Golden Horseshoe Housing and Supply Constraints

BIG NEWS!

I popped the question to my girlfriend, now fiancée, Shelby and we have officially decided to tie the knot! I got the better deal, but don't tell her!!! 

Last month I talked about the increased demand for housing across the Greater Golden Horseshoe, this month I will talk about the supply constraints. As I found out in my Economics 101 course, when demand goes up and supply goes down, prices rise.

Housing Supply Constraints in the GTA

The GTA in particular is constrained by the Green Belt to the north, and Lake Ontario to the South (see image below). The available build-able area  is very small, and they are proposing to expand it. Plus, all of the easy sites to develop, have already been developed. This limited supply of develop-able land is contributing to rising prices.

The development approval process is getting longer and more effort is needed as the years go by. Governmental agencies are growing and their list of requirements are growing as well. This is increasing the soft costs and the time it takes to get approval to build new units. I’m not saying that the new requirements are inherently bad, they are coming from a good place, just in aggregate, it is much more work to develop new units now than 50 years ago, while there is a great need for housing units now. 

According to the leading voice of the land development industry BILD, there is currently a shortage of about 10,000 units in Toronto every year. The industry is building 40,000 units, but the demand is 50,000. As I talked about last month the demand for housing is increasing, not decreasing. Thus I expect this 10,000 unit discrepancy to grow, not shrink. 

Click HERE to read more about this.

In addition, there is a construction worker and skilled trade shortage that is projected to get worse. I can tell you from personal experience working on relatively small renovation projects; it is difficult to find reliable, inexpensive contractors. This holds true on large scale and developments, ask any builder, finding skilled trades to complete good work on time is something that is a constant battle. According to BuildForce Canada’s latest numbers, about 300,000 construction jobs need to get filled over the next decade, as numerous baby boomer construction workers will be retiring, while at the same time, the younger generation seems to be moving away from skilled trades.

Click HERE to read more about this. 

Given the limited supply of developable land, a lengthening approval process, the housing unit shortage, and the continuing labour shortage for skilled trades, paired with the increasing demand for housing, I can only see house prices go up over the long term (there will be downturns and recessions here and there). There is one saving grace for the housing market in the Greater Golden Horseshoe Area, and that is intensification. Intensification is really the only plausible solution to this housing unit shortage. Intensification means to build up and not out, build smaller units, and share more space. This is the trend that I am hitching onto which I will talk more about in a future newsletter!

Happy Investing!

Spencer Brown Brown Properties