No end in sight for rising cost of single family homes
If it seems like high-rise condominium units are keep getting smaller and affordable single family homes are getting harder to find, it's true.
Data from RealNet Canada Inc. for Toronto, to be released Wednesday, paints a grim picture for buyers hoping to avoid condominium living in favour of a low-rise home. It's a trend that the chief executive of Sotheby's says he's seeing across the country.
"It's like a dog running away from you in the Prairies," says George Carras, president of RealNet, in talking about the widening gap between prices of low-rise homes and high-rise homes. "This price gap between high rise and low rise housing is continuing to grow, a market condition that is the result of intensification policies in action."
The gap hit a record in September and the year still ended with RealNet's Low Rise Price Index at $654,147, up about 3.5% from a year earlier. The High Rise Price Index rose 0.1% over the same period to $436,564.
It gets worse for the condo owner. RealNet says average unit prices climbed 1.1% from a year ago to $548 per square foot while actual unit sizes shrunk 1% from a year ago to 796 square feet.
"You can't sell what you don't have," said Mr. Carras about a lack of supply of land for low-rise housing caused by provincial land use policies that encouraged intensification.
RealNet said there were 28,406 sales in the Greater Toronto Area last year, the second lowest total for the year. Sales were down 23% from the 10-year average and 13% year over year.
The data shows there was a major slowdown in new units brought to the market. There were only 30,054 new units brought to market in 2013 which was a 22% reduction from a year ago and the lowest level of supply in 10 years.
One reason for the lack of new units was builders showing more discipline when it comes to constructing new highrise units. But on the low rise side, builders are having a hard time getting land.
"The real demand is in ground-related product, townhouses, row houses, semi-detached homes," said Bryan Tuckey, chief executive of the Building Industry and Land Development Association. "They can't build more ground related product because of the land situation."
Mr. Tuckey said the situation is different for high rises. Builders had excess inventory and chose to sell off that supply before building new product. That lack of supply is making the low-rise homes that are going up are even more dense - meaning the days of detached homes are coming to an end.
"You would see even a bigger number if you look at just detached homes," said Mr. Carras, about pricing differences with condominiums.
Mr. Tuckey said density for so-called ground product has been increasing for about 15-20 years. "Today the townhouse is the new single-family detached home. It's the entry level home for the entire GTA," said Mr. Tuckey, noting prices have climbed 192% over the last decade for low-rise land described as medium density.
Ross McCreadie, chief executive of Sotheby's International Realty Toronto, said the trend that has seen detached homes become an upscale part of the market is mostly an urban phenomenon.
"This is story in Toronto, Vancouver, a little bit in Montreal and Calgary is starting to see it more and more," said Mr. McCredie. "You have these very small, highly sought after neighborhoods that do have the single family homes."
He says gifting and inheritance have been driving the single family home market because starting prices have become too high for many first-time buyers.
He says people waiting for single family home prices to fall or even selling in hopes of buying at a cheaper price later, are playing a "bit of Roulette" and might pay for it.
"I know a lot of people who got out of the market and are waiting for it to correct so they can then jump in," said McCredie.