Home prices affected by lack of inventory
If you’re shopping for a new detached, semi-detached or townhouse, and it feels like you’ve got fewer options to select from — and that all of them are pretty expensive — you’re right.
Supply in the lowrise segment — which includes detached, semidetached, townhomes and link homes — has declined steadily in the past decade, but has fallen rapidly over the past five years.
Realnet Canada, the official source of new-home information for the Building Industry and Land Development Association (BILD) and the Toronto Real Estate Board (TREB), has been researching all new-home developments with more than 15 units (lowrise and highrise) since 2000.
Available builder inventory is the number of new homes available in builder sales centres left unsold at the end of each month — effectively the number of new-home options out there for consumers.
As of January, available lowrise inventory in the GTA was at a near-record-low level of 5,975 units. A decade earlier, prior to the shift in growth policy towards intensification, there were 17,638 lowrise options available for purchase. That’s a decline of 66 per cent in lowrise stock over the past decade.
It’s sort of like going shopping and discovering two of the three options on the store shelf are no longer there.
Although the decline in builder inventories is a Gta-wide trend, some regions have seen larger declines than others.
Halton Region has experienced the largest percentage decline, with 82 per cent fewer lowrise new-home options today than a decade ago. Peel Region is the second-most reduced market with 71 per cent fewer options. York Region is third, with 63 per cent fewer options.
Supply shortages and rising costs have also caused the price of new lowrise homes to increase. Back in January 2007, the Realnet index price for a new lowrise home in the GTA was $371,426. In January 2012, that price stood at $545,372, an increase of $173,946 (or 47 per cent) over the five-year period. How does this break down among the various types of lowrise housing? Detached homes have reached a record high price of $668,178, and a near-record-low level of available inventory, with 3,592 units. Semi-detached new homes are a bargain by comparison, at an average price of $432,219, but there are only 471of them available in builder inventories. Increasingly, lowrise development is coming in the form of townhouses. They have the highest land-use efficiencies among all types of lowrise housing and the average price of a townhouse in January 2012 was $432,612 — almost identical to the average semidetached price.
There are currently 1,716 townhouses available inbuilder inventories across the GTA.
Based on average household incomes and current interest rates, the region’s housing affordability price is about $486,000.
That means a new semi-detached or a townhome is still affordable to the average GTA household at current prices.
The new detached home, however, is beyond the reach of the average household and requires either a larger down payment or an above-average income.
Although the decline in the supply of new lowrise homes in the GTA is not as visible as the increase in supply of new highrise condominiums, the numbers clearly show that this housing market is in the midst of a fundamental shift toward higher density housing. George Carras is the president of Realnet Canada Inc. His column will appear in New in Homes and Condos the last Saturday of every month. For more information, visit realnet.ca or follow on Twitter at @realnet_canada.