About a year ago, Portland enacted “Inclusionary Housing” policy requiring new apartment buildings of 20 units or more to offer up a portion of the units at below market rents.

Developers are able to select from a few different options and the rents are calculated according to a percentage of the city’s median family income (30-80%). I’m not sure how this policy would apply to new condo buildings.

This is an interesting account by The Portland Mercury of what this policy may be doing to the housing market. I say may because it’s only been a year and there could be other factors at play.

Between 2013 and 2017, Portland typically built between 3,000 and 6,000 new units per year. Since the IH policy went into effect on February 1, 2017, 682 new units have applied for permit. 

About half are coming from one developer who appears to be building the requisite affordable units in exchange for no parking minimums. They are now proposing buildings with zero parking.

Again, in all fairness, it’s only been a year. But already Mayor Ted Wheeler is looking at other incentives to encourage more new construction in the central city. The biggest levers: height and density.

All of this begins to speak to the very real impact of inclusionary zoning on development feasibility.

Photo by Zach Savinar on Unsplash

According to Bloomberg (using data from CMHC), 2017 was a surprising record year for housing starts in Canada: 219,675 units. This is the most since 2007 and is up from 197,916 units in 2016.

The explanation: job growth (nearly 400,000 new jobs) and population growth were both more robust than expected.

Multiple unit project starts are also up significantly with 142,840 units starting in 2017. This is a 15% increase from the prior year. Of these units, 102,516 of them were “apartment-like homes.”

But all of this is nationwide data. Look at what happened in Toronto and Vancouver:

The increased activity mostly sidestepped land-constrained Toronto and Vancouver, the country’s two most expensive markets, but was robust in the suburbs and less pricey surrounding cities. Starts in Toronto fell 1 percent to 38,738 in 2017, while declining 6 percent in Vancouver to 26,204 units.

This is not because of a lack of demand. It’s becoming systematically more difficult and more costly to build new housing in these two markets.

Over the past 5 years or so, real estate headlines in the Greater Toronto Area have often focused on the rapid appreciation of low-rise housing. High-rise housing simply wasn’t appreciating at the same rate – at least in aggregate terms.

But 2017 has brought a different story. 

If you look at BILD’s “New Homes Monthly Market Report” (data provided by Altus Group as of July 2017), you can see that high-rise pricing is now on a similar trajectory to low-rise pricing.

Here is that graph:

This sharp uptick in pricing is also apparent when you look at the average price per square foot of new high-rise inventory. As of July, it was $764 psf across the GTA. See below.

At the same time, average unit sizes have also jumped up to 871 square feet. So not only are new high-rise homes becoming more expensive on a normalized basis, they are also getting bigger, which further increases prices.

I recognize that we’re only seeing data up to the end of July, but, from the looks of it, 2017 is shaping up to be an extraordinary year for the condo.

Of course, part of the reason this is happening is because remaining inventory for both low-rise and high-rise product is hitting 10-year lows. We’re back to the topic of supply.

If you’re curious how some of these numbers have changed from the month prior (June 2017), check out this post.