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Outlook 2020 – Deena Pantalone, Managing Partner and Director of Marketing & Innovation, National Homes

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Outlook 2020 – Deena Pantalone, Managing Partner and Director of Marketing & Innovation, National Homes

Part of our series of Outlook 2020 Q&As with building industry executives

How do you see the outlook for the new home industry in 2020?

We’re going to see strong demand fueled by record population growth. The period from August 2018 to July 2019 was the largest 12-month population increase in Canada’s history. And the industry is not building enough housing, especially rental housing. At the end of November 2019, ReMax predicted a six-per-cent increase in the average cost of a Toronto resale home in 2020 – fueled by demand that just isn’t being met.

Deena Pantalone
Deena Pantalone, Managing Partner and Director of Marketing & Innovation, National Homes

Ben Myers of Bullpen Research says Toronto needs 22,000 new rental apartments a year to create a healthy vacancy rate of three per cent. If you include all the new purpose-built rental units coming on, say 4,000, plus if you assume that three-quarters of all new condos will be rented, then we’re still falling 9,000 units short. That’s not good for renters, homeowners or the health of our economy.

One thing I definitely see is that people are open to new ideas, new technology and design that will make their lives easier and give them time for the important things in their lives. And that means property technology (Proptech) will become more and more central to their lives, and to the building industry in general.

And what’s the outlook for National Homes?

For decades now, National has focused on putting the needs of our customers first, and that’s what our You are the Blueprint philosophy is all about.

This year, we’re introducing a wide range of “Bright Ideas” that were developed at National’s inaugural Blueprint Workshop. Globally recognized leaders in the fields of technology, product development and design, participated in group interactions and the co-creation process. Also taking part were dozens of past and prospective National buyers of varied ages and demographics; National staff architects, designers and engineers; and students from York University’s Schulich School of Business real estate master’s program. The results are now being unveiled in our newest communities.

What is National Homes doing to address the issues facing the homebuilding industry – namely, affordability and new home supply?

Our Bright Ideas are intended to make people’s lives simpler, from innovative Proptech to design solutions. We are introducing four different townhome projects, from Courtice in the east to Burlington in the west. We are also introducing new construction thinking, such as our Panergy Wall Systems that bring factory efficiency and quality with significant energy cost savings, year after year.

We’re also making it easier for young families to own with plans for flexible down payment programs.

What more could the industry do to address these issues?

It’s all about innovation! The building industry hasn’t changed much in 100 years. New thinking, new products, new technology… the only way we’re going to adapt to the needs of a new millennium are by doing things differently and better.

Our industry needs new ways of building that save time, and therefore money, new products that save real dollars in energy costs, new construction methods that reduce waste and improve quality.

What should prospective new-home buyers know about National Homes for 2020?

In Bradford, we have 40 detached ravine lot homes from the mid $800’s at The Forest. In east Brampton’s Three Rivers Claireville, we have Phase 2 of our townhomes, right next to the 850- acre Claireville Conservation Area. In Burlington, we’re launching townhomes at Tyandaga Heights on Brant Street, by the Tyandaga Golf Course. And in Courtice, we’re introducing The Vale by National, backing onto woods and a stream.

Why should homebuyers consider buying from your company in 2020?

We design with the needs of our customers in mind. That’s more than a motto, it’s central to the way we work. Our Blueprint Workshops are the spark that drives our design. We learn what people want; what they wish builders could offer; then we create the communities, the homes and the features that satisfy those dreams. And we’re building communities from east to west, so if you’re looking for a National home, we’re where you want to live.

Special Report: Outlook 2020

Outlook 2020 – Jim Andrews, Director of Sales & Marketing, Fieldgate Homes

Outlook 2020 – Shakir Rehmatullah, President, Flato Development Inc.

Outlook 2020 – Mike Parker, Vice-President Sales & Marketing, Georgian International Build Corp.

Outlook 2020 – Brad Carr, CEO, Mattamy Homes Canada

Outlook 2020 – Art Rubino, Contracts Manager & Marketing Manager, Regal Crest Homes

 

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THE RESEARCHER: Are developers properly managing risk?

THE RESEARCHER: Are developers properly managing risk?

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THE RESEARCHER: Are developers properly managing risk?

by Ben Myers
Bullpen Research & Consulting

With land prices skyrocketing across the GTA and zoning approval timelines growing, the upfront financial investment required by developers has increased substantially in recent years.

Many builders and developers are now taking on equity partners to reduce their exposure to any one project, share their entitlement, development and execution risk, while allowing them to free up the capital to pursue other opportunities. The institutionalization of residential real estate is growing rapidly, and even the typically old-school self-funded family homebuilders are considering alternative financing options. It would not be a surprise to see a couple of GTA developers go public in the next decade, as a way to access public funding for their massive new projects. Another way developers are managing risk is understanding the marketplace. After 15 years of advising developers and landowners about freehold and condominium market conditions in Ontario, I launched my own firm, Bullpen Research & Consulting, in January of this year to help my clients figure out those risks.

