According to figures from Statistics Canada, in the six months to July 2010, building permits were issued for the construction of an impressive 33,333 apartments across the country.
Fast forward two years, however, and that number has grown by more than one-third to 46,747 over the same period this year, demonstrating that condominiums and apartments are increasing in popularity, and more and more are going up.
While prices for these units are not exactly surging, builders are getting slightly more for what they produce. On average, newly built apartments sold for 2.8 per cent more in the second quarter this year than what they did one year ago and have risen by a healthy 5.8 per cent over the past two years.
While this has been a boon for builders, questions abound as to whether it can last.
Peter Norman, chief economist of the Altus Group and general manager of Altus Group Economic Consulting says the boom is about to pop.
At the 27th annual CanData conference in Toronto last week, Norman noted that in the 30 years leading up to 2001, housing starts roughly matched the number of households that were ‘formed’, meaning that new houses were built at around the same pace as they were needed.
Since then, however, the pace at which new houses are being built has picked up but that at which new homes are needed has not.
In the periods spanning 2001-2006 and 2006-2011, annual housing start numbers reached 216,000 and 193,000 respectively, Norman says. By contrast, the number of new households formed each year during those periods amounted to only 178,000 and 171,000.
The bottom line, then, is that more homes are being built than are needed – a situation which can only lead to a glut of stock, especially in the super-hot condominium market.
Norman is not the first or the only one predicting an end to the boom. As far back as August 2010, David McDonald, author of the report Canada’s Housing Bubble – An Accident Waiting to Happen published by the Centre for Policy Alternatives, talked of a synchronised housing bubble across the six largest residential markets in the nation.
Those warnings are getting louder. In its Summer 2012 Outlook for the Industry released last week, The Conference Board of Canada, which talks of the ‘significant’ number of units which remain unoccupied, predicted a ‘lacklustre year’ ahead for the broader housing market in 2013, especially in the apartment and other multi-residential sectors.
In addition to market oversupply, many observers feel the market will be affected by a tightening of mortgage rules announced by Finance Minister Jim Flaherty in July. As part of the new measures put in place by the federal government, the maximum amortization period for a mortgage was reduced from 30 years to 25 years.
Not everyone is negative, however. With regard to the apartment sector in particular, property management services firm L&L Real Estate Investments is reasonably optimistic, pointing to migration levels, changing demographics – children of the ‘baby boomer’ generation are now entering the 20 to 35 year old age bracket which suits apartment living – and constraints on new residential building as factors which the firm says will keep demand for apartment living and new apartments strong.
For the most part, however, commentators are conveying increasingly negative sentiments.
Building and construction firms throughout Canada would be well served to enjoy the fruits of the apartment building boom while it lasts, because it may not last long.