The meteoric rise in housing prices in the Greater Toronto Area and sluggish wage growth is having a dramatic impact on the housing profile within the GTA, such as a surge of purpose-built rental apartment developments, according to the Colliers International GTA Spring 2015 Land Report examining the use of land for residential development.
In 2014, the GTA experienced $2.6 billion in transactions in residential development land sales, compared to $2.1 billion in 2013, with high density development purchases representing 35 per cent of that total, and developers accounting for close to 84 per cent of the land purchases. Private Investors accounted for close to 15 per cent of the land purchases.
This Colliers Report showed a turning point reached in 2013 since the market is no longer oversupplied as the number of ‘household formations’ had caught up to the available housing supply.
“When a person establishes a residence that’s an apartment or a house or another dwelling, that person is setting up a household, or what the industry calls a household formation,” said Adam Kosoy, Colliers Senior Managing Director of Capital Markets & Investment Services.
“Economic factors such as the record price of housing in the GTA, or university graduates returning to live with parents, or two families deciding to live together, have limited household formations in the GTA. The result is a turning trend, when lower than expected housing starts in 2015. It is possible to see an increase of housing supply in the years to come,” he added.
But the nature of that housing supply may be different in the years ahead. This Colliers Report anticipates the City of Toronto will begin to see a surge of purpose-built rental apartment developments, similar to what occurred in the 1960s, and a few buildings which were originally conceived as condominiums may instead be repurposed into rental apartment buildings. The reality and affordability in the trend towards rental housing may result in the increase in household formations.
In the outer regions of the GTA, factors such as limitations in infrastructure and ‘locked lands’ appear to be limiting development opportunities. Locked lands refers to land which is being kept idle by the owner in order to sell the land at a higher future price.
“There is a high volume of potential land available for sale and development throughout the GTA, but again, the location of that land is the most important factor,” says Kosoy. “Access to infrastructure with emphasis on public transit and roads are most important. The rapid 905 area growth has occurred around the areas with good access to public transit on Yonge Street, Highway 7 and Bathurst Street, and major expansions, developments and infrastructure upgrades in Durham Region may lead to rapid growth there. Lands without current adequate road systems and public transit access are seen to have fewer growth opportunities.”
However, the GTA Land Report says available land for residential development will continue to be one of the most precious commodities in the region. “With the low Canadian dollar, the perceived safety and security of Canada, the jobs and economic growth which has propelled Toronto in the upper echelon of world cities, and the geographic restrictions of Lake Ontario to the south and the Oak Ridges Morraine to the north, available land within the GTA will always be a valuable and sought-after asset,” added Kosoy.