New report released today by Royal LePage analyzes condo market trends
in Toronto, Montreal and Vancouver, with research and projections by
leading housing market economist Will Dunning
TORONTO, Dec. 3, 2013 /CNW/ - If the abundance of construction hoardings
and a sky full of rising towers are any indication, Canada's largest
cities are experiencing an unprecedented condo boom, a growth
trajectory that has some expressing concern about the sustainability of
the market. With more condominium construction in recent years than the
market would appear to be able to absorb based on demographic trends
alone, Royal LePage's new report outlines the economic and social
factors behind the enduring demand for this type of housing. The study
also considers how condominiums as a housing class fit into the overall
housing market and how their role continues to evolve.
In 2011, condos accounted for 14.9 per cent of total households in these
markets, and 37.7 per cent of new dwellings. Growth continues,
according to the report, with demand for new condos over the next
twenty years estimated to be 26,000 to 32,000 new units per year, a
significant 43 per cent to 53 per cent of total required housing across
all housing types. While actual production currently exceeds this need
with an average of 43,774 new starts per year, strong activity in condo
markets has been generated by exceptionally low interest rates, robust
job creation in central areas of cities, shifting consumer preferences
and conditions that can make condo ownership an effective investment
opportunity. According to the report, this strong activity "is not
sufficient evidence of a housing bubble," but rather the result of
these positive economic forces and changes in demand patterns
supportive of condominium living.
Condos have a well-established and evolving role in the housing markets
of the cities studied. In the short-term, construction is predicted to
slow to better align with growth rates and changing demographics.
During this transition, likely over the next two years, today's very
high levels of activity will lower and there may be some volatility in
pricing while a new set of longer-term trends get established.
"Condominiums have emerged as the dominant type of new housing in
contemporary urban Canada, a trend that will not be reversed in the
foreseeable future," said Phil Soper, president and chief executive of
Royal LePage. "In Canada's major cities, the presence of highly
visible, large-scale construction projects will continue to attract
discussion. It's important to note, that while the number of
condominiums have increased significantly over the past decade, condo
price appreciation has remained in check, tracking closely to overall
housing averages. As the number and proportion of condominiums in our
national housing stock continues to grow, it's our objective to provide
Canadians with the research and analysis they need to understand this
important market."
A comparison of prices of condos and single family homes over the last
twenty years shows that the price of condos has risen at about the same
rate as single family homes. In greater Toronto, condo prices rose by
5.1% per year, versus 5.9% of single family homes; in greater Montreal,
condo prices rose by 5.5% per year, versus 5.1% of single family homes;
and in greater Vancouver, condo prices rose by 4.5% per year, versus
5.7% of single family homes. While some divergence may be expected in
the near-term, the report suggests that condominiums will experience
growth rates similar to single family homes over the long-term.
Looking forward, the patterns of housing requirements depend on factors
including population growth rate, its distribution by age groups and
evolving consumer preferences. Over the next twenty years, the three
major cities studied are projected to receive a modestly reduced share
of the country's population growth, as resource-producing regions
attract proportionally more in-migration. This change, together with
changing housing needs brought about by the aging baby boomer
population are two important factors that point to moderating demand
for new condos compared to recent levels of production.
"The longer-term role of condos depends on several variables, including
shifting demand patterns, pace of project completion and changes to
mortgage rules," states Will Dunning, housing market economist and
author of the report. "In the housing market, demographics are not
always destiny, and various factors including the appeal of
amenity-rich urban living and delayed childbearing have increased condo
demand. This helps greatly to explain why apartment activity has
recently exceeded the so-called demographic requirement."
Over the past five years, there has been disequilibrium between the
number of condo project starts and the estimated requirement of new
units per year. Using Toronto as an example, the report points out that
since 2008, the number of starts has been approximately 20,400 units
per year, exceeding the estimated requirement of 14,000 to 15,000 units
per year. What has kept this imbalance in check is that annual project
completions - that is, the number of units finished and put on the
market - averaged about 15,750 units per year, far closer to the
estimated requirement. A key issue now is how quickly units will be
completed in the future, whether there will be sufficient demand for
these units and what the outcome would be if supply of units greatly
outstrips demand.
Finally, the longer-term impact of the changes to the federal
government's mortgage insurance policies is yet unknown. The revised
rules have made access to financing more difficult, especially for
first-time homebuyers, and this has the potential to affect the
dynamics of the condo market.
For a detailed analysis regarding the sustainability of condo markets in
Canada's three largest cities, the full report can be viewed here.
About Will Dunning Inc.
Will Dunning Inc. is an economic research firm. Based in Toronto, the
firm specializes in housing market analysis. The firm is led by Will
Dunning, who has been analyzing housing markets since 1982. This
includes 16 years with the federal housing agency (Canada Mortgage and
Housing Corporation). In September 2000, he established his own firm.
Will has completed several hundred consulting studies, including
economic analysis and forecasting studies as well as feasibility
studies for proposed residential developments. He is frequently quoted
in the news media on the housing market.
More information can be obtained at www.wdunning.com.
About Royal LePage
Serving Canadians since 1913, Royal LePage is the country's leading
provider of services to real estate brokerages, with a network of
nearly 15,000 real estate professionals in over 600 locations
nationwide. Royal LePage is the only Canadian real estate company to
have its own charitable foundation, the Royal LePage Shelter
Foundation, dedicated to supporting women's and children's shelters and
educational programs aimed at ending domestic violence. Royal LePage is
a Brookfield Real Estate Services Inc. company, a TSX-listed
corporation trading under the symbol TSX:BRE.
For more information, visit www.royallepage.ca.
SOURCE Royal LePage Real Estate Services
