Despite the province’s new plans to reach its lofty target of creating 1.5 million new houses by 2031. Homebuilders in the Toronto homebuilding region say a perfect storm of variables has many real estate developers halting or cancelling new projects.
According to Richard Lyall, head of the Residential Construction Council of Ontario (RESCON), just because a builder has a construction permit doesn’t mean he has to build. Some builders own property and are ready to start construction, but they will not lower their pricing to compete with the competition. They may relax on the farm and wait for things to become more predictable. That agrees with the findings of the Housing Market Index (HMI), a quarterly study compiled by the Canadian Home Builders’ Association (CHBA) via surveys of homebuilders. The CHBA reported on its HMI for the second quarter on August 9 that 22% of builders were discontinuing projects and 67% were reducing the number of homes they were constructing. According to many familiar with the sector, the business has been hit hard by a perfect storm of increasing prices and weakening demand as a result of the Bank of Canada’s interest rate rises.
“We launched a condo project in late June, and that launch, we were pretty confident in the Pickering market,” Highmark Homes’ Joseph Messina said. There was a lot of curiosity, so we distributed 800 leaflets and info packets. But no one seems interested in joining up. I don’t believe the interest rate is the problem; it’s the unknown future. Many of the problems that homebuilders and property purchasers in the province face are reflected in the history of Mr. Messina’s firm.
After 30 years of constructing low-rise residences, the family firm has taken on its first high-rise condominium project, The Highmark, which will contain 346 units between Brock Road and Kingston Road in Pickering, Ontario. Buyers in Durham Region could no longer afford to purchase a single-family house for what it would cost his firm to construct one, which contributed to the trend towards high density in the Toronto homebuilding.
We couldn’t afford to ignore 60% of our customer base by not entering the high-density sector, so we did. Consistent rises in material prices over the last several years have put many homebuilders in the unenviable position of being unable to sell enough houses to make a profit.
Costs have risen across the board in Canada, but according to David Wilkes, president and CEO of the Building Industry and Land Development Association (BILD), the Greater Toronto Area (GTA) has been hit especially hard. Overall expenses, including timber, concrete, steel, and labour, have increased by 63% for the GTA apartment sector and 85.4 % for single-family houses between the beginning of 2019 and the beginning of 2023, he added. Mr. Wilkes said, “That’s much higher than the national average.” That has an effect on project viability, and the present interest rate policy has reduced demand.
On Wednesday, BILD and real estate consultants Altus Group revealed data showing that new house sales in the GTA are at an all-time low: The 1,190 new houses sold in July were the fewest in the last decade and were below the 10-year monthly average by 50%. This pattern has persisted throughout the year: the Greater Toronto Area has sold 12,189 new houses (including both detached and condo units) so far this year, 43% less than in the same period during the previous decade. The Greater Toronto Area saw the sale of about 26,800 new properties by the end of July 2021.
Prices for both flats and new homes have dropped by nine and thirteen percent, respectively, as Altus reports that demand has slowed. However, revenue is decreasing at a slower pace, leading to cancellations.
Mr. Wilkes and Mr. Lyall blame the skyrocketing cost of new buildings on the HST (which is still calibrated for a world where a new house would cost less than $400,000, whereas most new homes cost twice that) and the ever-increasing cost of local development fees. “We’re taxing housing like alcohol, like a sin tax,” Mr. Lyall remarked. Mr. Messina counters that development fees have become a drug for local budgets. The development fees in Pickering rose by 50% from the previous year, from $39,000 for a one-bedroom condo to $68,000.
Economists like Mike Moffat and other urbanism and housing experts in Toronto homebuilding sector have started to characterise the problem as one needing a “war time effort” in order to overcome the shortage of housing and affordable housing choices. It’s more difficult than that, according to Mr. Lyall of RESCON: “People have questioned can we create 1.5 million homes? Yes, if our pitchers throw a perfect game.
According to Mr. Lyall, even if municipal fees and federal taxes are resolved, construction costs must be addressed; more skilled construction labour must be added; builders must have access to affordable loans and credit; customers must be able to afford the products and services you offer; and land on which to construct must be serviced before construction can begin. Never mind that obtaining the necessary permits often takes longer than the time it takes to build the structure itself. “Building is easy, we can all build a house,” Mr Messina remarked. The challenge is paying for it.