Unquestionably, the Greater Toronto Area (GTA) is experiencing a housing crisis, but you might be surprised by the startling amount of recently constructed homes that are failing. This is more than just a headline if you're a buyer, seller, or investor in the Greater Toronto Area (GTA); it might have an immediate bearing on your next move in the real estate market. Let's explore why it matters to you and why so many housing initiatives are failing.
The ideal tempest is Reaching out to developers
Envision an exciting new condominium development in Kitchener, Ontario. Plans called for four dazzling buildings, ready to supply the market with over 500 desperately needed homes. Even so, only one tower started construction—and it's still unfinished—despite receiving city clearance in 2020. This is not a unique story. Last year alone, more than 200 housing developments declared bankruptcy, a startling 50% rise over the previous ten-year average.
But why, at a time when housing is more needed than ever, are these initiatives failing? A perfect storm of rising interest rates, labour shortages, and cost explosion is the main cause of the issue. Developers are facing increasing pressure from all directions, unable to pay the skyrocketing costs that are now standard in the post-pandemic environment.
How Projects Are Being Closed Due to Increasing Costs
The price of construction supplies like structural steel and concrete has increased by more than 50% nationwide in the last few years. Moreover, there is a significant labour shortage, as seen by the over 10% increase in construction workers' wages—double the pace of other industries. It makes sense that a lot of developers are in financial trouble even before the first tenant gets in.
Developers are not only dealing with soaring prices but also noticeably higher fees and taxes. For instance, in just five years, the development costs for a two-bedroom apartment have increased by 51%, adding millions to the project's total cost before the building even starts. Remember interest rates as well. Developers who obtained sizable loans to fund these projects are currently facing extremely high-interest payments that don't appear to be going down.
Why This Matters to You
There are two things that these failing developments mean for prospective homeowners. First, there's a chance that your ideal condo won't ever be finished, which would put your deposit at risk. Second, even if the project is successful, the unsold units are frequently priced between 30 and 40 percent more than what they originally sold for, which makes them much less affordable than anticipated .
There are equal dangers for investors. In the first half of this year alone, sales of newly built condos in the Greater Toronto Area fell by 57%, indicating a severe decline in demand. This makes it more challenging to turn a profit on these apartments, particularly when you're up against resale condos that provide better value.
What's Coming Up in the GTA Real Estate Market?
Remember that it's not so easy to solve the housing shortage the next time someone suggests that additional houses should be built. Because they are unable to sell their projects for enough money to meet their skyrocketing expenses, developers are abandoning them. Not only does this slow down the rate at which new construction is completed, but it may also tighten the supply of already constructed homes as demand continues to exceed supply.
It's critical for everyone interacting with the GTA real estate market—buyers, sellers, or investors—to be knowledgeable and ready for these swings in the market. It may be necessary to comprehend these processes to make more informed judgments in the coming months and years, as the housing crisis is far from over.