# Cost-plus price floor By [Brandon Donnelly](https://brandondonnelly.com) ยท 2024-05-12 cost-plus-pricing, development, development-feasibility, greater-toronto-area, housing, housing-supply, new-condo-market, new-condominiums, pre-construction-market, real-estate, urbanation --- Oftentimes, it feels like there is a perception that developers price new housing with the fattest of margins. Meaning, if only developers were less greedy, housing _could_ be more affordable. But as we have spoken about many times before, real estate development is a competitive industry; therefore, projects happen on the margin. Ordinarily, the prices you see are the result of a [cost-plus pricing strategy](https://brandondonnelly.com/2019/02/01/cost-plus-pricing/). Developers figure out what it will cost to build and develop, they add on a margin that they think their investors will accept, and then they determine what sticker prices they need to make the project [financially feasible](https://brandondonnelly.com/2024/02/17/a-decade-of-changing-development-pro-formas/). I've been writing about this approach for many years, but today it's even more obvious. According to [Urbanation's Q1-2024 condominium report](https://brandondonnelly.com/2024/04/19/more-sellers-than-buyers/), new unsold condominium inventory in the GTA is currently sitting at approximately 23,815 units. This is up 30% YoY and is equal to about 23 months of supply. Two years ago in Q1-2022, this number had reached an 18-quarter low of 8,726 units. Developers are highly motivated to sell and move their projects forward. Time is a killer, especially today. So the logical explanation for this rising inventory is simply that they _can't_ sell it. Their cost-plus pricing doesn't overlap with what most buyers in the market are willing to pay. Like I said, development happens on the margin. In theory, there is _always_ a price where buyers would be willing to transact. If I listed a beautiful condominium for $100k today, many people would want to buy it. Supply would quickly run out. The problem is that no developer can build for this. There is always a very real price floor and, right now, that floor doesn't seem to be low enough for many buyers. --- *Originally published on [Brandon Donnelly](https://brandondonnelly.com/cost-plus-price-floor)*