A lot of economists see statistics such as new
housing starts (basically building permits to construct new residential
housing) as a leading indicator for the economy. CMHC reported in their March 2019 Housing Start Data, that
the Windsor-Essex region’s housing starts had fallen 23% year over year. Is that cause for concern? Today, we are going to discuss some of
the factors we think that are leading to this slowdown and what else you need
to know.
Reason 1 - Shortage of Building Lots
I know this seems very obvious but this really
is an issue. I personally know
people who would love to build but can’t find a building lot for sale. A lot of subdivisions are nearing
completion and the pipeline to replace them is pretty slim. Basically, not as much supply of
building lots compared to last year.
Reason 2 - Bringing on Additional Supply of
Building Lots is Difficult
We have so much land in Windsor they say, why
don’t you just develop it? While
Windsor isn’t the most dense city, getting a piece of land to a serviced,
shovel ready project isn’t an easy task.
If you have to go through the municipal rezoning process that can take 6
months easily and can cost tens of thousands of dollars in some cases. There are also significant area of red
tape to battle through including: biology studies, archeological studies,
utility servicing studies, traffic studies, noise studies, etc. This can take years and lots of
capital, with no guarantee of success, or can make a project uneconomical. This all leads to decreased supply long
term and is a major issue for municipalities all over the province with Windsor
being no exception.
Reason 3 - New Home Prices are Getting
Unaffordable
Some of these construction costs are driving the
pricing of new homes to price points that are no longer affordable for the
average person. It's commonplace to
see $700-800k price tags on the average new build. The market has been doing extremely well locally but sticker
shock has to have some effect on
demand eventually.
Reason 4 - Labour Shortage Affecting Trades
Pricing
Tying into point 3, part of the reason for the large price
tags on some of these new builds are the escalating pricing from the
trades. Electricians, plumbers,
bricklayers, etc are in high demand and able to command premium pricing in
today’s market. This trickles down
to the end buyer. Hard to see this
changing anytime soon.
Reason 5 - Its Taking Longer to Build Homes
Essentially the labour shortage also means slower build times.
Back 5 years ago it wasn’t uncommon to build a house in 90 days. Now it's not uncommon to see 180+ days. This statistically is taking units out
of the data.
Bonus Point - What Does All This Mean for the
Resale Market?
This decrease in new home sales activity is
adding demand to the resale market. Taking some of the buyers out of the new home market for the above
reasons is directing them to the resale market. And the resale market already has a supply-demand
imbalance. This increased demand
could explain some of the crazy resale statistics to start 2019.
Thats how we are seeing the new home starts
data. What are you seeing out
there?
