In Toronto, land prices have increased to a point where developers are finding it difficult to build new affordable homes.
Over the past five years the cost of land has tripled in some areas, according to Altus Group Ltd. for Bloomberg, and now accounts for roughly 50% of the price of a new home. Compared to ten years ago, when at the end of September the Toronto area had 15,000 new homes for sale, the number has now dropped to 2,600.
Not only did this render developers unable to build, but it also caused a spike in home prices. According to Peter Comyns of PMA Brethour Realty Group, this has led to drastic changes in buyers’ behaviour. While in June it would have taken Comyns only 2 days to find 200 buyers for a yet-to-be-built Toronto suburb home, two weeks ago only 50 buyers were available.
Besides Land Shortage, Developers Must Also Face Government Policies
With only 17,200 hectares available under Ontario’s new growth plan, there is not enough land for development, claims Matthew Cory, a principal at Malone Given Parsons Ltd., a development consultant based in Markham Ontario.
And besides usual responsibilities, like winning approval from city councils or connecting tracts to infrastructure, lengthy and complicated policies are making it even more difficult for builders to get started on development.
As Canadians Are Buying Fewer Homes, Developers Head South
Rising home prices and a tightening of mortgage regulations have led to a decrease in home sales.
According to the Building Industry and Land Development Association, in September less than a third of the 352 deals recorded last year for the same month were closed. Canada’s housing agency also foresees a decrease in supply, with as few as 66,100 houses expected in 2019. This marks a 13% decrease from 2017.
However, prices remain up, with a new detached home and townhouse selling for $1.2 million, 21% above last year’s market price.
Faced with these issues, builders are reorienting to the U.S., with some of Canada’s largest developers, such as Toronto-based Mattamy Homes Ltd. and Empire Communities, taking the lead. As far as the Toronto real estate market is concerned, they’d rather concentrate on condominium towers than on houses and townhomes.
In an effort to stabilize the market and to bring developers back, the government started freeing up land sites and shortening the process time for some approvals, Ontario Finance Minister Charles Sousa was reported as saying in an interview.
Nonetheless, until a change occurs, and prices stop growing, it’s buyers who are facing the hardest times, claims Mike Czestochowski, a broker at CBRE Ltd. in Toronto.