Record Residential Land Investment and Pricing Signal Investor Confidence in GTA Housing Market
05 Nov 2018
Land transaction activity continues unabated, but the number of people per unit of housing inventory has shot up dramatically over the past 12 years
Despite a reported moderation of the Greater Toronto Area (GTA)'s single-family housing market, there has been no corresponding decrease in either demand or price of residential land. A powerful combination of constrained supply and population growth continues to support record-setting land investment and, unfortunately for homebuyers, increasingly steep competition for residential land.
According to CBRE Canada, residential land investment volume in the GTA totaled $6.8 billion in 2017, more than three times the volume seen a decade earlier and the highest on record. The price for raw residential land in the GTA has also increased considerably over the past decade. In the first half of 2018, the average price for a single acre of low-density land, which is used for single-family and semi-detached homes, surpassed an average of $1.0 million for the first time; a decade ago, that same acre cost $382,000. The same holds true for high-density land, which is used for condominium and purpose-built rental apartments. Year-to-date in 2018, the average price per square foot of buildable high-density space is $87, compared with $42 in 2008.
"Despite rising home prices and new mortgage qualification rules, supply issues are propelling residential land deal volumes and prices to all-time highs in the GTA as developers and investors are willing to pay for this sought-after asset," commented Mike Czestochowski, Executive Vice President, Land Services Group at CBRE Canada. "Land investment activity reflects strong developer and investor confidence in a housing market that is faced with the challenge of accommodating a rapidly growing population amid serious government-imposed constraints."
According to CBRE research, in 2017 there were 149 low-density land transactions across the GTA, up 39% from the 107 deals recorded in 2007, and the best year on record for transaction volume in the region's low-density market. The first six months of 2018 saw $754 million in low-density land investment across the GTA; and while not on pace to beat 2017's record-breaking investment volume ($2.4 billion), this is nevertheless shaping up to be one of the best years for low-density land investment volume in the past decade. "There is sustained investor confidence in this city, owing to the GTA's strong fundamentals, specifically the 100,000 new residents a year and strong employment growth, with 93,000 jobs added in the Toronto CMA between June 2017 and June 2018," added Czestochowski. "It's not hard to see why the GTA continues to be a prime destination for investor capital, both domestic and foreign."
While land transaction activity continues unabated, the number of people per unit of available housing inventory has shot up dramatically in the past 12 years, owing to a growing population and constrained supplies of developable land in the GTA. In 2005, there were 190 people in the region for every unit of available new housing inventory. By 2017, that ratio had grown to 575 people for that same unit, an increase of over 200% in just over a decade. While this is just one metric, CBRE's Land Services Group says it is indicative of a worrying market trend: fewer new houses and condos are available to accommodate a rapidly growing region.
"People see cranes dotting the city skyline and believe residential development is booming. The assumption then is that new units must be plentiful and possibly even over-supplied. But when you consider the current ratio of housing units to people, 1 to 575, it's just not true, and the ability to access housing, especially affordable housing, will likely worsen," said Lauren White, Senior Vice President, Land Services Group. "The winners in this market will be investors and developers who are creative and innovative in uncovering land opportunities."
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