Building new homes out of reach?

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Homebuyers favor resale market for ‘value and stability’: forecast

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New construction is increasingly out of reach due to rising construction costs and the resale market is expected to heat up accordingly, according to a new forecast.

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“Typically, homebuyers who are attracted to new construction aim to enter the market and create wealth by taking advantage of new developments, which are often more affordable than established neighborhoods,” says Anthony Hitt, President and CEO of Engel & Völkers Americas.

“However, residential construction costs have risen sharply due to supply chain issues, inflated material costs and rising labor costs.”

According to the Canada Mortgage and Housing Corporation, even in the best-case scenario, housing starts will remain well below the affordable housing supply targets it has set for Ontario, British Columbia and Quebec by 2030.

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Labor capacity issues will be most severe in Ontario, where population and price pressures are greatest, CMHC adds.

INCREASED CONSTRUCTION COSTS

Additionally, construction costs for residential buildings rose 5.6% in the first quarter of 2022. “As such, some home buyers are keen on the resale market, especially as price growth slows. in the Greater Toronto Area (GTA).

Some resale units have a lower cost per square foot than new construction properties, which is atypical,” says Hitt.

“These factors inform our forecast, in which Engel & Völkers expects the resale market to attract a new cohort of buyers who will favor it over new construction for its value and stability.”

The Building Industry and Land Development Association (BILD), the voice of the home construction, residential and non-residential land development and professional renovation industries in the GTA, concedes challenges.

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“Over the past few years, there have been significant cost pressures on new home construction, which has driven up the cost per square foot,” said Dave Wilkes, President and CEO of BILD. “In 2021 alone, there was over 20% cost inflation due to rising material and labor costs.”

With development charge hikes on the horizon, there is no respite in sight. “This year, as part of a regular four-year cycle, municipalities in Ontario and the GTA are increasing the fees and charges they levy on new homes, further increasing cost pressures” , Wilkes said.

“All of these elements are ultimately reflected in the cost of new homes. Government fees, taxes and charges represent approximately 25% of the cost of an average new home in the GTA.

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According to the Housing Affordability Task Force created by the provincial government to identify and implement measures to address the housing supply crisis and get homes built faster, home prices in Ontario have nearly tripled over the past 10 years, growing much faster than income.

Good direction

But steps have already been taken in the “right direction,” says Tim Hudak, CEO of the Ontario Real Estate Association and a member of that task force. Changes to the Ontario Building Code, for example, now allow mass timber construction up to 12 stories.

“Wood construction is environmentally friendly and much more affordable, which will help control construction prices,” he says.

Yet there is still much to be done, including getting more people into the trades. “That includes focusing our immigration system more on prioritizing skilled tradespeople to help build the homes we need,” says Hudak.

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It also calls for an end to exclusionary zoning in high-demand urban neighborhoods like Mississauga to allow construction of duplexes, triplexes and quadruplexes on lots traditionally zoned for single-family homes.

“Currently, a family that owns a wartime bungalow can tear it down and build a four-story monster house for a family,” says Hudak. “It’s their right and we support that choice, but if that same family decided to demolish this outdated bungalow and replace it with a duplex, triplex or townhouses, they would be subject to a regulatory bell and face costs that could make the project unviable Who pays the price The three or four families or millennials who hope to get on the real estate ladder.

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Certain measures can also be taken if the resale market heats up because buyers are deterred by the cost of new construction. “A land transfer tax waiver for first-time home buyers would be beneficial,” Hudak says.

“Land transfer tax is a major hurdle for people selling their homes because they are hit with tens of thousands of dollars in new taxes just to cross the street to have more space for their families.

Fight against “unfair practices”

In the 2022 budget, the federal government promised to take “significant steps” to build more homes and make housing more affordable across the country, including curbing “unfair practices” that drive up housing prices.

Caroline Thériault, deputy spokesperson for the Department of Finance Canada, lists these steps:
• A two-year ban on foreign investment, effective January 1, 2023.
• Work with provinces and territories to develop and implement a homebuyers’ bill of rights and introduce a national plan to end blind auctions. The bill could ensure a legal right to a home inspection and transparency about selling price history during title searches.
• New rules to ensure profits from returned properties are taxed fully and fairly will apply to residential properties sold on or after January 1, 2023.
• All disposal sales of newly constructed or substantially renovated residential dwellings are taxable for GST/HST purposes as of May 7 to deal with speculative transactions.

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