Toronto area lot sizes continue to shrink

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There are many attractions of suburban houses, but one of the key selling points is that it will be sitting on a big chunk of land. Yet that metric is under stress in Canada’s most populous region, and new buyers are finding that the average lot size is shrinking.

The results show up in data and in anecdotes, and while the average decrease in lot size doesn’t seem very significant, the swings in the residential land market are more extreme at the edges.

“I can tell you that our reports historically included value estimates for 50-foot lots until 2017, at which time we decided to discontinue our tracking of these lots given that they were offered very seldomly,” said Mario Policicchio, an adviser in the development finance group of mortgage company MCAP Group of Companies.

Mr. Policicchio has compiled MCAP’s semi-annual lot valuation reports since 2014 (there will be no official report in 2020, another disruption to regular business because of COVID-19). “Additionally, the ‘townhouse’ product type in our report was historically assumed to have a 20-foot frontage – this has also now changed as the typical townhouse lot now has a frontage of 15 to 18 feet.”

For single-family detached homes, the average lot size offered by Greater Toronto Area builders in MCAP’s weighted average floated in the 40- to 41-foot range over the past five years. But in 2020, that number dipped sharply – to 37 feet on average – and the weighted average of all ground housing frontages (which includes townhouses and detached homes) dropped from 29 feet in 2019 to 25 in 2020.

According to Matthew Boukall, vice-president of product management and data solutions for real estate analysts Altus Group Ltd., the frontage number can be misleading, because for decades it assumed the average lot depth might be 100 feet at least. But in recent years some builders, led by Canadian megabuilder Mattamy Homes, have innovated on lot shape by shrinking that depth to 70- or 80-feet, while keeping a more standard frontage. These stubby lots can pack in more housing on a given land parcel, while maintaining the curb appeal of more spacious developments.

Altus data shows that while the average GTA lot frontage might not have shifted much since 2000, when you look at new subdivisions for sale, there’s been a rush toward the mid-sized lots as smaller and larger lots dwindled.

In the year 2000, lots between 31 and 35 feet made up 17 per cent of units sold. Starting in 2006, that shrank to single digits, and now hovers around 4 per cent to 6 per cent.

At the same time 36- to 40-foot lots comprised 34 per cent of units sold in 2000, but by 2006 took on a larger share (above 40 per cent.) By 2017, they accounted for more than 51 per cent of lots sold. Those lots between 41 and 45 feet were typically close to 20 per cent of the market, but in recent years have fallen to 16 per cent.

And bigger, 46- to 50-foot lots started at 11 per cent in 2000, grew to account for more than 15 per cent by the mid-2000s, then plunged by 2017 to between 6 per cent and 9 per cent of the market. The share of the smallest category of detached lots Altus tracks – those between 26 and 30-feet – has basically flipped with that of the 46- to 50-foot lots; 6 per cent in 2000 became 15 per cent of the market in 2020.

“The hottest selling low-rise project [this year] was in Richmond Hill with 20-foot wide townhouses,” Mr. Boukall said. “There was one in Halton Hills with 30- to 36-foot lots, [but] the strongest sellers were narrower ones. These days, 46 [feet] is as big as they get; 44 [feet] can be a luxury estate type house.”

Mr. Boukall questions whether this demand for new suburban homes is driven by a pandemic-related exodus from cities, particularly because it’s difficult to imagine people who love to walk to work turning into car-loving suburbanites. “I think it’s people who were in the market before hand," he said. “I don’t know if it’s a flight to the 'burbs or an opportunistic buy for people who are considering making the move.”

The catalyst for shrinking lots is multifaceted, those in the industry say. Ontario’s 2006 growth plan deliberately set out to slow the sprawling development of greenfield sites in the GTA. “Over the last decade-and-a-half there has been a policy thrust to constrain land supply to force density,” said Cheryl Shindruk, executive vice-president of land development at Geranium Corp., as well as chair of the Building Industry and Land Development Association.

She compares the situation to Vancouver, where the Pacific Ocean and Rocky Mountains create physical barriers to sprawl; in the Toronto area, “policy mountains” do the same thing. “When you constrain the supply of something, prices go up; that’s definitely been a dynamic that’s playing out. You can’t sell what you don’t have.”

Geranium still sells the odd ultraluxury 60-foot or even 70-foot lot in places such as redeveloped golf courses.

The changes extend beyond the growth plan’s boundaries into the Greater Golden Horseshoe areas, as well.

“We do have smaller lots than you might have seen 20 years ago,” said David Brix, president of the Guelph-based green-home builder Terra View Homes. In a recent 120-home development, the majority of Terra View’s lots were in the 30- to 40-foot range, sometimes with adjustments. According to Mr. Brix, “36.7 [feet] works well in that it accommodates our 40 foot [home] product – we just end up reducing our small side-yard to two feet [and] lose windows on the one side of the house.”

The growth plan helped raise prices for raw and developable land, but other pressures have also raised the costs of building the actual homes.

One example Mr. Policicchio pulled out of MCAP’s data reflects two phases of a North York detached development, the first one in 2015 and the second selling in 2020. The price per house on generous, 45-foot and larger frontage lots jumped from $1.68-million in 2015 to $2.76-million in 2020. But at the same time, the costs to service the lots nearly doubled, from $737,000 to $1.4-million; the hard construction costs on each house went up close to $100,000; the HST bill almost doubled; and the soft costs (sales/broker commissions; marketing/sales office and maintenance, architects, design, and other consultants, construction loan interest and fees) went up $135,000.

The result was that even though the 2020 house sold for $1-million more, the 2015 profit of $164,250 was virtually the same as in 2020, at $166,650. The rising costs of doing business for the same profits could explain why there were more than 11,000 ground-related houses (detached, semis and towns) launched for sale in 2015 and MCAP projects 2020 will end with only 5,200 of those units launched for sale.

“Builders are trying to make a reasonable profit,” Mr. Policicchio said. In his view, the data “strongly suggests that the growth plan/greenbelt has had a material effect on new housing supply in the GTA.”

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