According to industry expert Hunter Milborne, the COVID-19 lockdown has presented a unique “Crisitunity” in new construction. He coined the phrase as a conjunction between crisis and opportunity.
In a Webinar hosted by the Bay Street Group on May 6th, Hunter discussed the current situation in terms of other historic real estate downturns – pre-empting his talk with studies from CIBC and Royal Bank.
The banks assume the following economic highlights:
- 12 weeks of severe disruption
- Unemployment rate could reach 20%
- GDP to contract 30% in 2nd quarter
- There will be a gradual return to normalcy
- Downward pressure on resale market
- Volume of resale to fall
- Job losses and equity market declines will keep some buyers out of the market
- Downward pressure on prices
- Best part of recovery in Q3 2020 (July/Aug/Sept)
This is where Hunter believes we are at currently:
- 15%+ Unemployment rate
- 85% of people are still employed
- Current volatility makes for a less attractive stock market
- We will experience a “V” recovery – fairly fast downturn then fast upturn
- The low Canadian dollar will encourage foreign investment
The government’s response to the COVID-19 situation has had an enormously positive impact on its effects:
- An avalanche of income and wage support ($105 Billion in total)
- This is 11.5% GDP (one of the largest programs of all developed countries)
He went into detail about the six prior downturns – including the April 1974 Provincial Speculation Tax, the 1981-82 inflation, the 1989-1993 pricing bubble, the 1999-2000 dot com crisis, the 2001 9/11 and the 2008 subprime mortgage crisis and great recession.
Hunter compared all six of these downturns with the COVID experience and while they are all bad and signaled “the end of the world as we know it”, the COVID experience is different – in these ways:
- Health induced
- Unprecedented Events
- Unprecedented Response
With regards to new construction, COVID has spawned a whole new way of selling – through technology. While Sales Offices are closed, developers and brokers are finding new ways to sell product and it’s working. He talked about the importance of new technology tools – of videos, walk throughs and accessibility to model suites/homes through lock boxes.
He presented a very positive outlook on Toronto; as a unique marketplace, discussing the demand and supply gap in the city and GTA – how Toronto will grow from 6.8 million today to 8.5 million within 10 years and how the demand for housing continues to outpace the supply. He mentioned a CMHC study that concluded that Toronto needs 50,000 to 55,000 new homes every year in order to stay balanced in the market. The supply has been between 30,000 and 35,000 – certainly no more than 40,000 in one bumper year – but for the most part, supply is way less than demand and this is a cumulative situation – one of the reasons prices remain high. As well, Toronto has provided more job creation in the last 5 years in the tech sector than New York, Seattle, Washington and Silicon Valley combined. And Toronto continues to be at the top of the list for livability. This is why between 130,000 and 150,000 new immigrants move into Toronto every single year.
When asked about his prediction on pricing, he answered that in his experience preconstruction prices don’t go down because it simply isn’t viable. The choice is to proceed at the prices they are or don’t go ahead. This is in contrast to the resale market which has more flexibility to go down in price.
So where does that leave us today?
Recent government restrictions have been loosened on construction because residential building is deemed to be an essential service. In the short term, construction will continue with new safety policies and some delays in occupancies due to supply chain delays and municipal disruptions – but these are all temporary and will be resolved within months if not weeks.
He believes we should use this time wisely – polishing relationships, creating robust communication with our potential customers through strong email campaigns, videos and other technologies.
While volume is certainly down, prices for new construction are actually up – about 1.3% over last year! He does not believe there will be any impact on pricing for new construction
Hunter was asked to peer into his crystal ball and provide some predictions for what new construction life will be like once the pandemic is over. Here are some highlights:
- Through technology we will adopt new ways to meet – through ZOOM for example. This will continue.
- Lifestyle videos for projects will become more common and more necessary.
- Sales offices won’t disappear but will supplement other methods of selling – eg. technology.
- Many spring projects will delay opening until the fall.
- There will be less demand for larger meetings/conferences – it will be a while before this will come back if they do at all.
- The Outer 416 and 905 will come back faster (due to affordability).
- The Inner 416 will be a little slower.
- Pricing will likely remain the same – but deposit structures will be better – there’s going to be a great opportunity to buy.
In short, we will survive the Pandemic and we will use creativity, technology and ingenuity to move our industry ahead and beyond.