Tara Perkins – The Globe and Mail

Two new reports suggest that a number of factors, ranging from expensive single-family homes to delayed childbearing, are increasing the demand for condos in the Greater Toronto Area.

Condominiums are being constructed faster than demographic needs would suggest, but several factors are increasing demand while construction will “likely” slow, says a Royal LePage report to be released on Tuesday. Those factors include increased traffic and transit congestion, which are spurring people to live closer to where they work, delayed marriage and childbirth, and immigration from countries where people are used to living in more confined quarters.

Comment: Condo construction will slow because 2011 was the high point for new condo sales. Both 2012 and 2013 have seen fewer new sales, thus there will be fewer buildings built. Makes sense.

“The high volume of construction activity seen during the past decade can be explained as a reasonable outcome given the existing conditions,” Will Dunning, a housing market analyst who is also the chief economist for Canada’s mortgage broker association, writes in the report, which looks at the condo markets in Toronto, Montreal and Vancouver.

“That said, it is likely that activity will decelerate during the coming years, to something closer to the ‘demographic requirements,'” the report adds. “It is possible that the transition will have some bumps. “We might be on the verge of a period in which new units become available for occupancy very rapidly, which results in downward pressure on prices – but I emphasize that there is uncertainty about the future pace of completions and this negative scenario is far from being guaranteed … it is quite possible that completions will continue to occur at sustainable rates, or that any acceleration of completions will be moderate and have only moderate impacts.”

Comment: Units MIGHT become available quickly… Much has been made of the 50,000-odd condos being built right now. But we have never had more than 18,000 complete in any one year. And that is for the GTA as a whole, not just the 416. That same area sees 30,000-50,000 new households created every year – and they all need somewhere to live. There might be 30,000 new housing units created in a booming year, which is barely enough to satisfy the low end of demand.

More condo projects have been started than finished of late, suggesting there are bottlenecks in the construction process that are limiting the number of units that are being completed, the report says.

Comment: Which is why there are never that many completions in a given year, thus preventing any “glut”.

It estimates that the number of condo units required in the Toronto area will be about 12,800 to 15,800 annually between 2011 to 2021, depending on how quickly factors such as delayed marriage increase the number of people living in condos rather than houses.

Upward of 20,000 condo units are expected to come on stream annually over the next three years, according to Shaun Hildebrand, senior vice-president at condo research firm Urbanation. But Mr. Dunning’s report for Royal LePage estimates that demand will shift toward condos, while the pace of condo construction will slow.

Comment: Hard to imagine when the best year to date has only seen 18,000 completions. Most years are in the 15,000 completion range. So for the completion rate to suddenly jumpy 30% for 3 straight years kind of defies reason.

The report argues that Finance Minister Jim Flaherty heightened the risks in the market when he tightened the mortgage insurance rules last year. “By reducing demand relative to supply, at a critical time in the condominium housing market (when the supply of newly completed units is expanding rapidly), the policy changes are raising risks in the housing market and by extension in the broader economy,” the report said.

Another report, released Monday by the Pembina Institute and Royal Bank of Canada, said demand is shifting toward multi-unit homes, such as condos, because of a scarcity of affordable single-family dwellings in good locations in the Toronto area.

Comment: Which is why the demand for condos will only ever go up. Never mind the increase in renters as prices rise.

“Many home buyers are being ‘priced out’ of established neighbourhoods and are faced with a tradeoff: condominium-style living in transit-accessible neighbourhoods or owning a single-family home located in car-dependent neighbourhoods,” the Pembina report said.

While there is no shortage of land on which to build single-family houses in the Greater Toronto Area, most of that is far from downtown.

“The majority of the condominium boom in Toronto is located in desirable central neighbourhoods that are walkable and well served by transit,” the Pembina report noted. “The demand for compact, transit-accessible development is likely being supported by the growing trend, particularly among both a younger and growing senior demographic, to live in location-efficient neighbourhoods.”

The Pembina Institute, a think-tank that advocates clean energy, makes a number of recommendations including encouraging more family-friendly condos to be built.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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