importantly we have an ongoing supply problem,” he said.

That is impacting consumer choice and it’s a sign the market isn’t responding to the demand that will be a factor in the Toronto area in the coming years. He said the industry is trying to respond by providing larger, family-friendly condos for buyers who choose not to commute long distances for a house with a yard.

There were 12,457 housing units available in March -- 8,756 were condos and 3,701 were single-family homes.

Builders and government need to push for updated zoning rules that don’t support the kind of intensification that the province has legislated, said Wilkes.

It can also take eight to 10 years to bring a project on-stream in the region because of red tape and the lack of infrastructure, he said.

Year to date, new construction home sales are down 73 per cent in the single-family home category. Condo sales have declined 49 per cent year over year.

The widely reported cancellation of some condo developments and reports of home buyers struggling to close on pre-construction houses purchased last year before real estate sales fell and new mortgage stress tests were launched, don’t appear to be impacting the industry, said Wilkes.

“As you look in the condo market where there’s 600 active projects underway in the GTA, the vast majority will close as anticipated,” he said.

Although he couldn’t provide precise numbers, Wilkes said builders are also challenged by rising costs of materials such as concrete, drywall and windows.