|Toronto’s Space Odyssey
To put it bluntly, we are increasingly running out of space. Space to build, space to grow, and spaces to live are becoming increasingly scarce, and in turn, it’s in this time of scarcity concerning Toronto’s housing inventory, that is driving prices up. We are experiencing a significant lack of supply of housing stock, with everyone wondering what is to blame. Fundamentally, the big What is a Supply issue that has run rampant and been left unchallenged for over a decade. Note: If you severely undersupply a housing market graced with a robust economy and rapidly growing population for over a decade, the net result will be a severe housing shortage. No one seems to want to call it as such, but that is exactly what Toronto is experiencing – a severe housing shortage with no signs of abating.
Toronto’s Housing Inventory (or Lack Thereof)
Let’s take a deep dive into better understanding the Toronto housing inventory.
Right now, we are sitting in a very heated Seller’s Market, which is measured by using the Months of Inventory (MOI) ratio. Applying this ratio is the most accurate way of determining whether a Market is in favour of Buyers or Sellers.
As a basic rule of thumb, an MOI that is below four months indisputably indicates a Sellers Market, and an MOI exceeding six months always points to Buyer territory; an MOI between five and six months always signals balanced conditions. With this in mind, the GTA had a paltry 36 days of inventory at the end of 2016, meaning it would take a little over a month for all currently listed homes to sell across the Greater Toronto Area, which is on the extreme end of a Seller’s Market range.
Low Months of Inventory = low Supply, high Demand, and rising Prices
Below are the inventory charts of the three major resale residential asset classes in the GTA (data taken from TREB Market Stats).
As the above charts clearly indicate, there is a steeply declining inventory trend in all of the major residential resale sectors. Is there any relief coming by way of new Development? Let’s take a look…
2016 New Construction Supply and Demand Curves
In 2016, the demand for new construction homes, relative to the supply fell completely out of balance.
According to a recent study completed by Urbanation, a consulting and market research firm that focuses on the Greater Toronto Area’s Housing Market, we have never seen the demand for new condominiums exceed the supply by as much as it has in the third quarter of 2016. Total sales for the year (19,917) outnumbered the volume of new launches (12,678) by as early as September 2016, by a margin of 7,239 units. That’s nearly three times higher than the margin averaged during 2015 and 2014! For context, the gap between sales and new launches has averaged less than 1,000 units over the past decade, with six of the previous ten years showing a higher volume of new openings than sales. In addition, the total supply of new homes available to purchase in Builders’ Inventory declined by more than 10,000 homes in the past year. There were 15,421 new homes and condominiums available for purchase in September across the GTA compared to 25,848 at this time last year (BILD Toronto).
As BILD President and CEO Bryan Tuckey explains, “We have a serious housing supply challenge in the GTA due to a significant shortage of shovel-ready land and long and uncertain project approval timelines.” It is these factors that have severely restricted the number of new homes being brought to Market and have caused home prices to surge month after month.