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New housing market may soften considerably

By Derek Raymaker – Globe and Mail

You’d have to go back a long time – probably to the last recession in the early 1990s – to find a time when demand for new low-rise housing was considered weak.

The two competing challenges faced by low-rise developers in recent years have been finding land and keeping prices affordable. Once land is secured, approvals are in place and the sales office is open, it’s a piece of cake.

That’s not likely to change in 2008, as builders of detached and semi-detached communities search primarily for land to build on.

Construction starts for single-family houses throughout the Greater Toronto Area went up 4.6% in 2007, to 14,770 from 14,120. But following a trend that began in 2001, starts for those homes continue to be a shrinking proportion of overall construction. In 2007, those starts made up 44% of the total, with multifamily dwellings – condominiums and townhouses – accounting for the remaining 56%.

Many municipalities in the GTA are close to being built out in terms of greenfield land because of the provincial government’s desire to limit expansion of municipal boundaries and encourage intensification. Slowly, developers have come to grips with these land-conservation measures after railing against them initially.

Brownfield and infill redevelopment is becoming more prevalent, as are projects that are smaller in scale than previously.

Land available for residential development, not surprisingly, has become extremely expensive, fuelling increases in house prices that have pushed the average for a new detached house above $400,000 in most of the 905 municipalities, well above $500,000 in the high-demand areas of Oakville and Mississauga, and above $600,000 in the city of Toronto, according to data released by Canada Mortgage and Housing Corp.

Price increases from 2004 to 2007 in most areas of the 905 suburbs were more than 30%, and as high as 50% in some municipalities. Among the unintended consequences of land conservation has been that it has become popular with residents of the affected municipalities, particularly in York and Peel regions.

Publicly, residents talk about the need for service infrastructure to catch up with the rapid development. But they can’t deny the positive effects such projects have on the value of their homes.

Demand for new detached, semi-detached and townhouses has remained strong by virtue of the fact that these are the dwellings favoured by young families, particularly detached and semis.

The new-housing shortage for these kinds of dwellings has not, however, yielded much innovation when it comes to the design and layout of the surrounding community.

Though lots are smaller and shallower then they used to be, buyers still have very little to choose from when it comes to distinctive facades, layouts and materials. There’s certainly a lot that builders of these communities can learn from high-rise developers and architects, who after years of playing it safe, really stepped up their game in terms of offering ground-breaking designs in 2007.

As for 2008, there are two fairly safe predictions that analysts and builders are making. The first is that the economic slowdown in the United States, combined with the lingering effects of the subprime mortgage fiasco on some Canadian financial institutions, could soften market demand considerably.

Take two of the GTA’s more affordable low-rise markets – Oshawa and Brampton. They’re distinctive in terms of the higher-than-average concentration of manufacturing facilities and blue-collar jobs, compared with the rest of the region. If their economic base is hit hard by job losses, as everyone seems to expect, it will definitely have an effect on the overall real estate market, which will trickle down to new housing.

The second prediction is that environmentally sustainable housing features and building processes are not a fad – they are here to stay.

The industry appears to have settled on the Leadership in Energy and Environmental Design (LEED) standards for achieving energy efficiency, water conservation and low-carbon emissions, as well as for responsible building practices such as using recycled materials.

Achieving a LEED designation on a residential dwelling – especially a detached house – is not a cheap proposition: It often adds tens of thousands of dollars to the cost. But developers have found that buyers are less resistant to paying for these features, and in some cases go out of their way to request them.

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


One Response to New housing market may soften considerably

  1. sandrar says:

    Hi! I was surf­ing and found your blog post… nice! I love your blog. :) Cheers! San­dra. R.

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