Don’t expect a lot of new condominium highrise tower cranes to swing over the Greater Toronto Area in the next couple of years as the pipeline of projects dries up in the housing economy.
That’s the word from Peter Norman, Altus Group’s vice-president, chief economist and the keynote speaker at the Light-Frame Wood Solutions Conference and trade show recently in Woodbridge, Ont.
While a “gradual” increase of single family housing starts is forecast in the next two years partly because of thawing interest rates, the highrise condo market is expected to be “sharply lower and will not recover in 2025,” he told a luncheon crowd of about 300 delegates.
Norman called his speech Controlling the Boil because “there is a lot of stress in the outlook” resulting from the urgent need for housing at a time when the economy is “unsteady.”
Builders and developers face complex and possibly difficult times in Ontario. While the provincial government promises the construction of 1.5 million new homes, meeting its timeline would require ramping up construction starts from the current 50,000 to 70,000 a year to about 250,000 units annually, “which seems, I think, pretty outlandishly high.”
It is not all dark and gloomy, however.
Recently the Altus Group updated data for a two-year-old economic report published for the Ontario Structural Wood Association which indicates structural wood products in all construction sectors is about $500 million, a “fairly stable” number considering that single family housing has tailed off in recent years.
The resale housing market in 2023, a leading indicator on housing demand, has softened to its lowest level in about 20 years but Norman said it wasn’t a year of “extreme demand” distress.
The good news is that the major adjustments on home prices are levelling and transactions are stabilizing.
Declining mortgage rates help and Norman said the Bank of Canada’s objective to bring inflation under control through hiked interest rates has “pretty much done its job.”
Last year preconstruction of all home sales in the Greater Toronto Area totalled only about 20,000 units (40,000 to 50,000 units sold annually a few years ago) the lowest level since the Altus Group tracked starts in the 1990s.
“It’s affecting a lot of homebuilders and affects starts going forward.”
While preconstruction of single family units were only 5,000 last year, down about 15,000, Norman said preconstruction of condo units were down 50 per cent from 2022 and in 2021 sales were about half of the sales of 2020.
The drop off is partly because many highrise condo unit investors stayed on the sidelines as interest rates rose.
To get things moving again, investor confidence will have to return, but fewer projects on the go has added “some amount of caution and distress in the development industry. Their costs are rising.”
Norman added land acquisitions are also down by half so there will be fewer projects in the pipeline.
Many parties are rethinking ambitious projects because of the high cost of construction. Single family builds have doubled since pre-pandemic times and highrise condos are up 80 per cent in the same period.
Good news is that building cost hikes have been levelling off to two-to-three per cent over the past few months in the condo market, down from 10 to 15 per cent quarter over quarter in recent years, Norman said.
“If you are a builder it is nice to have that stability.”
He said in the 12 months leading up to the fourth quarter last year, Canada’s population grew by about 1.2 million, about 700,000 people more than the average year.
“This kind of growth requires housing.”
He forecast “a measured growth” in Ontario of about two-to-three per cent GDP growth in the next two or so years.
Co-hosted by WoodWorks Ontario and Ontario Structural Wood Association, the conference and trade show was held at the Paramount Event Space. It was presented by the Canadian Wood Council.
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