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Condos shrink to control prices

George Carras
The Toronto Star
August 25, 2012

New condominium prices in the GTA have declined by 6.4 per cent from last year, according to RealNet’s Highrise Index Price.

What’s the primary reason for this price decline? Is it the tightening in mortgage rules? An oversupply of new housing? Perhaps, you might think, it’s because development costs have decreased.

Well, no, no and no.

The actual reason for the decline in the price of a new condominium can be captured in a word that will be familiar to Seinfeld fans: shrinkage.

New condominium prices are lower because the units being offered for sale are smaller.

How much smaller? In 2009 the index size of a new condominium was about 920 square feet. At the midpoint of 2012 the index size was about 795 square feet. That’s a decline of approximately 125 square feet, the equivalent of removing a 10-by-12-foot room from that 2009 condo.

This shrinkage has been consistent across all condominium unit types and in both the 416 and 905 regions.

There is a significant shift taking place. Back in 2000, apartment condominiums represented only 23 per cent of the overall new-home market; detached homes outsold condominium apartments by a ratio of two-to-one.

In 2005, intensification policies contained in the province’s regional growth plan took effect, triggering an increase in highrise condo development to meet the demands of a region that continued to grow.

Fast forward to 2012. Today, 51 per cent of total new-home sales are apartment condominiums, and condos have been outselling detached homes by a ratio of two-to-one. This is based on the supplies of the two housing types. After all, builders can only sell what they’re permitted to develop.

To maintain affordability, condominium apartments have grown smaller in recent years. There has been a shift away from two-bedroom and two-bedroom-plus-den suites and toward one-bedroom and one-bedroom-plus-den units.

Although the 905 region typically offers consumers lower new-condo prices, condos in these areas do not, on average, offer them that much more space.

The Index size of a new one-bedroom-plus-den condominium in the 416 as of June 30 was 668 square feet, compared to 703 square feet in the 905. That’s only 35 square feet of additional space in the 905. The Index size of a new one-bedroom condominium in the 416 was 560 square feet, compared to 594 square feet in the 905. That’s just 34 square feet more in the 905.

For the most part, the impact of this condo shrinkage will not become apparent for a few years. Most of the data here reflects condominium projects being sold in the pre-construction stage. On average, these units take between three to five years to deliver, that is, to go from the start of presales to the delivery of move-in-ready units to the market.

The population growth of the GTA will increasingly be accommodated by condominium apartments, many of them one-bedroom or one-bedroom-plus-den units that average between 560 and 703 square feet.

The shrinkage of home sizes will no doubt have an impact on how Torontonians live in the future. But it’s important to keep in mind that there are plenty of cities around the world where smaller, more efficient housing is the norm.

The shift means that building and neighbourhood amenities, as well as community infrastructure and services, will play increasingly important roles in the housing equation.

If you’re looking at buying a new condo, it’s vital to know what you’ll be getting. Consult your realtor and the builder. Make sure you understand the floor plans and how the unit layout will accommodate your lifestyle.

Also consider what the building will offer and what services will be located in the area by the time the unit is delivered.


Posted on Wednesday, August 29, 2012 at 11:56AM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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