The price gap between condos and houses soared 50 per cent last year in the Greater Toronto Area as values of single-family homes skyrocketed, while the condo market flatlined.
But industry analysts expect that divide to start shrinking over the next several years as local municipalities green-light several long-awaited low-rise housing projects and the condo market cools off from years of record-breaking construction.
Sales of new single-family homes in the GTA jumped 8 per cent last year to more than 19,600, while sales of new condos fell 2 per cent to about 21,600, according to an analysis by commercial real estate firm Altus Group.
The red-hot market for new single-family home construction pushed up prices by 18 per cent last year to an average of $829,766.
By the end of December, there were fewer than 5,000 homes for sale on the low-rise market in the GTA, a historic low. Meanwhile, condo prices were flat from a year earlier, averaging $453,083. The diverging trends helped to drive a $376,000 wedge between prices for new condos and houses.
However, that could begin to change over the next few years, as condominium construction slows down, the high-rise market in downtown Toronto shifts in favour of rental apartments and developers turn their eyes back to the lucrative market for detached houses and townhomes.
"Certainly over the last three or four years we've swung the ship too far away from single-family," said Peter Norman, vice-president and chief economist at Altus.
Sales of residential development land in the GTA surged nearly 50 per cent to more than $4-billion last year, driven in part by a jump in sales of land in the 905 region intended for low-density subdivisions, which reached their highest level in more than a decade.
There were 71 high-rise residential land sales in the region in the first three quarters of last year, down from 80 in the same period a year earlier, Colliers International reported. In contrast, sales of single-family and townhouse developments rose from 29 to 35.
Some of the biggest land deals in the GTA were in the suburbs. A consortium of developers paid more than $400-million for the York Downs Golf and Country Club in Markham, while another buyer paid more than $100-million for a low-rise development site in Richmond Hill. York Region alone saw roughly $1-billion worth of residential land deals last year, according to Colliers International.
Municipalities have taken time to adjust to changes in provincial legislation aimed at increasing density and protecting environmentally sensitive lands in Southern Ontario, leaving many proposed low-rise housing projects sitting in limbo. Others have been waiting for major infrastructure upgrades and some have endured public opposition and lengthy battles before the Ontario Municipal Board.
"It has been a rocky road getting there right now," Mr. Norman said. "I think there are many developers who have wanted to bring forward single-family homes many years ago, but it just simply hasn't happened."
Several projects are starting to wind their way through the red tape. Earlier this month, the provincial government agreed to sell hundreds of acres of land in Pickering, known as the Seaton lands, helping to green-light low-rise subdivisions that have been decades in the making.
"We'll be building homes there for 20 years," said Jason Attard vice-president of sales and marketing at GTA home builder Aspen Ridge Homes. "So that is definitely going to help solve some of the supply issues."
While construction of single-family homes is readying for a comeback, the GTA condo market is shifting away from investors and toward buyers who are interested in living in their units, said Jim Ritchie, head of sales and marketing at condo developer Tridel Group of Companies. That will likely mean larger units sold at higher prices, which should also help close the price gap in the region.
Mr. Norman predicts the number of new detached homes for sale in the Toronto metropolitan area to jump 30 per cent next year to 13,000.
Over time, he thinks the number of condo starts, which have averaged 19,500 over the past five years, will to fall closer to 17,000 to 18,000 units, a level more consistent with demand. Meanwhile, levels of low-rise home construction should rise from about 16,500 to closer to 22,000.
"It's tipping the balance back," he said.