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Short sales! The shortage of housing starts in Guelph

For many years the Guelph real estate market has been in the midst of a housing shortage, particularly when it comes to new home sales.

One of the biggest factors for a city’s housing supply is the creation of new dwelling units within its borders. If the city’s supply of these new housing units is starved, buyers have no choice but to lean more heavily into the resale side of its real estate market to fulfill their housing needs, creating more demand on the resale market and placing upward pressure on sale prices.

Although this has been apparent in the Guelph real estate market for quite some time, I wanted to take a look into some of the data behind it to see if I could support this phenomenon by comparing Guelph’s new housing starts to some of the other major city centres in Ontario.

By combing over the most recent CMHC housing start data and looking into the most recent census information for the populations of 11 different major city centres in Ontario I was able to come up with some pretty telling results!

First off, for the purposes of this article I was only interested in researching single-family detached housing starts. This will not include any other types of housing such as semi-detached, townhomes, or apartment style condo or rental units. Perhaps that will come in another article, but for now I wanted to focus on the single family detached portions of the real estate market as most statistics you will hear in the news will be referencing this type of product.

Secondly, I did not opt to go with the housing starts per capita figures. This could have been more “statistically acceptable” for some of us, but the figures were so miniscule, 0.0013 for instance, I thought the effect of showcasing the relevant data might get lost in the mind-scramble of trying to mentally put such minute figures into perspective against one-another.

Rather, I took the opposite figure and divided the annual populations of each city centre by the annual number of single-family detached housing starts to come up with a “Population per housing start” stat for each year. So, the higher the population per housing start, the lower the supply of new homes available per person. Make sense?

For example, if City A has a population of 500 people per housing start compared to City B with a population of 1,000 people per housing start, much more new home inventory would available in City A to service the housing needs of that City, assuming all other factors were equal. With City B, twice as many people would be needed under our rationale before a new house is created. (I know it’s a little backwards but, please, bear with me…)

With all of that in mind, let’s see what we came up with.

Since 2013, Guelph’s population per housing start on average has been around 650 people per year. So for every 650 people, 1 new single family detached home is built (started).

To put this into perspective, over that same five-year course Toronto’s average population per housing start has been 613, Kingston’s average has been 563 and Kitchener-Cambridge-Waterloo’s has been 532. Historically, Guelph has needed a higher population per housing start than most other major city centres, meaning there’s been a much more limited supply of new homes available on the Guelph real estate market compared to other major cities in the province for at least the last 5 years! 

In fact, the only city to beat Guelph’s reputation for having one of the lowest new home supplies was Hamilton at a whopping average of 815 people per housing start per year since 2013. Hamilton would seem to be the most under-supplied city in all of Ontario as far as new home supply goes, but I’ll get back to that in a minute.

As for the data, the 11 cities I researched, ranked highest average population per housing start to lowest since 2013, are:

        City               Avg pop / housing start

1. Hamilton                                   815

2. Guelph                                       652

3. Brantford                                  620

4. Toronto                                     613

5. Kingston                                   563

6. KW/Cambridge                       532

7. Peterborough                           487

8. St.Catherines/Niagara .        412

9. London                                     402

10. Oshawa                                   358

11. Barrie                                       315

So, if lack of new housing starts contributes to higher values on the resale market, you might be asking yourself, “Why don’t I just buy a house in Hamilton?”(Remember, the higher the population per housing start means the lower supply of new homes available per person.)

It’s a good question, although I would be quick to point out that the average sale price of a home in Hamilton has already climbed quite a bit higher than the average sale price of a home in Guelph.

Looking at the latest reports released by CMHC over the past 3 years (2014, 2015, 2016) Hamilton’s average MLS sale prices have been $400,035, $437,888 and $488,713, respectively, whereas Guelph’s average MLS sale prices during those same three years have been significantly lower at $369,546, $393,452 and $441,924.

In fact, CMHC is predicting on both their high and low end forecasts that in 2018 Guelph’s single family detached home prices will actually drop between 8.0% (2017 low end – 2018 low end) and 5.0% (2017 high end – 2018 high end) meaning prices in Guelph could become more affordable this coming year, assuming CMHC’s predictions do come true. Hamilton’s prices are expected to continue to rise for the most part, which could be viewed as a good thing, although you’d still be investing in an overall asset that would cost you roughly 10% – 15% higher in purchase price compared to the same type of product in Guelph so simple affordability could become a factor as Hamilton’s average MLS sale prices could reach just under the $600,000 mark according to CMHC’s high end forecast for 2018.

With Guelph’s more reasonable home values, strong starvation of new housing units compared to other cities in the province and CMHC’s expected affordability increases in the upcoming year, resulting in a forecasted average MLS sale price between $464,200 and $511,800 in 2018, this year could be the perfect time for you to enter into the real estate market and finally find yourself a deal worth bragging about in Guelph.

All in all, purchasing real estate will always be a risk no matter which way you look at it. Whether it’s as an investment or simply fulfilling a fundamental housing need, risks are inevitable and circumstances are always subject to change. The good news is I believe Guelph is positioned for strong growth in the next 3-5 years with its ultra-low rental vacancy rate (1.2% as of Fall 2017), highest rate of employment in all of Canada (as of May 2017) and relative lack of new housing starts (2nd lowest average in Ontario since 2013) to help keep upward pressure on prices in the Guelph real estate market for the next few years to come.

Until next time, Happy Investing!