Attendees at the Residential Construction Council’s Housing Summit 4.0 got a reality check about the current state of the homebuilding industry in the Greater Toronto Area.
“Development and house building is in an uphill battle,” said Marlon Bray, executive vice-president with Clark Construction Management. “As much as there is some positivity, where we are right now and where we need to be are still light years away from each other.”
There has been a lot promised and not enough action and co-ordination between three levels of government, he added.
“We’re sinking fast and we’re actually losing the war on housing affordability,” Bray said. “The crisis is actually getting a lot worse, not better, and that’s with everyone going all in over the past couple of years.
“The best way to summarize where we are right now is we’re in reverse gear. The lemmings are lining up on the cliff. If we don’t do something fast everyone might as well just toss themselves off.”
Condo sales are beyond terrible, he said, at 81 per cent below the 10-year average.
“In essence, we’re bellying out and the challenge you’ve got is we’ve had three years of slow sales which is going to massively impact the starts,” he noted.
Preconstruction condos sales are dead and that also impact starts.
“The challenge is you need around 70 per cent sales to start a project,” said Bray. “There’s a lot of projects that basically sat in limbo with these 20, 30, 40 per cent of sales that just can’t proceed.”
Even if the interest rates dropped tomorrow the recovery will not happen quickly.
“We’re talking a year, a year-and-a-half out,” said Bray. “As interest rates drop generally the increase in housing starts or sales is going to be around 10 per cent. As soon as they start to drop from where we are now it could be another year or two before we see a significant increase in those sales. Where this impacts is ‘27, ‘28, ‘29…which is where the wheels really start to come off.”
In terms of GTA apartments, the number of units under construction is dropping rapidly.
“We’re going to see these 20 to 30 per cent drops in the number of units under construction,” said Bray. “The challenge we also have is the population spiked…So everything is happening at the wrong time and this drop could be even greater and we’re going to lose workers. We’re going to have trades that don’t have enough work. We’re going to have problems where if this skilled labour leaves, the red alarm that was going off before about labour is just going to get worse and worse and worse as people bleed off to places like Alberta or down to the U.S.”
Right now there are plenty of apartment completions, Bray explained.
“The large number units coming to completion has tempered the rental increases that were seeing,” said Bray. “As you move forward to 2027 there’s nothing there to temper those rental increases anymore. There is nothing there to temper the house prices anymore. We’re going to be in a world where interest rates start to drop rapidly and the supply of homes in the GTA in particular is going to be even more out of whack as population carries on growing. That’s where you really start to see this crisis could become a disaster very quickly.”
As for planning applications, they are down 50 per cent in GTA municipalities.
“Not only are we selling less, building less, the number of people applying to even potentially build in the future is dropping significantly,” said Bray. “This is really bad news as you look forward because it starts to show the math looking extremely iffy in the mid term and the long-term.”
The challenge is the proformas also don’t look good.
“If they don’t look good now…wait ‘til it starts speeding up,” said Bray. “We could have the all stars align for a dire situation where we’ve shed labour over two years, now we try to rapidly accelerate construction across the entire province and there’s just nobody left to do it.”
While construction costs are pretty good right now, the bigger problem is taxes, which Bray described as “beyond asinine.”
“If you look at government costs on a condo, an average downtown Toronto condo, say it’s $800,000 project cost, $240,000 of that are government charges and taxes,” he said.
“The entire tax system is broken. It makes no sense. You are literally punishing new homebuyers.”
Construction costs are not even half of the cost of a unit, he pointed out.
“How can the cost of physically building the actual building be less than 50 per cent of the cost of a house?” he asked. “The rest goes to the government and land and a little bit of soft costs.”
While approval timelines have improved it’s still ludicrous, Bray stated.
“What does that delay cost?” he asked. “In Toronto, this is from Altus and BILD, that delay adds $5,500 a month to the cost of a unit…No wonder nobody can build anything. The bloody cost is so high you can’t sell it for enough.”
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