Toronto-area land prices have gotten so high that developers are struggling to build new homes that people can afford.
Buyers are no longer lining up despite discounts and incentives, industry players added.
Data from Altus Group Ltd. showed that the cost of land has nearly tripled in some areas the past five years. Land prices now account for roughly half the price of a new home, a stark contrast to 2011 conditions when it was a little more than a third.
A convergence of factors – government rules aimed at reshaping Ontario’s housing market, tougher mortgage guidelines, a shortage of land – is pushing against the housing bubble in the Toronto area, where new-home prices have risen since 2009.
One result is pinched supply. About 2,600 new homes were available for purchase in the Toronto area at the end of September, close to a record low and down from about 15,000 a decade ago.
Under Ontario’s new growth plan, 17,200 hectares (42,500 acres) are available for residential construction – much less than the 100,000 hectares the province says there are, according to Malone Given Parsons Ltd., a development consultant based in Markham, Ontario.
“There’s just no land for development,’’ Malone Given Parsons principal Matthew Cory told Bloomberg. “And the pieces that are available are struggling to get to development because of lengthy and complicated policies.”
Making houses sprout from undeveloped land is also taking longer as government efforts to shape communities bear fruit. Builders are scrambling to comply with a revamped regional plan called Places to Grow that prioritizes denser properties around transportation hubs. That’s in addition to the usual responsibilities, such as rezoning and connecting tracts to infrastructure like roads, power and water, and winning approval from city councils.
As supply dwindled, prices rose and mortgage regulation tightened, in turn leading to Canadians buying fewer new homes.
Transactions for new houses and townhomes this September was less than a third of what it was a year ago at 352 deals, according to the Building Industry and Land Development Association in Toronto. Supply is only going to shrink more, according to Canada’s housing agency. The 2019 forecast calls for as few as 66,100 houses to break ground, 13% lower than in 2017. Prices remain escalated at $1.2 million for new detached homes and townhouses, sliding 6.6% from August but still 21% above last year, the building industry association said.
With all the troubles in Canada’s housing, developers are shifting business to U.S. states including Florida and Texas. About one-third of business for Toronto-based Mattamy Homes Ltd., Canada’s largest residential builder, now comes from the U.S. and it’s growing quicker than the Canadian market. The company aims to drive U.S. growth twice as fast as in Canada, including expanding to three new U.S. markets in the next few years.
Empire Communities, another large developer, announced its latest U.S. project after entering the country last year, and plans to expand further in Texas. Both builders are building more condominium towers in the Toronto area rather than houses or townhomes.