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This morning saw the annual press conference held by RealNet and BILD, two of the most influential players in the Toronto development industry. Presented by George Carras (president, RealNet), Paul Golini (executive VP and co-founder, Empire Communities and chairman of the board, BILD) and Joe Vaccaro (acting president, BILD), the event re-affirmed what many of us who have been watching the GTA market have seen over the past few years and tried to put to rest some of the fear-mongering rumours that have been circulating, while simultaneously presenting some more dire warnings.
The presentation began with Mr. Carras, who provided an extensive list of statistics that not only covered the past year, but also took a look at the previous decade. Highrise construction in 2011 hit a record high, the 2nd highest since the 2007 boom. It also saw a 2% decrease in the price of highrise units — while many may interpret this to be warning signs of the feared "correction," Mr. Carras was quick to point out that this correlates to a marked drop in unit size, by an average of 52 square feet. In total, 28,466 units were built, with an average price of $434,322.
The highrise boom is, of course, at the expense of the lowrise "bust" — the government's emphasis on high density mixed-use development has resulted in a drop of 38% in lowrise construction, resulting in an average lowrise price of $545,732, which comes in $111,050 over the average highrise price. It also comes in higher than most of us can afford, a problem for the increasing number of average-to-low-income families new to the GTA.
Reflecting on the past decade, we can see a fundamental shift in the GTA's real estate market. The year 2000 saw a steady supply of lowrise suburban construction, making up 75% of the market. By 2011 we saw a complete shift, with highrise construction dominating 62% of the real estate market, a number we expect will grow over the coming year.
This fundamental shift partially answers the big question all of us are asking: Will demand remain higher than supply, or are we drowning in new units? BILD and RealNet were quick to allay our fears. With an average population increase of 100,000 per year, the current supply of 40,000 new units (highrise and lowrise) won't overtake demand anytime soon. They did, however, present a somewhat ominous warning regarding the role of all three levels of government. Developers, driven by capital gains, can only build what: a) zoning allows for; and b) will result in high capital returns. Unless the government solves issues of red tape and zoning restrictions, we may see an undersupply of units as the decade progresses. The average time between the purchase of land and construction is five years, and if the GTA continues to see an increase in immigration, it must address the growing lag between affordable housing and population increase.
Overall, the market still looks positive. Developers are still building highrises, demand is greater than supply, and investors can be assured that their properties are not about to face a dramatic correction as many have been predicting. On the negative side however, issues of affordability are on the rise, and the government needs to moderate developers necessity for speedy approvals with the public consultation process. All in all, we here at UrbanToronto can't complain — the continued development of high-density condominiums is what drives us, and we look forward to a year of further development proposals and some great condominium openings!
