Sunday, April 22, 2012

MARKET TRENDS: Builders' Costs Rise While Homes and Condos Shrink

Most Canadian builders are targeting the move-up custom home market this year, but houses and condos are getting smaller.

Builders say the average size of a new single-detached house built in Canada this year will be about 1,900 square feet, and they think house sizes will shrink even further. That's down from the 2,000 square feet predicted in last year's annual Pulse survey of members by the Canadian Home Builders' Association.

British Columbia has the largest average house size at 2,200 square feet, while homes in Quebec, Saskatchewan and Manitoba average 1,500 square feet.

In the Greater Toronto Area, where there are more condominiums under construction than anywhere else in North America, the average new condo last year was 820 square feet, a reduction of 52 square feet from 2010, and 100 square feet smaller than six years ago. That represents an entire 10X10-foot room.

This year, builders across the country expect the average condo size to stay at around 800 square feet.

However, smaller houses don't mean lower prices. Two-thirds of builders predict that new home prices will rise this year.

The cost of serviced lots is the main concern of builders, with about one-third of those surveyed
identifying it as "critical". About half of those in Manitoba and Saskatchewan say the situation is critical.
Other concerns expressed by builders are not new. Rising development charges continue to be a major concern. CHBA president Ron Olson, in his inaugural address to builders recently, said that "instead of financing through property taxes and broad-based user fees, municipalities increasingly are transferring budget shortfalls into the mortgages of new-home buyers through development-related levies, fees and charges." He said this costs buyers more than $5 billion a year.
"In the Greek case we call it a sovereign debt crisis. Here in Canada, it's called an infrastructure deficit. But it's really the same thing. We haven't been paying for what things cost," Olson said.
Governments want many things from the residential construction sector, ranging from increased energy efficiency to more affordable housing for low-income earners, says Olsen. "No attention is given to the cumulative costs involved for home purchasers and there is no capacity in place to set priorities," he says.

As a result, new home prices keep rising and builders are finding more profit in catering to the move-up custom home market than to first-time buyers. In Quebec, however, first-time buyers remain the top target market and builders in Ontario and Atlantic Canada believe that will become a more important market segment during this year.

The CHBA is generally pleased with the recent federal government budget, which includes plans for immigration reform and training for skilled jobs. "We have urged the government to address the growing shortage of skilled people required to build and renovate homes. We're pleased that the budget tackles this issue."

The government was also lauded for its emphasis on investments for innovation and commercial application. The recently announced next generation of R-2000 Standards, Energy Star for Homes and the new EnerGuide Rating System are all examples of collaboration between the industry and the federal government to bring the benefits of research to homeowners, Olsen says, adding that Canada is "a world leader in energy efficiency."

But he says, "There is much more to be accomplished, particularly in relation to improving the environmental performance of existing homes."

The Pulse survey says regulatory issues, such as "onerous" municipal approvals and standards, are a growing concern. Twenty per cent of Alberta builders are concerned that sprinklers may be made mandatory, which fire chiefs have been promoting for years.

On the renovation front, builders in the Pulse survey reported the average renovation costs $63,000 and takes about eight weeks to complete. Project sizes are larger in Western Canada. The most popular renovation projects last year were kitchens. Improvements to energy efficiency were second most popular. This type of project was given a push by government programs that provided rebates for some improvements. Bathroom renovations ranked third most popular, followed by complete interior/exterior renovations, room additions and basement/rec room renovations.

Renovators say they are busier now than they were a year ago, and expect business to increase even more. Some other findings from the Pulse survey:

  • Inventories of single-detached homes are higher in most regions than last year.
  • Customer traffic is down at new home sales sites.
  • The underground "cash" economy is a critical problem for renovators.
  • There's a shortage of tradespeople for the renovation industry.
  • An emerging critical problem for renovators is increasing builder liability and higher insurance costs.


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