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Douglas Todd: Developers build homes when they can maximize profits

Analysis: The professor found that developers wouldn’t build homes sooner after politicians urged them to increase their zoning density.

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Retired developers say the real estate industry’s goal is to complete new housing supplies when profits can be maximized.

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“The real estate development business is very much related to market timing,” said Arny Wise, who has spent his career planning and developing numerous housing projects in Toronto and Vancouver.

“They want to time development to hit the market when the market is good. They don’t want to sell to the cheap market,” he said. Wise does not blame developers’ practices for selling homes when prices are riding the wave of inflation. Like any other business, he said, developers are out to make a profit.

But Vancouver-based Wise is a reality, as British Columbia and Ontario politicians claim that building large volumes of new housing supplies is the solution to lower astronomical prices. Said you need to be aware of. Unless (politicians) force them. “

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BC NDP Housing Minister David Evie and Ontario’s conservative Prime Minister Doug Ford have recently found it important to relax zoning rules and build homes much faster in order to resolve the housing crisis. I said there is. Canada’s average home rose to $ 812,000 in January. This is up 43% from late 2019 and up 97% from 2015. Prices are much higher than in Toronto and Metro Vancouver.

But Mr Wise said it would be impossible to build homes fast enough to end the affordable crisis unless politicians meet the demands of domestic and foreign home investors. He said the only way developers can build affordable homes is if the government requires them when issuing permits.

University of Sydney scholars have previously monitored and questioned the phenomenon of “land banking,” in which properties that could be developed for residential use are often withheld from the market in anticipation of greater future profits. Is more advanced than the developers of.

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Professor Cameron Murray said in a peer-reviewed study called Time is Money that developers don’t always build homes sooner after politicians urge politicians to relax rules and increase zoning densities. I found that it wasn’t.

“Zoned supply in a region is independent of the proportion of new housing supply,” Murray writes. “Housing developers regularly delay home production to take advantage of the market cycle.”

The Premier of Ontario supports the Task Force’s recommendation to build more than 1.5 million homes over the next decade.

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However, Bank of Montreal economist Robert Kavic said, “Most of this supply will be completed after demand rolls over, millennial-led vital booms peak and markets are saturated. This goal is impossible and the idea is uncoordinated. ” For a long time, for a long time. “

Both Kavcic and Wise believe that the high-priced housing bubble in Toronto and Vancouver was the cause of the crash.

Retired developer Arny Wise believes that politicians must sometimes demand that they do so, as developers build homes to maximize profits and not achieve social benefits.
Retired developer Arny Wise believes that politicians must sometimes demand that they do so, as developers build homes to maximize profits and not achieve social benefits. Photographs by subject-specific handouts / /jpg

Cameron explains in another paper on what is called the “absorption rate” of home supply, the developer’s logic of delaying home sales, even if the developer manages a huge pre-zoned land bank. doing.

“Basically, if you sell today, you won’t sell tomorrow. Therefore, the selling price for the next period will be high, so you need to avoid sacrificing future profits by flooding the market during this period. “Cameron said. From time to time he said it was called land storage.

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According to Cameron, developers are looking for an absorption rate, or “optimal” rate, to bring their homes to market. He said the developer’s annual report often points out their strategy of slowly rolling out new home construction over the long term.

“This is the speed limit built into home development. If it costs money to postpone and sell next year, that’s what they do.”

Retired planner Wise is a politician because he agrees that most developers build at a pace designed to maximize profits and don’t necessarily provide social benefits to the public. He believes that sometimes he has to demand that he do so.

He developed Vancouver’s large Oakridge Center (eventually over 3,300 homes, primarily condos), but only created some of the units that were affordable to renters or buyers. So, I’m quoting the method with the approval of the city.

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He said Oakridge Center condo prices are currently running at “insane” levels of over $ 2,000 per square foot.

Wise argues that the city should mandate one-third of Oak Ridge development. This is the city’s largest single project in over 12 years, one-third for low-income households, one-third for middle-income earners, and one-third for “high rollers and investors.”

dtodd@postmedia.com

@douglastodd


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Douglas Todd: Developers build homes when they can maximize profits

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