Home builders respond to changing housing markets

In housing markets where demand outpaces supply, the answer should be simple: build more houses. But the market is affecting new home builders as well, and not just in ways that line their pockets.
 
“There’s a bit of a lull in the market because everything has been selling out so quickly,” said Heather Weeks, marketing manager at Rosehaven Homes in Toronto. “I do have a bunch of stuff coming in September and October, and we’re getting overwhelming responses to people who are registering. So right now it doesn’t look like there’s a slowdown, but it’s really hard to predict. And in reality, there’s really nothing, as a builder, that you can do because you have to sell houses. That’s our business.”
 
Land regulation and zoning restrictions have been cited as reasons why builders aren’t able to build housing quickly enough to keep up with the demand for it, especially in Vancouver and Toronto. But there are other issues that builders have to contend with, including the rising cost of land, getting products to market quickly and, increasingly, adjusting what they need to build.
 
“I guess the bigger challenge is trying to bring product in for first-time buyers,” said Weeks. “Tying to be able to provide something for that first-time buyer... to have a venue for a first-time buyer to get into a house as opposed to having to move an hour and a half outside of the city.”
 
Weeks says now even townhomes, which used to be a first-time buyer product, are getting priced out of that market, so more and more builders are introducing stacked townhouses and mid-rise products in order to give everyone, people in their 20s and 30s especially, the opportunity to get into a house.
 
Buyers have also had to adjust to the change in expectations in new and resale homes, especially when it comes to condominiums in city centres.
 
“[Buyers] think that buying new off plan is going to be cheaper than resale and that’s the total opposite now,” says Victoria Boscariol, a real estate agent with Chestnut Park. “Years ago it was the opposite where you’re taking a risk, you’re going to go and you buy off plans so [it was] going to be cheaper than what’s for sale right now. And now the tables have turned.” Boscariol also says that the difference in pricing is also reflective of the fact “builders are selling at prices that they feel the market is going to be when it’s built; it’s like buying a future.”
 
Although a majority of units are pre-sold within a particular development or building in order to move forward with the construction project, there could be a gap of a few years between the time that the papers are signed and the building is completed, during which the mortgage climate can change without warning. But since builders close on their properties and units as long as several years before occupancy and usually receive periodic deposits, they have a steady income stream for at least two to three years. Is that enough of a buffer if demand suddenly drops? Only time will tell; house and condo builders are watching the housing markets just like everyone else, wondering how long prices will continue to rise.
 
“It’s worrisome because we just can’t figure out where we’re at,” said Weeks.
 

More Mortgage Guide