We’re not building enough housing... yeah, you heard me
November 14, 2020
Local builders and developers completed only 27,410 new units in 2019, the lowest level for the Toronto CMA since 1998, per data from Canada Mortgage and Housing Corp. There were less than 12,700 condominium unit completions, the lowest figure since 2012. Completions have picked up this year, with 23,471 through the first nine months of 2020, 17,306 of them being condo suites.
There are a lot of arm-chair analysts out there who will point to the big decline in downtown Toronto rental rates in 2020 (a 15- to 20-per-cent decline per data from rentals.ca), and the increase in resale supply, and say: “See? I told you, too much supply!” They needed a pandemic to “prove” their oversupply theory. The average rent for a condo downtown is still well more than $2,400 per month; it’s not cheap or affordable despite the huge annual drop. Rents have increased almost every year for 30 years, including during the 2008-09 financial crisis. Yet one year of declines and we’ve decided we have enough housing? Come on, there are people sleeping in tents across the city – there is still a big problem.
These “I told you so” folks were the same people who told you not to buy a Greater Toronto Area condo when the average resale price was $300,000 because it was overvalued – some guy in Edmonton said so! The average price for a GTA condominium unit was slightly less than $635,000 in September, per Toronto Regional Real Estate Board data, still up 6.6 per cent year-over-year, despite this devastating health crisis. Single-detached resale home prices are up 12.9 per cent annually, and the average price was more than $1.18 million in September 2020. If that doesn’t scream undersupply, I don’t know what does.
Politicians and others point to all the cranes in the sky as a sign that we’re building adequate supply. However, neither cranes nor units is the proper metric to look at.
Analyzing units as a measure of supply over time presents a challenge, as the composition of an average unit has changed drastically over the past 15 years. It’s hard to compare things over time when they’re changing. In the early 2000s, the average home built in the GTA was a 2,500-sq.-ft. single-family home in the suburbs, with three or four bedrooms. In 2019, the average home built is an 800-sq.-ft. condominium unit with two bedrooms. So, we’re building a similar number of homes, but we’re delivering considerably less square footage, and way fewer bedrooms. This is contributing to our housing crisis.
Three years ago, the talk was about foreign investors driving up the new home market and new home prices. The year the new non-resident owner’s tax (2017) was implemented was the highest year for new condo price growth since the 1980s, and 2018 was not far behind it. Foreign buyers are not the problem.
The only way to prevent the housing crisis in our region from getting much worse is to continue to build at a record pace. It doesn’t mean we need 50-storey towers as far as the eye can see. The planning process and the fees associated with small scale developments have been a killer for small players trying to add gentle density and a couple more apartments to existing neighbourhoods. Four- to six-storey wood-frame apartments in low-density areas can allow for people to age in place, and young professionals to live within walking distance of their parent’s home, and stay in the places they grew up, should they desire to do so.
If you get a flyer in the mail for a new development in your neighbourhood, take the night off from Netflix and go to the public meeting (or the virtual public meetings these days), lend your support for the project and for more housing supply and the jobs that come with them.
Chances are, the latest “solution” to the housing crisis that someone is touting – be it a speculation tax, offshore investor tax or a $3-million home surcharge – is not going to solve our housing crisis. In fact, not much will. The best solution for ensuring that it doesn’t get a lot worse is more housing supply.
About Ben Myers
Ben Myers is President of Bullpen Research & Consulting, a boutique real estate advisory firm, that works with landowners, developers, and lenders to better inform them of the current and future macroeconomic and site-specific housing market conditions that can impact their active or proposed development projects. Follow Bullpen on Twitter at @BullpenConsult or find Ben at bullpenconsulting.ca