Toronto

Toronto Real Estate Will Get Over 57,000 New Homes In 2018

Toronto Real Estate Will Get Over 57,000 New Homes In 2018

Toronto real estate is been plagued by a chronic shortage of supply… or is it? Recently we’ve been asked by a number of investors and developers whether they’ll be able to profitably create more supply in the Greater Toronto Area (GTA). That’s a tough question, and we’ll get to that on another day. In order to understand that problem, however, we need better estimates of how supply is born. So today we’ll be looking at a predictive model we’ve been working on, that estimates the amount of completions that will hit the market in 2018. At the current rate of construction, Greater Toronto will see over 57,000 new units completed in 2018.

About The Data

This isn’t meant to be a laser precise catalog of completions. It’s an estimate of how much new construction supply will hit Greater Toronto – and an estimate of when. We combined starts, under constructions, behavioral, and seasonal factors. We then apply it to our predictive new supply model. What we get is a rough idea of how many homes are going to be released into the region. This is the basis of supply and demand analysis, and not a lot of people have done it strangely.

Estimating completion times isn’t a perfect science, ask any developer (or pre-construction buyer). Weather, supply constraints, and even just plain municipal bureaucracy can hold up a project. We did the best that we could to estimate these times, based on how long these holdups have been. We even adjust for typical seasonal delays. It’s probably the most comprehensive predictive estimate most of you will ever see, but it’s not perfect. Some projects will get bumped by a few day (or months), and that happens. That said, on to the data.

Over 57,000 Units To Hit Greater Toronto In 2018

Expect a ton of new construction supply over the next year. By our estimates, over 57,674 units should register across Greater Toronto in 2018. To contrast previous years, that’s 59.9% higher than 2017’s completions. To give a long-term estimate, that’s 60.3% higher than the City of Toronto’s annual completion estimates for the GTA, from 2006 to 2015. It’s a lot of supply, but how has this supply contrast to the “growing” Greater Toronto region?

Source: CMHC, City of Toronto, Better Dwelling.

Household Formation Vs. Supply

Should you be hoarding because of a lack of supply? Let’s take a quick look at household formation numbers. This will prevent skew from the rise of single person households, who real estate agents tragically assume will never find a partner to move in with. The number of households formed between the 2011 and the 2016 Census averaged 29,241 households. That’s 18% lower than the average annual completion data of 35,978 from the City of Toronto.

Source: CMHC, City of Toronto, Better Dwelling.

Remember, Census numbers don’t capture 100% of the population. However, it would need to be off by almost 20% for there to be a shortage in previous years. Either the Census is completely useless and we should just throw darts at a board, or we’ve been building with a pretty nice buffer to absorb household formation. I’m guessing it’s the latter.

Should you expect lower prices? Not necessarily. Despite what you heard about a shortage of supply over the past few years, looking at the numbers doesn’t really provide any evidence of it. Why did people scramble to pay such a large premium over the past few years? Behavior. People that buy a home once every 10 to 20 years, aren’t perfect at pricing the market. Shocker, right?

Consequently, they’re prone to over and under paying for these things. Will 60% more completions, that are likely to be flipped back to the market, convince them double digit gains are unrealistic? Who the f**k knows. What we do know is, there’s a lot of supply, and even more coming.

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20 Comments

  • Reply
    Trader Jim 2 weeks ago

    The concept that we were underbidding is patently absurd. I have a condo at Yonge and College that I rent out, and the building is almost always empty. One of the largest buildings in North America, not enough foot traffic to keep the stores in the base of the building afloat.

    • Reply
      Tommy 2 weeks ago

      Jim, your building’s retail suffers from a terrible layout, lack of parking, and lack of accessibility (i.e. not tied to the PATH, and other than logos nobody knows the stores exist there or how to get to them – you have to go up escalators etc), and the stores in the underground was the worst development after-thought I’ve ever seen in my life.

      The residential units are still very pricey for the Toronto market, hence the reason many have been on the market for awhile.

      I suspect that once the hotel is converted into condos, and ditto for the condo planned where the Big Slice once sat, and the building planned on the north-east corner, things might start looking better.

    • Reply
      Mike 2 weeks ago

      Im looking for place to rent in downtown, please share condo address

      • Reply
        Petsobubble 6 days ago

        Mike, they’re talking about the Aura, at 386-388 Yonge Street.

  • Reply
    Ahmed A. 2 weeks ago

    That’s insanity. If you walk around downtown, there’s a big smoking hole in every corner. I was wondering how we’re going to fill all of these up. The answer: we won’t… for years. Winter is coming.

  • Reply
    Paul 2 weeks ago

    That’s still not enough housing for the number of people that will be moving to Toronto. This is just the beginning of higher prices.

    • Reply
      CJ Morray 2 weeks ago

      Paul;

      57,000 units is huge! If you average 4 people per; that will accommodate 230,000. That doesn’t consider the resale market which growing at an ever increasing rate. The boomers are just starting to sell as they retire so that number will continue to rise. Some will move to condos while others to NOTL, or somewhere cheaper. The speculators are starting to unload as well, so this could be fun.