Buyer and investor sentiment shifts quickly with each successive federal, municipal or geopolitical change, and smart developers realize they need someone in their corner that’s staying up on the impacts of the latest mortgage rule changes, the reactions to increased rent control legislation, attitudes regarding rising interest rates and other industry participants’ opinions on changes to the OMB, land prices, midrise development and sales strategy.

How does a developer maximize revenues while reducing market risk in the condominium apartment market? Some developers prefer to sell all of their units in a building during the first six months, reducing future absorption risk. Others prefer to sell 60 to 70 per cent of their suites upfront and slowly release the remainder of the unsold inventory during the pre-sale and under-construction period. This second strategy is deployed to ensure they can take advantage of future price inflation and have a revenue source to cover potential cost overruns.

Five years ago, developers in Ottawa got burned by holding back inventory as the market tanked and values corrected. In Toronto, the opposite occurred; developers that sold out didn’t reap the benefits of the sharp increase in values and were ultimately hurt by the 10 to 15 per cent increase in construction costs in early 2018. The phrase “you have to sell and build in the same period” has been uttered quite frequently lately.

The market for singles, semis and row homes had experienced steady price growth for 20 years in the GTA. In 2017, average asking prices soared by 45 per cent annually, with buyers camping out in advance of new releases, and 300-unit new subdivisions selling out as quickly as the brokers could sign the deals. However, after the Fair Housing Plan announcement, sales have plummeted, values have dropped nearly 15 per cent and developers are facing never-before encountered issues. Should they lower prices and face blowback from existing purchasers? Do they offer smaller homes with a lower quality interior finish, or do they shut their sales offices and try again next year? Developers that spend years, and in some instances decades, waiting for approval to sell their homes, don’t want to give them away in what might be a temporary slowdown. There were a few highrise developers that regretted slashing prices in early 2009 during the global economic slowdown, only to see the market come flooding back in the second half of that year.

Low-density land transactions in the first seven months of 2018 were half of what they were during the same period in 2017, and developers are struggling with valuations, given they’ve always built in future end-unit price growth. Most small builders don’t have the in-house expertise to truly evaluate current values and understand future growth potential in such an uncertain market. Without that knowledge, they’re choosing not to buy. Perhaps if developers could acquire better knowledge of the market, had a third-party opinion on market valuations, and could provide those figures to the land vendor, they’d be able to take advantage of land buying opportunities.

In my own practice, I’ve done a number of studies because developers want to know how to program the suite mix and unit sizes in their building and get a sense of values for their project, with condominium and rental tenure. They’re looking to reduce their risk by having a well-researched back-up plan. Is your development firm doing enough to mitigate risk? Are you having these conversations with your senior staff and sales and marketing team?

Buyer sentiment, government intervention and rapid changes in revenue and costs assumption are all contributing to volatility in prices and profit. Volatility equals risk, so make sure you’ve done your research to manage that risk.

Ben Myers is President of Bullpen Research & Consulting.

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The Consultant: Time to get building in Brantford, Kitchener and Collingwood.

The Consultant: Time to get building in Brantford, Kitchener and Collingwood.

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The Consultant: Time to get building in Brantford, Kitchener and Collingwood.

by Ben Myers

The next hot areas

Demand for new housing in the GTA has never been higher. According to Altus Group data, the benchmark price for available new single-family homes was $1,225,774 in December, a 23.2 per cent annual increase. The benchmark price for available new condominium apartments was $716,772 at the end of 2017, 41.3 per cent above the average value from December 2016. And for the second consecutive year, new condo sales set a record high. So the industry must be building more homes than ever, right?

Actually, no. Housing starts in the Toronto Census Metropolitan Area (TCMA) reached 38,700 in 2017 according to CMHC, only slightly above the 10-year average of 36,800, but down 1 per cent from last year. There is a massive backlog of projects that have experienced strong absorption, but have yet to break ground due to a shortage of construction companies. The average single-detached home took 11 months to complete in 2017, the highest total ever tracked by CMHC, and it took 13.5 months to complete a semi and 14 months to complete a townhouse, both record highs. It took over two and a half years to finish construction on the average apartment (condo and rental) in the Toronto CMA last year, the second highest annual result to date.

Some buyers tired of waiting for new home deliveries are looking outside the region. According to Bullpen’s Residential Real Estate Round Up Report, the most popular destinations in December for prospective new homebuyers outside the GTA were Hamilton and Guelph. New homes are delivered much quicker in both of those markets. In fact, CMHC reports that it took just six months on average to build a single-detached home in Guelph last year. However, the prices are not as inexpensive as they used to be. Our report shows that the average new project in Hamilton has new single-family units starting from about $1,600 a square foot for about $570,000, while Guelph projects have lowrise product starting from $1,700/sf for $625,000.

GTA buyers are taking notice of these more affordable markets. Ryan Waller of Home Group Realty Group in Guelph estimates that a quarter of all resale transactions in Guelph were to GTA buyers based on the fact that 25.5 per cent of buyers were represented by GTA real estate agents in 2017.

With the new mortgage stress test in place, and GTA new home price growth through the roof, the next hot area for new homes will probably be outside the region. Based on our numbers, look for strength in the Brantford, Kitchener and Collingwood new home markets in 2018.

Ben Myers is President of Bullpen Research & Consulting.

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