GTA RESIDENTIAL MARKET COMMENTARY

www.BILDGTA.ca
September 2010
Frank A. Clayton, PhD
Economic Advisor, BILD

Demand Continues to Cool but Be
Happy Toronto Is Not Chicago
Both new and resale home sales are moving
lower in the GTA, according to the latest
RealNet and TREB data, with July sales
dropping by 34‐42% from a year earlier. There is
an astonishing difference in low‐and high‐rise
sector performance between the resale and new
markets. Whereas low‐rise and high‐rise resales
fell equally in percentage terms, low‐rise sales
bore the brunt of the decline in new sales,
plummeting by about 65% from July 2009. In
contrast, new high‐rise sales fell by just 10%.
Behaviour of Home Sales, July and August (First Half)
Month of July Low-Rise High-Rise Total
New
2009 1 ,924 1 ,358 3 ,282
2010 6 78 1 ,222 1 ,900
Resale (MLS)
2009 7 ,566 2 ,401 9 ,967
2010 4 ,993 1 ,571 6 ,564
New + Resale
2009 9 ,490 3 ,759 1 3,249
2010 5 ,671 2 ,793 8 ,464
New (64.8) (10.0) (42.1)
Resale (MLS) (34.0) (34.6) (34.1)
Total (40.2) (25.7) (36.1)
First Half of August
Resale (MLS)
2009 2 ,884 9 48 3 ,832
2010 2 ,031 7 01 2 ,732
Resale (29.6) (26.1) (28.7)
Source: Altus Group Economic Consulting based on RealNet Canada and Toronto
Real Estate Board
Units
Year to Year % Change
Year to Year % Change
Units
The more pronounced weakness in new low‐rise
sales is likely the product of the province’s HST
effective July 1st, with changes in mortgage
insurance provisions of CMHC and tightening
serviced land supplies contributing too. In my
view, the surprising strength in new high‐rise
sales can be explained in one word – investors.
Ontario’s regime of rent controls has created a
bonanza for condominium investors since new
condominiums are the only significant source of
new rental housing. With rents relatively flat for
the past 3 years and condo prices risingi, it is
problematic that investor interest will be
maintained, particularly with the huge number
of new condo completions coming over the
next 18 months.
A little bit of positive news is that the year‐overyear
decline in resales during the first half of
August at 28.7% did not accelerate from the
decline in July. Other heartening signs are strong
job creation in July and strength in the value of
non‐residential building permit values during
the first half of 2010. Regrettably, however, with
the sad performance of the U.S. economy, the
economic climate in the GTA will be waning.
What’s happening in Chicago, a similar but
larger metropolitan area than Toronto? During
the second quarter, new low‐rise sales totalled
just 908 unitsii (the GTA had 4,552). Only 150
new condominiums sold in downtown Chicago
during the same quarteriii (the former City of
Toronto had 3,905 high‐rise sales).
Demographics: Target Older Buyers
The GTA homebuyer profile will be changing in
the coming years. Projections by the Ontario
Ministry of Finance show that population
growth up to 2016 will be centred in the 50‐69
age cohorts followed by the 20‐34 cohort with
minimal growth in population aged 35‐49.
What this means is that successful builders will
be those focusing on the empty nester and active
senior market segments. While there is a
proclivity for single‐storey living on the part of
the older crowd, this encompasses low‐rise as
well as apartment type products.
GTA RESIDENTIAL MARKET COMMENTARY
www.BILDGTA.ca
September 2010
Average Annual Population Growth by Age
Group, GTA1
-10
-5
0
5
10
15
20
25
30
35
40
Under 20 20-34 35-49 50-59 60-69 70-79 80+
1991-2001 2001-2008 2008-2016
Persons (000s)
1 Ontario population projections (2008-2016) are based on the Reference scenario
Source: Altus Group Economic Consulting based on Statistics Canada, Annual Demographic
Statistics, 2009 and Ministry of Finance, Ontario Population Projections Update:
2009-2036: Ontario and Its 49 Census Divisions, Spring 2010
Competition from the resale market, including
homes put on the market by buyers aged 50‐69,
will mute market opportunities for new housing
from first‐time buyers (population aged 20‐35).
Housing Price Bubble in the GTA? You
Got to Be Kidding
It is unbelievable what passes for research and
gets the media all excited. The just‐released
report by CCPA iv(Canadian Centre for Policy
Alternatives) posits that average home prices in
the GTA are in a bubble and are expected to
decline over the next 3 to 5 years by 9 to 21%.
This finding is the product of shoddy research
and is unsupported by the facts.
The report’s premise is that we have a housing
price bubble because average prices have been
rising faster than inflation since 2000 and that
the inevitable bursting of the bubble is expected
to follow one of three historical scenarios. The
report fails to connect post‐2000 housing price
trends to important variables like declining
mortgage interest rates, rising incomes and local
factors like a constrained supply of low‐rise
serviced land and now the HST in Ontario.
Besides, the report shows that the increase in
average real home prices (prices with general
inflation removed) in the GTA has been
relatively modest.
How to Get Mid‐Rise Apartments Built
in the City of Toronto
The City’s Official Plan calls for building
thousands of mid‐rise apartments along socalled
Avenues like Kingston Road, usually
above retail stores and offices. For the most part,
this is a pipedream since where the City wants
the housing to be built and the policy
restrictions applied are not in the main areas
where people will pay to live and/or are not
financially viable to build.
The City planners disconnect with market and
financial reality is illustrated by the so‐called
“Avenues and Mid‐Rise Buildings Action Plan”
they are preparing (see Staff Reports dated May
4, 2010 and June 1, 2010) and the supporting
consultants’ studyv. The Plan is more
appropriately labelled the Inaction Plan. Just
look at the piles of planning and urban design
restrictions being considered; they are enough to
frighten builders away even if there was a profit
to be made (which there is not).
The key to building mid‐rise housing is to
provide appropriate sites in areas where there is
a demand (i.e., a buffer zone between high‐rise
and low‐density neighbourhoods).
i This information is from the August/September issue of the
Condo Market Report published by Re/Max Condo Plus Corp.
Brokers By the way, is an excellent monthly report focusing
on the resale condo and condo rental markets in central
Toronto written by Jamie Johnston, a broker‐economist.
ii Single‐family home sales as recorded by Tracy Cross &
Associates.
iii Downtown condominium sales as recorded by Appraisal
Research Counselors.
iv David Macdonald, Canada’s Housing Bubble: An Accident
Waiting to Happen, CCPA, August 2010.
v Avenues & Mid‐Rise Buildings Study dated May 2010
prepared by Brook Mcllroy Planning + Urban Design/Pace
Architects with E.R.A. Architects, Quadrangle Architects
Limited and Urban Marketing Collaborative.
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