  • Reply
    There's No Shortage 2 weeks ago

    The concept of a shortage is ridiculous. People aren’t being turned away, and cramming in. This isn’t Monaco or Hong Kong, where you have trouble finding a house. There’s thousands of units that will be sold back into the market, as soon as prices are confirmed to be falling. A few months of price drops isn’t a crash, the crash is coming.

  • Reply
    Michael Z. 2 weeks ago

    Another great article, Stephen. It’s important to remember that the extra homes don’t mean more supply necessarily, or even lower prices. Just because one person has ten homes, doesn’t mean you have a home. They’ll sell when you’ve paid them the right price, and that’s usually not going to be a loss.

  • Reply
    Donald Eisen 2 weeks ago

    Over 350,000 immigrants migrate to Toronto every year because our country is the safest, wealthiest and prosperous country in the entire world.

    Canada respects the rule of law, we have a great police force to maintain law and order, and inequality rarely exists in Toronto.

    As the world’s wealthy seek cities in countries where human rights are respected, Toronto will remain the #1 destination for immigrants to live in Canada.

    • Reply
      Yu 2 weeks ago

      You understand that Canada’s increased immigration TARGET is 350,000 people, right? And Canada has more places that just Toronto? Or are places like Vancouver, Calgary, and Montreal considered Greater Toronto to you?

      Please stop spreading your real estate pumping false facts.

      • Reply
        Dana 2 weeks ago

        You are kidding me right?! Google what you said Last year we had over 30% homlessnes / shelters demand increase!!

    • Reply
      Dana 2 weeks ago

      Toronto and Vancouver are the two cities in the country know for money laundering.

  • Reply
    Brice 2 weeks ago

    Do you any data or estimates on the number of completions that have already been sold?

  • Reply
    Al Daimee 2 weeks ago

    You have to look at the relationship of condo prices to rental prices only to see that there are driving forces at work that are supply related. If there is indeed a large wave of new units coming, then market rental prices will decline quickly (which would be healthy and welcomed), followed by a minor adjustment to condo prices as some investors seek to dump new units that are too cash flow negative (a scenario I doubt will happen en masse, since these purchases were made 4+ years ago when rents were much lower and the math still favours investing for the long term).

    We already know over 50% of these new condos are owned by investors and they will usually hang on to the unit for at least a year as a rental to qualify for the Landlord Tax Credit. Most landlords keep their units for at least 5 years as there is a price growth curve for new condos due to people’s desire to live in newer buildings (buyer/tenant behaviours I have witnessed for the past 12 years in the business).

    The current pace of development isn’t an issue in my opinion because the city needs more rental supply now that the new Ontario Fair Housing Plan has deep-sixed some developers’ plans to get into the rental condo game (Allied Properties with Kingly and The Well to name one developer). Developers have also been citing the slow process of approvals, high land acquisition and construction backlogs as a few critical factors to development. The message being told TO developers is to keep building for the future as there is going to be a housing crunch. Don’t forget that around 70% of a building has to be sold before construction financing is advanced and most developers are virtually selling out these days.

    As a real estate agent specializing in Downtown Toronto, I find it hard to believe there are that many new units that will be ready in 2018 as I can estimate completions by physically looking at the state of construction. The more sought after neighbourhoods only have a few new buildings on the cusp of completion and these nearly completed developments are sprinkled across the city.

    I know there are some critics against Realtors on these forums as being the drivers of our market, but when you HEAR what the buyer and tenant views are towards condos, it’s pretty hard to be bearish right now.

  • Reply
    bluetheimpala 2 weeks ago

    Classic BD. Good data. Careful not to draw conclusions. Made me chuckle.

    We’ll see. I’d like to know where 2017 R^2 (rate of the rate) ended up because it looked like it was negative. Ended up +ve YoY but if the delta has flipped then what we’re really dealing with at a more ‘macro’ level is psychology. Also with most banks allowing 2-4 month of ‘pre-approval’ based on 2017 lending standards, we could see an uptick for the first quarter as the rest of the peak money works its way out. Once seasonal volume picks up in Q2-Q3, we won’t know the true picture. Prices are always lower in the winter and this happens to be one of the coldest so I don’t expect a ‘thaw’ until April.

    BD4L

  • Reply
    Justin Thyme 2 weeks ago

    Breakdown please on these housing starts.

    How many high rise condos, how many towns, how many single family, how many apartments?

    Developers don’t do 10-plex apartment buildings, individual businessmen do. For an immigrant investor, building a ten-plex is a solid long-term investment. Forget the high rises.

  • Reply
    Justin Thyme 2 weeks ago

    Breakdown please on these housing starts.

    How many high rise condos, how many towns, how many single family, how many apartments?

    Developers don’t do 10-plex apartment buildings, individual businessmen do. For an immigrant investor, building a ten-plex is a solid long-term investment. Forget the high rises.

  • Reply
    Gregory 2 weeks ago

    let’s circle back in a year… I’m guessing the actually number of “completions” in 2018 will be substantially lower that 57K…

  • Reply
    Derek 1 week ago

    I would like to see the numbers please. How many new condos vs detached homes etc.

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