The International Monetary Fund has confirmed what nearly everyone in the Greater Toronto Area’s new home building industry has been saying for the last few years - more supply is the answer to the affordability crisis.
The IMF says that short-term fixes like “relaxing prudential regulations to enable households to borrow more (higher loan-to-income and loan-to-value ratios), increasing or introducing tax-deductibility of mortgage interest-rate costs, and subsidizing home purchases directly” are not the answer.
These short-term solutions make it easier for people to buy homes, but does not address the supply shortage in places like Toronto. If more people are buying, demand is stronger, and even more pressure is put on the low inventory. When demand gets stronger and supply can’t keep up, prices increase.
So, these fixes work for a while, but feeding the demand side of the market just doesn’t make sense when the supply shortage isn’t being addressed.
The answer is to boost supply, and it can be done in a number of ways. The IMF suggests speeding up the delivery of land for development, shortening the process for building permits and rezoning, making the approval process more transparent, putting a time limit on development plans to avoid construction delays, re-evaluating rent control policies and incentivizing purpose-built rental development.
According to Altus Group, no new condo projects launched in the GTA in August 2019. This is typically a slow month, but zero launches is obviously as low as it gets. No new condo units hit the market, but there were nearly 1,000 sold that month. Right there, new home inventory took a hit.
While no new condo units came to market and 1,000 were sold, prices increased 7.2% year-over-year to $840,799, which is completely out of reach for most first-time buyers in the GTA.
It’s more clear than ever that families in the GTA need more housing options in order to moderate price growth. The more units builders can get in the pipeline, the more they will have to compete for your business. Greater competition and more supply can bring balance to the housing market.