Residential land values - Greater Toronto Area

[Mario P.]

On December 8, the most recent residential land value report for the Greater Toronto Area and southwestern Ontario was released by MCAP (For more info visit http://www.mcap.com/development-finance/lot-value-...). Here are some key takeaways from the report.

To no one's surprise, the value for every low-rise lot size/type in every market that is tracked either increased or remained the same from the values presented in the Spring 2016 report. This is attributed mainly to the low level of inventory at just under 2,300 units or 1.5 months' supply. To put this in perspective, low-rise lot inventory has been on a steady decline since December, 2005 at which time there were 16,500 units available, representing 13.5 months' supply. The declining supply is due in large part to the Ontario Greenbelt legislation, which has artificially restricted the land supply in the GTA. Additionally, in recent years there has been (and will continue to be) a significant number of people migrating into the GTA. This has increased the demand for housing considerably and builders/developers cannot keep up with the demand. For instance, the ratio of new unit sales to new unit supply was 120%. This ratio has increased year after year since MCAP began tracking this ratio in 2009. 

Like the low-rise land values, the value for high-rise land in every market that is tracked either increased or remained the same from the values presented in the Spring 2016 report. Due to the decreasing level of low-rise inventory, it is reasonable to assume that some of the pent-up demand has shifted to the high-rise market in the form of new unit sales, resales, as well as increased demand in the rental segment. In addition, the new mortgage rules have made it more difficult to obtain a conventional mortgage, which may have also contributed to the increased demand for the relatively lower-priced high-rise units. The increased demand for high-rise units in the GTA resulted in a 10% price appreciation year over year (on a $/unit basis) and a decrease in the supply of new unit inventory to 6.5 months. 

Considering the high level of demand for new housing in the GTA is not being met by the new supply provided by builders, it is reasonable to expect low-rise lot and high-rise land values to continue to increase in the near future. It will be interesting to see the effect of the new mortgage rules and how they effect purchasers, particularly if it has a larger impact in directing demand from the higher-priced low-rise market to the lower-priced high-rise market, which may further deplete inventory and increasing prices as a result.