Why lower interest rates alone will not 'fix' the GTA's housing problems

Every month, BILD publishes data on new home sales in the Greater Toronto Area and we recently released the data for July, which showed that new home sales continued to decrease in the summer months. It is becoming increasingly clear that any return to a healthy market is not just a matter of waiting for interest rates to drop. Our data paints a stark picture of a housing market that is struggling with deep structural issues, which have made the cost to build too high and, as a result, new homes that are too expensive for prospective new-home buyers.

Slight reprieve

Looking at the new home sales data from the first half of 2024, the winter months were characterized by a sluggish market and low sales. Buyers remained on the sidelines, anticipating a spring rebound driven by interest rate relief. However, the anticipated market return never materialized. Spring brought record-low sales and stubbornly high interest rates, along with high costs to build and high costs to finance, which made it increasingly difficult for builders to ramp up production. Summer offered a slight reprieve with a moderation in interest rates, but the market remains slow while the cost of building continues to be high and lengthy approval processes delay new projects.

New home prices have adjusted during this time too, with declines ranging from four to 11 per cent since last year. But, despite this moderation, the market has essentially hit a cost floor, placing new homes out of reach for prospective buyers. For example, most recently in July, the benchmark price for new condominium apartments was $1.02 million (down six per cent since July 2023) and the benchmark price for new single-family homes was $1.58 million (down five per cent since July 2023).

Need for urgent action

Looking ahead, the consequences of this slow period are unmistakable. The record-low sales figures from the past six months will inevitably lead to lower housing starts and reduced housing supply in the next few years, or as we say “starts will lag behind sales.” And, while changes in interest rates will help the market in the short term, they cannot resolve the underlying structural problems that are driving the current crisis.

The data is clear and the need for action is urgent. Governments can affect the cost and supply of new homes in the GTA by taking action on these three areas: Addressing excessively high government fees and taxes, fixing lengthy approval timelines and providing adequate land supply and density.

Without substantial changes in these areas, the GTA’s housing market will continue to face significant challenges, and the dream of homeownership will remain impossible for many. All levels of government must do something to fix the structural issues that have driven the price of housing beyond reach.