We’re Building 26% Less New Housing in the GTA today than 15 Years Ago
Tuesday April 11, 2017
By Ben Myers, SVP of Market Research and Analytics at Fortress Real Developments
“It’s speculation, not housing supply, we’re building the same amount of homes we always have” – stop me if you’ve heard this before. People have been telling me this as far back as 2007. In fact, lots of people told me we were building way too much housing, especially condominiums, and that oversupply would bring down prices. When I suggest building more housing today, that same group of people say that building more housing won’t bring down prices. Huh, you just said…….ah, never mind.
It certainly appears like we have more investors in the marketplace today, and they might certainly be speculative, but they’re betting on the trend of less housing being built. Not less homes, less housing. Let me explain.
Over the past 15 years the Toronto CMA has built 35,791 units of new housing per year on average. In 2016, builder completions totaled 34,613, very close to the long-run average. However in 2002, 30% of completions were for condominium apartments, in 2016 that figure had risen to 57%. This is a fundamental shift in the composition of the new housing market, and it has meaningful implications.
In my Spring 2017 Market Manuscript report, I did some ‘back of the envelope’ calculations and proclaimed that the GTA is building 30% less square footage than it was 15 years ago. However, I felt I needed to put together some hard data to check my math. In 2002, the average single-detached house that launched for sale was approximately 2,660 sf per numbers from Altus Data Solutions, semis were 1,760 sf, townhouses were 1,650 sf and condominium apartments (including stacked townhouses and lofts) were 1,030 sf. Fast forward to 2016, ground-oriented housing has got much bigger, with singles at 3,830 sf on average, semis at 2,090 sf, towns at 2,120 sf, while condominium apartments have dropped to 820 sf. Single-detached homes are growing by almost 85 sf per year on average since 2002, while condos are shrinking by 15 sf annually.
So multiplying average unit sizes by completions shows that there were nearly 87 million square feet of new residential housing built in 2002 and just 64 million sf last year, a decline of 26%.
With continued solid population growth, the similar number of people are being asked to fit in a dwindling amount of new housing. On top of that, the majority of the new ground-oriented completions are occurring in the outer suburbs, with completions last year in inner-suburban areas like Markham down 57% vs 2002 (3,810 units vs 1,645 units), 33% down in Richmond Hill (2,297 vs 1,534), 55% down in Vaughan (4,697 vs 2,122), and 89% down in Mississauga (6,834 vs 737). Without enough new supply of low-rise housing, and shrinking condo unit sizes in the City of Toronto and the inner suburbs, buyers are significantly bidding up existing properties.
With prices rising quickly and first-time buyers hurt by the new mortgage insurance rules, investors have seized the opportunity to jump into the market and buy homes to rent them to the priced-out and forced out millennials!
With a very strong year for new home sales in 2016, plus an increased interest in constructing purpose-built rentals, some supply relief is on the way, but don’t expect builders to get back to 87 million square feet of new housing. The spatial distribution of new housing, shifting average unit sizes, government intervention, and investor buyers will continue to distort values in the housing market and there is no easy solution to this myriad of issues.