In an “unprecedented” move, experts from the new and resale sectors of the GTA housing market gathered Wednesday to warn that supply dynamics are driving up prices in both sectors, to the point that affordability is becoming a “serious issue.”
The meeting was also an attempt to alert policy makers that government fees and taxes are a major contributor to the problem.
Appetite for ownership in the GTA housing market remains strong, but supply and demand issues are impacting prices and redefining the market, according to the Building Industry and Land Development Association (BILD) and the Toronto Real Estate Board (TREB).
“As an industry we continue to find innovative ways to provide a range of housing choices,” says BILD Chair Steve Deveaux, vice-president of Tribute Communities. “But it is becoming increasingly challenging to design, build and sell the homes that many people – especially first-time buyers – want to and can afford to purchase.”
Through the first 10 months of 2015, there were 124,123 new and resale homes sold in the GTA. A record number of sales were reported through TREB’s MLS system. New home sales reported by RealNet Canada Inc. were consistent with the 10-year average, but the mix and type of new homes being sold as well as their prices have changed.
Total new home inventory levels have remained within the normal range, but more than 81 per cent of those homes are highrise condominiums, RealNet says.
Builder inventory of new lowrise homes, was at 4,980 homes at the end of October, a near record low. As of Oct. 31, there were 10,014 lowrise properties available for sale on TREB’s MLS system. While the supply of lowrise homes has trended lower over the last decade, demand has remained strong, leading to more competition between buyers and very strong price growth.
The average price of a new lowrise home as of Oct. 31, 2015 was $802,376 – more than double what it was in 2005, $387,369.
A similar trend has been noted on MLS transactions. The home price index single-family benchmark price increased to $669,400 in October 2015, from $363,100 in October 2005.
The new highrise market saw an increase in supply in the last 10 years. There were 21,408 new highrise homes available for sale across the GTA at the end of October 2015, compared to 13,006 a decade ago. The average price of a new highrise unit was $440,382, up from $288,587 in 2005.
Meanwhile, the size of new condos is decreasing. The average new highrise home in October 2015 was 767 sq. ft., compared to 908 sq. ft. in 2005.
For new homes, single-detached homes saw the largest year-over-year price increase in October. The average price of a new detached home in the GTA was $962,312.
“To comfortably afford that home with a 20-per-cent down payment, the buyer would need an annual income of $174,854,” says Deveaux.
According to Statistics Canada, the average total family income in the Toronto area in 2013 was $107,200.
Supply for lowrise homes is severely limited by a lack of serviced land designated for development, Deveaux says.
TREB president Mark McLean says the industry is concerned about the disconnect between government policy initiatives and homeownership affordability. TREB cites the Ontario government’s plan to allow municipalities to charge their own municipal land transfer tax as the most recent example.
“Sadly, the provincial government seems bent on hampering home ownership affordability,” McLean says. “Studies have shown that municipal land transfer taxes will have a negative impact across Ontario, not only from an affordability perspective, but also by undermining our economy and costing thousands of jobs.”
Government fees and taxes amount to an average of one-fifth the cost of a new home in the GTA, according to a BILD-commissioned study in 2013. This drives up the cost of new homes and later trickles down to the resale market.
For consumers, theses developments leave them with three choices, RealNet Founder George Carras told YPNextHome: “Move up, which means they have to embrace raising families in high-density homes; move out, not just to Vaughan, for example, but outside the GTA, and commuting; or move in, from multi-generational housing.”
Watch YPNextHome for follow-up coverage in the coming days.