According to a survey by the Canadian Home Builders’ Association, 22 per cent of builders were cancelling construction plans, while 67 per cent said they were building fewer units. New homes are built in a housing construction development in the west-end of Ottawa on May 6, 2021.Sean Kilpatrick/The Canadian Press
Toronto-area homebuilders say a perfect storm of factors has more real estate developers pausing or cancelling new projects, even as the province touts new plans to achieve its ambitious goal of building 1.5 million new homes by 2031.
“If you’re a builder and you have a building permit, that doesn’t say you have to build,” said Richard Lyall, president of the Residential Construction Council of Ontario (RESCON). “We have builders that have land, they could build, but they are not going to cut prices to hit their market. They can sit back on the land and wait until things settle down and become a little more predictable.”
That mirrors sentiments measured by the Canadian Home Builders’ Association (CHBA), which surveys homebuilders to produce a quarterly report called the Housing Marketing Index (HMI). On Aug. 9, the CHBA’s second quarter HMI report found 22 per cent of builders were cancelling construction plans, while 67 per cent said they were building fewer units.
Experts close to the industry say the confluence of rising costs and demand weakened by successive interest rate hikes by the Bank of Canada has knocked the starch out of the industry.
“We launched a condo project in late June, and that launch, we were pretty confident in the Pickering market,” Joseph Messina of Highmark Homes said. “We had a lot of interest, we handed out 800 brochures and information packages. But people just aren’t signing. I don’t think it’s the interest rate; it’s the uncertainty.”
The story of Mr. Messina’s company encapsulates many of the issues facing builders and buyers in the province.
The Highmark will have 346 apartments near Brock Road and Kingston Road in Pickering, Ont., and is the family company’s first high-rise condominium project after 30 years in the business of building low-rise homes. Part of the reason for the shift to high density was buyers in Durham Region could no longer afford to buy a single-family home for what it would cost his company to build it.
“Who can afford a detached or townhome that starts at $1-million?” he asked. “We had to get into that [high-density] market, or we’re closing the doors to 60 per cent of our clients.”
The Highmark will have 346 apartments near Brock Road and Kingston Road in Pickering, and is Highmark Homes' first high-rise condominium project after 30 years in the business of building low-rise homes.Highmark Homes
After years of non-stop increases in the hard costs of construction, many builders are facing the dilemma of being unable to sell homes that would make them money.
The cost problem is Canada-wide, but David Wilkes, president and chief executive officer of the Building Industry and Land Development Association (BILD), said the Greater Toronto Area (GTA) has seen a disproportionate rise in costs: From the beginning of 2019 to the beginning of 2023 he said overall costs – for things such as lumber, concrete, steel and labour, has risen 63 per cent for the GTA’s apartment sector and 85.4 per cent for single-family homes. “That’s much higher than national average,” said Mr. Wilkes. “We’ve seen that impacting the viability of projects, and the current interest rate policy has put a damper on demand.”
BILD and real estate consultants Altus Group released figures on Wednesday that showed the GTA is seeing record lows in new home sales: July saw 1,190 new homes sold – the lowest in 10 years for that month, and 50 per cent below the 10-year average of 2,384. The whole year has trended that way: year-to-date the GTA has sold 12,189 new homes (that’s detached and condos), which is 43 per cent below the 10-year average for January to July. By comparison, by the end of July, 2021 more than 26,800 new homes had sold in the GTA.
Slow demand puts downward pressure on prices, with new home prices falling 13 per cent and apartments falling nine per cent according to Altus. But costs are not declining at the same rate, hence: cancellations.
Mr. Wilkes and Mr. Lyall point to the high costs of the HST for new construction (which is still calibrated for a world where a new home might cost less than $400,000, where in reality most new homes cost double that) and the ever-rising municipal development charges. “We’re taxing housing like alcohol, like a sin tax,” said Mr. Lyall.
But Mr. Messina argues that municipal finances have become addicted to fees on development.
“Pickering last year had a 50-per-cent increase in development charges, when you go from a condo unit charge of $39,000 for a one-bed, and now that number is $68,000? I know guys … they have subdivision agreements ready to sign and they are not signing, because once you sign them all the [government] fees kick in,” he said. “In their defense, cities just don’t have the money. They are cancelling infrastructure projects planned for this winter.”
If the lack of housing and affordable housing options is going to be solved through vastly increasing the pace of construction economists like Mike Moffat and other urbanism and housing commentators have begun to frame the issue as one of requiring a “war time effort.” For Mr. Lyall of RESCON, it’s actually harder than that: “People have said can we build 1.5 million homes? Yeah, providing we pitch a perfect game.”
According to Mr. Lyall, if you solve municipal fees and federal taxes, then you still have to solve construction costs, then you need to add more skilled construction labour, then you need to ensure builders can afford their loans and credit, that buyers can afford to buy what you’re selling and that land for building has the servicing necessary. Never mind most approvals processes take longer than it takes to actually construct a building.
“Building is easy, we can all build a house,” said Mr. Messina. Affording it is the harder part.