If you zoom in closely, you will see that it’s me driving that massive roller.
Okay, fine… that’s not really me.
But believe it or not, once upon a time, it was me operating a roller similar to this one.
Not only a roller but lots of other pieces of heavy construction equipment as well.
Before trading the shovel for a pencil, I worked every summer (from grade 10 through my fourth year of University) for my uncle’s asphalt business.
In fact, my life may have been very different had I not been offered an accounting job at Deloitte at the end of my fourth year.
At that time, the accounting firms were only hiring a few new grads every year, and I was not optimistic that I would be one of the “lucky ones.”
So when I did receive an offer, it very much caught me by surprise.
Had I not received that offer, I was going to start working full time for my uncle’s asphalt business.
So as I walked out my front door this morning and saw this roller on my street (they are re-paving the road) I couldn’t help but think how different things could have been.
You know what else is very different these days…
Real estate!
Especially new construction.
New construction starts have fallen off a cliff.
And this is at a time when new people are arriving to Canada at a record pace.
This is especially true here in Ontario.
Most of the new arrivals find their way to Ontario.
And in Ontario… low rise new construction is virtually non-existent at the moment.
Condo buildings are starting to shut down their sales offices.
Projects that are approved and ready to go, are not getting off the ground.
And why is this?
Because put simply… the math just doesn’t work!
Interest rates are still high. Development fees keep increasing. Lenders aren’t lending.
Put more simply — builders and developers can’t afford to produce a product that buyers and end-users can afford to pay for.
But let’s quickly consider the impact of these three items, in simple practical terms:
Interest Rates: In today’s world… whether you are buying or producing anything real estate related… it’s usually financed. Therefore, subject to interest rates.
At current interest rates, developers using financing cannot produce a product at a cost-effective price that anybody can afford. So they stop producing. Period.
Development Fees: They keep going up. Consistently. Ask any developer. And this adds to the already unaffordable cost of housing.
Politicians will claim that this is a tax to developers and should not impact the cost of housing. But let’s be real. They know full well that a developer is not “eating” that cost. It does get added to the cost of the final product making an already unaffordable product, even more unaffordable.
Lenders Aren’t Lending: Lenders don’t lend to hopes and dreams. They lend to legitimate businesses, that have legitimate customers.
So if a condo developer hasn’t pre-sold a sufficient number of condo units, a lender isn’t giving them any money to build a condo building.
If a land developer hasn’t pre-sold any building lots to homebuilders, then the bank is not giving that developer any money to move forward with the land servicing.
If a home builder has not pre-sold a home to a homebuyer, then the lender is likely not giving them any money to build that home, and the builder is likely not purchasing any building lots from a developer.
The sum of all these parts… very few new houses in 2024!
Not a great start considering the government’s promise of millions of new houses by 2030.
Ultimately, they can say whatever they want… but there will be very little new housing inventory for purchase until the fundamentals make sense… and right now, fundamentals for new housing, make zero sense.
I feel like we’re at this pivotal moment in time, when something has to give… but nobody really knows what that is, where it will come from, or when it will come.
Interesting times!
I don’t have the answers… but what I do know, is that you have to read beyond the headlines.
And don’t take what politicians tell you, too seriously.
Do your own research, talk to the right people, and draw your own conclusions.
Right now, my conclusion is that we will not produce millions of new homes by 2030, and single-family homes will continue to be a hot commodity as they become more and more scarce.
Til next time,
Vince
P.S. I knew the guy operating the roller, so I wasn’t being a creep, lol.
P.P.S. I took the picture to show my kids what daddy used to drive. They didn’t believe me.
