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Shifting patterns in a new housing landscape

The decline of the single-family detached home changes the mix in many communities

By Derek Raymaker – The Globe and Mail

With 2006 almost over, now is as good a time as any to take stock of what is shaping up to be a transformative year in new low-rise real estate.

Much has been reported about the slowdown in low-rise housing starts across the Greater Toronto Area. The obstacles to starting construction, especially in the 905 suburbs and areas adjacent to lands designated as greenbelt by the province, are largely unrelated to the demand for new housing. They include slow approval procedures, a backlog of municipal service infrastructure, and in the case of Brampton, a stringent annual cap on new low-rise housing.

Across the GTA, single-family detached housing starts were down 18.4% to 5,801 in January-to-May, 2006, from 7,110 in the first five months of 2005, according to data collected by Canada Mortgage and Housing Corp. At the same time, starts of multiple-unit dwellings (including condominiums, semi-detached houses and townhouses) were up 14.1% in the same period, to 10,004 from 8,768

The total housing starts in the GTA were unchanged in the first five months of 2006, compared with the same period last year, which means that multiple-unit housing is driving housing construction right now.

Halton Region showed the biggest decline in starts for single-family detached homes, down 54.8% from the first five months of 2005, to 685. At the same time, starts of multiple-unit dwellings were up 16.6%.

Peel Region also showed a steep slowdown in detached-home starts (down 45.8% to 1,051 from the January-to-May period of 2005. The aforementioned Brampton, which is in Peel Region, saw detached-home starts cut in half, to 122 from 248. But the demand is there, particularly for affordably priced townhouses and semis. These types of housing, if they’re located well, don’t even need to be presold any more to secure financing from lenders.

One builder in particular, Daniels Corp., has eschewed the typical presale marketing mania that leads up to construction by building three townhouse communities in Brampton and Mississauga before a single deal was closed. In every case, the units sold out within 72 hours of opening.

Buyers had the opportunity to move in in as little as 30 days.

When you move up the scale to homes in the $350,000-plus range, things get a little dicier. With an increasing number of older baby boomers opting for low-maintenance, condominium-style homes, the supply of resale housing has increased across the city.

This hasn’t resulted in a massive shift away from new low-rise housing, but it has put pressure on builders to offer as many upgrades, luxury options and closing incentives as possible.

The easy sale right now is the townhouse or semi-detached house, largely because the detached low-rise in most markets is out of reach for new-home buyers.

It wasn’t the way most urban planners wanted to see it happen, but builders of new low-rise communities across the GTA are shifting toward higher-density projects and using up less land mass. But it’s not because companies have suddenly embraced the “new urbanism,” pedestrian-friendly ethos. They’re building more townhouses because land shortages and conservation efforts have made raw land so expensive that new detached homes are now priced well above the market average in places such as Richmond Hill, Vaughan, Markham and Mississauga.

Multiphased communities in these areas that may have once been earmarked for predominantly single-family detached houses now include a large portion of townhouse or semi-detached options, the hope being that the townhouse buyers will move into the detached ones eventually.

Also brewing in the minds of both developers and home buyers is the issue of interest rates. The Bank of Canada prime lending rate has risen 1¾ percentage points in the past nine months.

The major bank lenders now offer five-year fixed-rate mortgages at an average rate of less than 6%, 1½ percentage points higher than the same time last year.

Ironically, the recent signs of a rate increase may actually push demand for housing of all types as the stragglers rush into the market, finally cluing in to the possibility that the era of cheap money may soon be history. Market watchers largely agree, though, that an average 8-per-cent five-year fixed rate will be a big obstacle to maintaining the demand new-home builders have come to expect.

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One Response to Shifting patterns in a new housing landscape

  1. Mississauga Condos says:

    I agree, there has been a shift in hous­ing through­out the GTA.

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