Happy homeowner

Bricks & Sticks

by Desi Auciello

Desi Auciello is the 2006 GTHBA President, and is also president of Cachet Estate Homes.

Land supply at root of housing boom

Date: October 27, 2006

The GTHBA-UDI's recent economic outlook dinner featured three experts who were asked to give developers, builders and associate members of our association their views on the economy and housing market in the short, mid- and long-term. The following represents the inside advice and information imparted to more than 300 members that evening.

The economist's view
Derek Holt, assistant chief economist, RBC Financial Group, noted that growth is very regional in Canada. Alberta's economy continues to boom, followed closely by British Columbia, then Newfoundland. In other parts of the country, things aren't quite as rosy.  For example, Ontario's economic growth is virtually at a standstill, with gains of 1.5 per cent this year, and 2 per cent forecast for 2007.

After a "tremendous run," Holt sees Ontario's housing market producing 67,000 housing starts next year (still a good year). Holt notes that price gains in the Toronto market are slowing to low single digits for bungalows and townhomes. Condos, on the other hand, posted a 10 per cent gain from September 2005.

Housing affordability is becoming a critical factor in the west. In Vancouver, for example, qualifying incomes for a conventional mortgage have increased by roughly 50 per cent in the past three years in virtually every segment of the market. We are much better off, as noted below.

The demographers viewpoint
Tom McCormack, executive director, The Centre for Spatial Economics, addressed growth in the Greater Golden Horseshoe, noting that overall the area was doing well economically, with employment growing at a rate of 32 per cent since 1988 in the GGH, as compared to 23-25 per cent realized in other areas of Ontario.

In recognition of this concentration of activity and growth, the province of Ontario has turned its attention to the Golden Horseshoe for planning purposes. While McCormack congratulated the province for recognizing the economic importance of this area, McCormack questioned the growth projections, which he sees as conservative relative to the actual growth rates. 

In McCormack's view, the province is also over-designating agricultural land at the expense of future residential and employment uses. His projections suggest that by 2031 the number of single detached dwellings in the Golden Horseshoe should increase by 926,000 units. The province's targets, however, would permit single detached units to increase over that period by only 643,000 units. 
The 283,000 unit difference would be made up primarily by the building of 183,000 more row units, 51,000 more semi-detached units and 49,000 more apartment units. However, McCormack notes that there is a strong correlation between increased overall preference for single detached homes and rising average real incomes.

 "To successfully compete with other metropolitan areas the Golden Horseshoe needs to attract a skilled workforce," said McCormack. "If the province implements the structural-type shares proposed in Places to Grow, the skilled people we are trying to attract in the future might locate elsewhere. Somewhere that allows them to realize their dream."

The housing expert view
Frank Clayton, PhD, president, Clayton Research Associates Limited,  revealed that in the GTA alone, housing starts in1996-2005 reached 385,000, up more than 33 per cent from 1986-1995. Even better, it was largely unexpected.

 "We may have anticipated an upswing, but nothing like what has happened, or its staying power. Why? "Very low mortgage interest rates combined with robust economic and population growth, and the innate desire to own a home," said Clayton.

According to Clayton, the reason the housing industry has been able to respond so quickly to this demand was largely because the required supplies of land, labour, materials and entrepreneurs almost 'magically' appeared - the product of provincial government policies - Liberal, NDP and PC - beginning in the late 1980s. During this time, there was a requirement for the municipalities to plan for the longer term, and bring sufficient lands on stream to meet the anticipated demand, Clayton asserted.
Perhaps the biggest statistical surprise was the limited rise in home prices since the latter 1990s. Since 1997, the average annual increase in housing prices averaged 6 per cent for MLS resale and about 4.2 per cent for new housing. Factoring in inflation at 2.1 per cent, the real increase is 2.1 per cent. A far cry from Calgary's 50 per cent gain in one year, and not very much considering a very strong housing market.

In addition, increases in material and labour have been modest, with material increasing 1.5 per cent since 1997 and labour by 2.4 per cent. Serviced land has been the exception, rising by about 9-10 per cent a year.

Clayton concluded that while the great times cannot continue indefinitely, he anticipates a soft landing. This is primarily because the affordability of housing is still quite good.