What was Urbanation thinking?

If you want to look for the culprit of affordability crisis in condo market, Urbanation has just landed a big scoop. No, it is not the “Places to Grow Act”.

First, some context.

HIGH-RISE SALES ON TRACK FOR RECORD, WHILE PRICES OF NEW HOMES CONTINUE TO CLIMB

Greater Toronto, October 20, 2016 –Prices for all types of new homes in the GTA continue to set records while sales of new high-rise homes are on pace for an unprecedented year, the Building Industry and Land Development Association (BILD) announced today.

So far this year, there have been a record 20,596 high-rise homes sold across the GTA according to Altus Group, BILD’s official source for new home market intelligence. High-rise units have accounted for nearly 60 percent of the GTA’s 34,736 new home sales as of the end of September. For the same period there were 14,140 new low-rise sold.

Average prices for both new high-rise and low-rise homes continued to climb and set new records across the GTA.

BILD President and CEO Bryan Tuckey attributes the GTA’s shortage of housing supply as the primary driver of price increases. “We have a serious housing supply challenge in the GTA due to a significant shortage of shovel ready land and long and uncertain project approval timelines,” he said. “These factors are severely restricting the number of new homes being brought to market and are causing prices to surge month after month.”

Supply of new homes available to purchase in builders’ inventory declined by more than 10,000 homes in the last 12 months. There were 15,421 new homes and condominiums available for purchase in September across the GTA compared to 25,848 at this time last year.

…….

“What has changed dramatically is the decline in options available to buyers….”

High-rise inventory in September was 13,817 homes, down slightly from August and 35 per cent less than at this time last year.

“The recent increase in high-rise prices can be attributed to the rise in average suite size, combined with a growing price per square foot,” Tuckey said. “This year we have seen the introduction of larger suites aimed at purchasers who have been priced out of the low-rise market.”

The average size of a high-rise home in the GTA was 809 square feet in September compared to 767 square feet last year. Meanwhile the price per square foot increased to $601, up $26 from last year.

For quite some time people have been blaming foreign investors for snapping up condo apartments resulting in decrease in supply and increase in prices and unaffordability of the condo units. Urbanation carried out a survey to find out what is the proportion of foreign investors in condo sales.

Foreign Buyers Represent 5% of New Condo Sales in GTA

Urbanation’s survey, which is completed by developers or brokerages representing new condominium apartment projects, found that foreign purchasers represented 5% of all sales that have occurred within projects currently in active development across the Greater Toronto Area. Furthermore, domestic investors represented 52% of sales.

Among projects indicating a presence of foreign buyers, shares of units sold to foreign purchasers ranged between 1% and 25%. Shares of sales to domestic investors ranged between 5% and 90%. The highest shares of sales to foreign purchasers and domestic investors were generally found within centrally-located projects in the Downtown Toronto area.

“The results of this very important survey show a rather limited role of foreign buyers in the GTA new condo market and a very significant overall share of investors. These estimates coincide with the percentages of new condos entering the rental market upon completion, indicating the important role investors play in the GTA housing market” said Shaun Hildebrand, Urbanation’s Senior Vice President.

I do not know about you but I will make the following guesses

  1. It is based on a voluntary survey so my guess is that the brokers and developers would have under reported the numbers
  2. Urbanation wouldn’t have taken a simple average but would have tried to adjust the numbers. 5% seems like a very nice round percentage [I’d have preferred a 4% or 6% but that is just me].

Anyway, considering that 5% are foreign investors and 52% are domestic investors, 57% of supply is being picked up by investors. No wonder that prices are increasing and those who want to buy to live are finding it harder to locate new inventory. If this 57% was available to owner occupiers, there wouldn’t be a shortage of high rise inventory in the market and prices won’t be this high.

Things get more interesting in the second paragraph in the above excerpt. In some projects domestic investors are buying up to 90% of the inventory and foreign investors can go up to 25% of the available units.

This will be a good example of a foreign investor myth busting leading to a “law of unintended consequences.” I think developers and builders will be doing quite a few interviews to play it down in the next few days.

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