Serviced land in short supply

More reports and media stories are reminding Winnipeggers that serviced lot shortages exist, especially in the present environment of high housing demand. This has resulted in more pressure being exerted on existing house inventory. 

Multiple Listing Service® statistics for a number of Winnipeg neighbourhoods bear this out. Many MLS® listings are receiving multiple offers. And, in some instances, there are more than a few on the table. One home in River Heights this month attracted 25 offers and sold for $34,600 above list price.

The lot shortage in Winnipeg has been documented as most severe in the southwest and southeast quadrants of the city. But, it is also an issue in other areas, as shown by comparing the number of house sales in April to the new listings that were brought on stream during the same time frame. Many areas have sales exceeding the number of new listings, so whatever inventory is carrying over from the previous month it is being scooped up.

Canadian Real Estate Association statistics indicate Winnipeg buyers took less time to make purchasing decisions in the first quarter of 2005 even though the market became more balanced due to a rise in active listings. The median number (middle value in a distribution of numbers) of days on market for home sales was only nine which is seven days less than the fourth quarter of 2004.

To no one’s surprise, prices are on the rise. Statistics Canada cited Winnipeg as having the second highest increase in new home prices in the country. The increase was nine per cent and is based on comparing March 2005 to March 2004. Land prices were even higher for this same time period — up 10.4 per cent. 

The CREA stats report shows the median price for MLS® homes in Winnipeg during the first quarter of 2005 rose by 8.1 per cent. This is in comparison to the last quarter of 2004 and the first quarter of last year.

It is clear that the city needs to bring on more serviced lots, and, for all the talk of new developments like Waverley West or the proposed subdivision in southeast St. Boniface, nothing of any significance will be available until at least the fall of 2006.

We are not alone. Clayton Research, a Toronto real estate consulting company, completed a new report that suggests Canada is running short of land despite having the second largest land mass in the world.

The report said serviceable land — land that is connected to sewers, water and roads — is the most critical problem facing builders trying to keep up with the insatiable demand for new homes. 

“It’s a problem right across the country,” said Mary Lawson, past-president of the Canadian Home Builders’Association. 

“It may not have an impact (on new construction) this year but it will at some point.”

In 2004, new home construction or housing starts hit a 17-year high as low interest rates continued to spur the market. Record prices in the existing home market also continued to drive people to look at new homes as a cheaper alternative to the existing housing stock. 

“A strong resale market is absolutely necessary for a strong construction market,” said Gregory Klump, chief economist with the Canadian Real Estate Association.

The early indication in the resale market is that prices are going to remain high. CREA reports the average price of a home sold in the country reached $259,736 in March, the highest monthly figure on record and an 8.6 per cent jump from a year earlier. 

The cities of Vancouver, Calgary, Edmonton, Ottawa and Montreal all set new price records.

These statistics have most builders scrambling to build new homes for consumers turned off by prices in the existing home market. It’s a question of the supply of new housing keeping up with demand.

Lawson runs a small construction company in Orangeville, Ontario, and she said her community has reached its limit of serviceable land. She said as the amount of serviceable land shrinks, new homes prices will rise.

Already, there have been indications during the past 10 months that land prices are rising faster than the actual homes that sit atop the land. Statistics Canada said its new housing price index was up 5.1 per cent in February from a year earlier. 

The agency breaks down the index and looks at how much of the increase is due to the physical costs of constructing the home and how much is due to the cost of the land. Price appreciation is slowing on the home cost side while accelerating in terms of land costs.

The supply of land is shrinking for a couple of reasons. In Ontario, the government has passed legislation that creates a 1.8 million-acre greenbelt aimed at stopping sprawl around Toronto. Other cities and provinces are simply refusing to finance the costs of servicing new land, namely putting in sewers and roads. They want builders to pay.

“They want to create more density in cities but not everybody wants to live in a city,” said Lawson, adding some people are willing to commute. “Canadians are not getting rid of their cars any time soon.”

The report from Clayton Research, which was written by company president Frank Clayton, said that it’s not surprising the land shortages are seen as the number one housing problem by developers. 

“Land is the one crucial input into new housing which does not respond directly to the market signals,” Clayton said. “Bringing more serviced land onto the market is primarily the responsibility of municipalities, at times with the aid of the province.”

Clayton said the supply of serviced land will continue to lag behind demand in rising markets unless the government in charge tries to anticipate future housing needs. 

He said the Ontario government has not done that.

By contrast, Clayton noted Winnipeg has added large-scale development areas in the southwest section to accommodate 13,000 housing units. By doing so, the city will be able to compete with rural communities outside its boundaries. 

Clayton said the worst land shortage will occur in and around Toronto because of the freeze on development.

Clayton does single Winnipeg out as one city that is trying to do something to address its lot shortage. However, we are going to have to be patient and live with the current conditions, which are being described by veteran REALTORS as “the craziest times yet” that they have experienced throughout all their years in real estate.