This article appeared in the Saturday, July 22, 2017 issue of the Waterloo Region Record.
In Ontario, there’s been a lot of chatter lately in the public and political sphere for the province to encourage more housing supply. But does the province have a supply problem?
The Ontario Real Estate Association, the Ontario Home Builders’ Association, and the Federation of Rental Housing Providers of Ontario believe we do. In a recent media release, the three associations said “the solution to home affordability is increasing the supply of housing in the province, and thereby consumer choice, by streamlining the building approvals process and reducing red tape, which is preventing new homes and rentals from coming to market.”
There is no doubt that for several consecutive months, housing markets within the Greater Golden Horseshoe have been among the tightest in Canada. The Canadian Real Estate Association (CREA) reported in their May report that MLS® Systems from most urban centers in the region (including KW) are still registering less than two months of inventory. For comparison, there were 4.7 months of inventory on a national basis at the end of May 2017. The months of inventory are an important measure of the balance between housing supply and demand. It represents how long it would take to liquidate current inventory at the current rate of sales activity. In other words, if no new listings are added to the MLS® System, how long would it take to run out of listings?
In the KW area, the number of months of inventory in the previous five years averaged about 3-4 months. However, for the better part of the last 12 months it’s settled at 1, which has forced buyers into greater competition which has driven up prices. On a year-to-date basis, average residential prices have increased 31.6 percent in KW and area to $486,267 to the end of May. That’s a more than one-hundred thousand dollar increase in a single year on the average price of a home in our region.
When we examine the historic number of active listings from the period covering January 2007 to January 2016 the monthly average number was 1,581. Contrast that to the average 634 active listings we’ve experienced in the past 12 months and you begin to appreciate the pressure and stresses on local buyers in the region this past year.
From 2007 to 2016 the number of New Listings on an annual basis was fairly consistent, with an average of 8,500 new residential listings being processed every year. And while the number of new listings processed in 2016 was down 8.7 percent compared to the prior year, the number of sales jumped 18 percent to 6,651 residential transactions in 2016.
So does all this point to a supply problem? Not necessarily. What we’ve seen in our market is that supply is for the most part coming on stream as it always has. But it’s not keeping up with the increased demand we are seeing. Much of this demand is coming from buyers from the GTA, where prices have pushed people further afield for affordably priced real estate. In relative terms, our market is still extremely affordable compared to the GTA, where the average not seasonally adjusted residential price was $863,910 at the end of May.
So when the provincial associations: OREA, OHBA, and FRHP, talk about a supply problem – what do they mean? Is this truly a province-wide problem, or is it at GTA problem that is spreading throughout southern Ontario?
When we Realtors talk about supply, our reference point is the MLS® System. Realtors know this is the most robust platform for ensuring a property will receive the greatest exposure and return on behalf of their clients. Most, but not all of the residential properties listed, are resale properties. In 2016, just over 5% of units sold through the MLS® System of the KWAR were new construction.
While readily available housing is certainly needed, communities also need to be mindful of not overbuilding. The Canada Mortgage and Housing Corporation (CMHC) noted in their second quarter market assessment for the GTA that “new housing supply in the pipeline remains robust, and the number of housing completions will increase in the near future”.
On the question of supply, the three municipal mayors of Waterloo Region, and the regional Chair all say there is not a supply problem in the region.
At the recent KWAR hosted annual Waterloo Region City Mayors and Regional Chair Forum, Waterloo Regional Chair Ken Seiling did not mince words when it came to the question of supply: “Quite frankly this whole push to say there’s not enough land in Ontario for development reflects a position taken by developers and some Realtors in the GTA and the Hamilton area and we’ve heard some of it here as well, when in fact the facts don’t bear that out.”
Chair Seiling pointed to the 26,000 units in Waterloo Region that are currently pending draft approved or registered units available for development. He also noted that the region’s typical uptake is about 400-500 units per year, and that does not include Greenfield lands or intensification. Seiling says the region has the potential for about 12-15 years of development and growth. On top of which, the region also has another 2200 acres slotted for residential development in the Greenfield development area that aren’t even in plans, and are part of the growth management plan.
Add to this the potential for intensification that we’re seeing in the downtown cores of Kitchener, Waterloo and Cambridge, the overwhelming sentiment shared by our region’s three municipal mayors and chair was there is lots of opportunity and land supply is not driving up pricing in the Region of Waterloo.
Mayor of Kitchener Berry Vrbanovic noted that last year was one of the busiest on record for housing starts in the City of Kitchener, with 2,338 new residential units brought on stream. That amount was an increase over the previous year, and 2015 was an increase over 2016. “In fact we haven’t seen this level of housing starts in over two decades”, Vrbanovic said.
In Cambridge, the future looks very bright indeed. Mayor Doug Craig spoke about both the Saginaw and Cambridge West developments that are on the planning agendas and will be dealt with at the Ontario Municipal Board. He noted that these two developments will open up a considerable amount of housing in the city of Cambridge. In addition, Cambridge council has now approved the Gaslight District development in Galt, which will bring four hundred residential units to the core, and is the biggest major investment to come to the city since Toyota.
Waterloo’s Mayor Jaworsky pointed to the intensification that is happening around Waterloo. While he admits that with respect to Greenfield his city has a diminishing supply of land available – for the remaining lands, there is a fairly healthy supply, well over a decade worth.
Waterloo sees about 200 new low rise developers per year. Last year the City of Waterloo approved the last large district plan in Beaver Creek Meadows on Conservation Drive, opening the way for land owners to create subdivisions for 2300 new units. The City of Waterloo also has 2500 existing vacant residential lots available for permits, and is moving forward with planning in the Erbsville area to make even more opportunities available.
While there was certainly a lot of optimism at our panel, I should mention that all four of our municipal leaders expressed real concern about affordable housing. Needless to say, this very important issue is not lost on anyone, and will be a subject for a future article.
For now, I come back to my original question. Do we have a supply problem in Waterloo Region? We often say that all real estate is local. Of course, if housing in a city the size of Toronto becomes so expensive as to drive its residents elsewhere – then their local problem can quickly become our problem. I don’t know if Toronto has a supply problem. But I do think the catalyst for the real estate activity in our area last year has been primarily due to the other side of the coin – demand.