Toronto Housing – Has Places to Grow Succeeded Too Well?

In an article by Susan Pigg in the Toronto Star over the weekend http://bit.ly/JuqL5l there are forecasts by a number of housing experts that Toronto could see house prices escalate even further and approach the extreme levels of Vancouver within 10 years.   Although the condominium supply has been significant in the GTA and continues to grow, the cost of land and construction has maintained very high prices for new condominiums.  Builders have been able to control price increases by reducing size, the average size having come down by over 130 feet over the last 2 ½ years to an average size of 790 square feet after the first quarter of 2012.  While everyone has focused on the hot condominium market in the GTA, the real problem lies in the lack of low-rise single family homes in the GTA.  This is a direct result of the Places to Grow legislation that has limited available “green” land supply for low-rise housing and pushed municipalities both in the GTA and elsewhere to intensify within built up areas.   As a result, the land supply has shrunk dramatically and, coupled with ever expanding government regulation in lengthening delays in obtaining approvals from the myriad of government agencies involved in low-rise housing development, the lack of supply of new housing has resulted in a total reversal of the numbers in the past 10 years between low-rise and high-rise sales.  What used to be a 70:30 split between low-rise and high-rise 10 years ago, has now resulted in a 66:33% split between high-rise and low-rise in 2011.  Though the average price of a house in the City of Toronto hit $568,436.00 in April 2012, the average price for a single family detached home averaged $831,214.00, doubling over a decade.  Interestingly, the average price of a single family detached home in Vancouver currently is slightly over $1M with clear signs of softening of the marketplace.   All of the experts agree, including Doug Porter of the Bank of Montreal, George Caras of RealNet and Barry Lyon of N. Barry Consultants, that the market for low-rise housing in the GTA remains extremely tight, whether for new or resale and the lack of supply and continuing immigration into Toronto can only mean that prices will continue to escalate.   Although the government looks at our supply factor and says there are plenty of new home sales, so why should there be any adjustment to the current regulatory system, the reality is there is a dearth of family-related housing.  With minimal low-rise becoming available, and high-rise housing being focused on smaller and smaller units aimed at singles and couples, the lack of affordable family-related housing is going to become very serious over the next few years.  When all of the people downtown start looking for homes, where will they live?   To the extent they will find these homes, they will be priced beyond affordability or require significant commutes from outside of the GTA to make them affordable.  This will run into the transportation gridlock that we currently face and the conundrum Metrolinks is trying to unravel.   At the end of the day, the government policies have to be revisited in light of the clear lack of land supply in the GTA, as well as the delays in obtaining approvals for low-rise housing, and the excessive cost that continues to be loaded onto the backs of new homebuyers.  In many municipalities, the cost of taxes exceeds $100,000.00 and with municipalities like Markham looking to finance grandiose schemes like a NHL style arena by requiring “voluntary contributions” from developers of anywhere from $2,000.00-$6,000.00, which contributions will be passed on to purchasers, affordability issues become even more exacerbated.   Notwithstanding doom and gloom, the supply and demand factors for both low-rise and high-rise, seem to indicate a very strong market condition and strong price growth in the GTA.  Good news for current homeowners looking to downsize but not those looking to get into the marketplace for the first time.