Generally speaking, new homes tend to be priced higher than existing homes. This is, again generally, true because new homes are expensive to build, they're new and shiny, and because oftentimes they're pre-sold, meaning the purchase price reflects some future value.

But interestingly enough, this relationship has just flipped in the US, for the first time in at least 25 years. Here's the chart via Charlie Bilello:

This is, of course, a national average, and every submarket and product type is naturally going to have its nuances. Still, this inversion is noteworthy for a handful of possible reasons.

One, it points to softness in the new-home market. And indeed, homebuilder sentiment is down right now.

Two, it may suggest that homebuilders are building smaller, more affordable homes, which would bring down the median price.

And three, it's an indication of the "lock-in effect" that is prevalent in the US (but that is far less of a factor in Canada, where mortgages typically renew every few years).

For homeowners who are locked in at generationally low mortgage rates, there is a huge disincentive to sell. It would mean losing buying power. So why bother, unless you really have to?

This reduces the supply of existing homes on the market.

The term "missing middle" is typically used to refer to a missing scale in our built environment. It is that middle scale of housing between low-rise and high-rise. But there's another way to think about it and that is in terms of the market that the housing is serving.

Over the last cycle, cities like Toronto saw a kind of "barbell" dynamic. Meaning, new supply tended to target the poles. It was delivering for young professionals and young couples on one end and for downsizers and wealthy retirees on the other. But what has been missing is new supply that targets the belly of the market. And by this I mean something like low-amenity, well-designed, mid-market homes.

Of course, there are good reasons for why this is the case. The cost structure of new developments makes it so that the only feasible way to underwrite new projects is to maximize rents through smaller suite sizes and copious amounts of amenities. It is not that developers don't want to do it any other way, it's that they generally can't.

This is the paradox underpinning Canada's housing crisis. Yes rents are softening and vacancies are rising right now, but it would still be right to say that we are in a crisis. And that's because it largely exists in a different segment of the market — the biggest one.

In my view, this is our great challenge and opportunity as we move through this downturn. And I would bet that once we unlock the right model(s), we will see just how pent-up the demand for housing is in cities like Toronto and Vancouver.

As you know, sixplexes are now permitted in certain parts of Toronto. We've spoken before about how it should be all of Toronto; but nevertheless, they are allowed in areas where they were not allowed before. That constitutes progress.

But it gets much better: This week, Mayor Chow announced that she will be bringing forward a motion to Council to eliminate development charges and parkland dedication cash-in-lieu requirements for new developments of up to six residential homes. This is a big deal and something that is necessary if we want to spur more rental housing.

To quote my friend Craig Race (of Craig Race Architecture), "this is the first thing [Olivia Chow has] done I'm happy about, and I hope to see more." Mayor Chow was criticized for standing around while sixplexes were being debated, and so this is perhaps her now trying to step up. Whatever it is, home builders will take it.

Globizen wasn't looking at this scale before, but I'm now going to adapt one of our screening models to see if the math works. If it does, then expect the industry to mobilize around it.

Generally speaking, new homes tend to be priced higher than existing homes. This is, again generally, true because new homes are expensive to build, they're new and shiny, and because oftentimes they're pre-sold, meaning the purchase price reflects some future value.

But interestingly enough, this relationship has just flipped in the US, for the first time in at least 25 years. Here's the chart via Charlie Bilello:

This is, of course, a national average, and every submarket and product type is naturally going to have its nuances. Still, this inversion is noteworthy for a handful of possible reasons.

One, it points to softness in the new-home market. And indeed, homebuilder sentiment is down right now.

Two, it may suggest that homebuilders are building smaller, more affordable homes, which would bring down the median price.

And three, it's an indication of the "lock-in effect" that is prevalent in the US (but that is far less of a factor in Canada, where mortgages typically renew every few years).

For homeowners who are locked in at generationally low mortgage rates, there is a huge disincentive to sell. It would mean losing buying power. So why bother, unless you really have to?

This reduces the supply of existing homes on the market.

The term "missing middle" is typically used to refer to a missing scale in our built environment. It is that middle scale of housing between low-rise and high-rise. But there's another way to think about it and that is in terms of the market that the housing is serving.

Over the last cycle, cities like Toronto saw a kind of "barbell" dynamic. Meaning, new supply tended to target the poles. It was delivering for young professionals and young couples on one end and for downsizers and wealthy retirees on the other. But what has been missing is new supply that targets the belly of the market. And by this I mean something like low-amenity, well-designed, mid-market homes.

Of course, there are good reasons for why this is the case. The cost structure of new developments makes it so that the only feasible way to underwrite new projects is to maximize rents through smaller suite sizes and copious amounts of amenities. It is not that developers don't want to do it any other way, it's that they generally can't.

This is the paradox underpinning Canada's housing crisis. Yes rents are softening and vacancies are rising right now, but it would still be right to say that we are in a crisis. And that's because it largely exists in a different segment of the market — the biggest one.

In my view, this is our great challenge and opportunity as we move through this downturn. And I would bet that once we unlock the right model(s), we will see just how pent-up the demand for housing is in cities like Toronto and Vancouver.

As you know, sixplexes are now permitted in certain parts of Toronto. We've spoken before about how it should be all of Toronto; but nevertheless, they are allowed in areas where they were not allowed before. That constitutes progress.

But it gets much better: This week, Mayor Chow announced that she will be bringing forward a motion to Council to eliminate development charges and parkland dedication cash-in-lieu requirements for new developments of up to six residential homes. This is a big deal and something that is necessary if we want to spur more rental housing.

To quote my friend Craig Race (of Craig Race Architecture), "this is the first thing [Olivia Chow has] done I'm happy about, and I hope to see more." Mayor Chow was criticized for standing around while sixplexes were being debated, and so this is perhaps her now trying to step up. Whatever it is, home builders will take it.

Globizen wasn't looking at this scale before, but I'm now going to adapt one of our screening models to see if the math works. If it does, then expect the industry to mobilize around it.