Today, Urbanation released its Q4-2018 market highlights report for the Greater Toronto Area.
The general media will pick up these numbers and tell you that there’s been a precipitous decline in the number of new condominium sales. But the reality is that 20,028 units were sold in 2018, which is actually in-line with 10-year averages for this region. 2017 was a particularly frenetic, and unsustainable, year.
The average pre-construction sold price for a new condominium in the former City of Toronto (the core) was $1,117 psf last year, and $921 psf across the broader region. These numbers represent significant double digit increases from the year prior. But again, what I don’t think many people appreciate is that the cost environment has also changed dramatically over the last few years.
Construction costs are way up, as are development charges and a myriad of other pro forma line items. The above numbers are simply a result of cost-plus pricing. Here’s where costs are at and here’s where we need to be to make the project feasible. Margins haven’t increased; in fact, they’ve probably been squeezed for many developers.
I think this is an important topic that deserves more transparency and visibility. So I’m hoping to work with a developer friend of mine and publish something more substantial in the coming months.
6 responses to “Cost-plus pricing”
[…] profit maximize. But I would encourage you to check out some of my past posts, such as “Cost-plus pricing” and “The impact of inclusionary zoning on development feasibility.” This problem […]
[…] The problem with this mental model is that it ignores reality. Development happens on the margin. The market is competitive. It’s difficult to find developable sites. And it’s a challenge to make projects work. More often than not, you have to say no as a developer. No I can’t buy this land. No I can’t build housing here. And no the market will not support new office space here. Sorry, but no. (See cost-plus pricing.) […]
[…] sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new […]
[…] that they are being thrown and it is creating upward pressure on home prices. (See related post: Cost-plus pricing.) So far there has been enough elasticity in the market to absorb these price increases, but that […]
[…] as a result of rising/additional costs. (I’ve touched on this before in posts like this one about cost-plus pricing.) I think a lot of developers are actually wondering how much elasticity is left in the market to […]
[…] point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost […]