RealNet says GTA is the North American housing market champion – Yourhome.ca

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RealNet says GTA is the North American housing market champion

October 26, 2012

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George Carras

SPECIAL TO THE STAR

If building new homes in North America were like playing hockey, Toronto’s home-building industry could be considered the continent’s repeat Stanley Cup champions. (Sadly, anyone in this city who knows what it’s like to have a perennial championship team would have had to have been alive in the 1960s.)

Building new homes and communities is certainly not a game. But as U.S. housing markets have declined in recent years, and steady Canadian markets — Toronto in particular — have risen in the standings, being ranked No. 1 has become a regular occurrence for the GTA home-building industry.

If you look at the top 25 markets in North America based on new home starts, the GTA ranked first in 2008, 2010 and 2011; and our market looks poised to take the top spot again in 2012, with 23,418 units having been started as of the midway point of the year.

Five other Canadian markets are also on the North American Top 25 list: Vancouver, Montreal, Calgary, Edmonton and Ottawa. But as U.S. markets begin to improve in 2012, the ranking of those other Canadian markets appears to be dropping — with the exception of Toronto.

The composition of the starts in Toronto has been changing, of course. The GTA market was once dominated by lowrise homes. But with the implementation of a pro-intensification growth plan for the region, there has been an increasing number of highrise starts in recent years.

What exactly is a “start”? A start means a builder has commenced construction of a new home unit, and this data is often used as an indicator of related economic activity (materials are purchased, construction crews are hired, etc.).

Given the highly conservative nature of the Canadian and GTA home-building industries, a start typically cannot take place until there is financing in place for construction. And financing for construction usually can’t be secured until there is a sale of that new home to a pre-qualified purchaser.

So, a new home sale precedes a new home start, and that’s why sales are a considered a leading indicator of economic activity. If you monitor sales, you can, to a degree, predict starts.

In a market where lowrise homes are the predominant form of housing, a builder typically builds homes incrementally as they are sold. Therefore the starts are fewer but more frequent, typically three to 10 at a time.

Contrast this with a market where highrise homes are the predominant form of housing. A builder cannot build a 300-unit project incrementally as the individual units are sold. The developer must build all 300 units at the same time, or not build the project at all. Typically construction does not start until at least 70 to 80 per cent of the project has been sold.

So, in a housing market that has been shifting toward highrise housing, there is a lot more volatility in the start data.

How did starts break down for North America’s housing market champ? In 2011, the GTA had a total of 39,745 starts, of which 44 per cent were lowrise and 56 per cent were highrise. So far in 2012, the GTA has had a total of 23,418 starts, of which 25 per cent were lowrise and 75 per cent were highrise. The higher starts this year are a result higher sales in 2011.

As the GTA market continues to intensify, it’s important to keep in mind two things: first, monthly start data will become more volatile. Second, there will be greater pressure on the highrise segment to deliver new homes across the region.

And with a significant number of labour contracts up for negotiation in 2013, perhaps there are some useful lessons from the NHL experience that could prove helpful for the new-home industry as it looks to become the champion for yet another year.

Just remember: housing is something we’re all in together.

George Carras is the president of RealNet Canada Inc. His column appears in New in Homes & Condos the last Saturday of every month. For more information, visit realnet.ca or follow on Twitter at @realnet_canada.

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Brandon Lee Cell 416-471-0353, HL/Bayview

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