Low Peterborough Housing Starts Explained 2023
The Peterborough & The Kawarthas Home Builders Association feels the need to issue a statement in regard to the 2023 Q2 housing starts data which has recently been released.
The Peterborough & The Kawarthas Home Builders Association feels the need to issue a statement in regard to the 2023 Q2 housing starts data which has recently been released.
The Peterborough & The Kawarthas Home Builders Association feels the need to issue a statement in regard to the 2023 Q2 housing starts data which has recently been released.
The statistics show that Peterborough is significantly underperforming most cities in our Province with similar populations in terms of housing starts.
More specifically, inside our city boundary, we have had 41 new housing starts so far in 2023 which puts us on pace to initiate 82 total new units this year.
Our entire Census Metropolitan Area (CMA), which includes Peterborough County as well as the City of Peterborough, has produced only 70 new housing starts, or in other words, is on pace for around 140 new starts total in 2023.
This statistic includes all housing category types; single-family, row, and apartment.
You may ask yourself whether these numbers represent a healthy or a rather low amount of new starts.
For some more perspective, we need to be producing roughly 930 new units each year to keep pace with the provincial growth targets, so at our current pacing, we will be nearly 800 units short. These are targets that are based not just upon mere ambitions but are formed around assessing the housing needs of our rapidly expanding population.
Further, in past years, our city has shown that it is capable of producing in excess of 500 units per year, and when looking back as far as 1990, the city has averaged 278 new starts annually inside its city boundary. This average number is 415 starts annually when looking at our entire CMA, with strong years exceeding 600+ starts.
These numbers are a far cry from the projected starts for our current year.
While these numbers are cyclical and the causal factors behind what makes starts in any one year, or series of years, higher or lower is complex and multi-faceted, our association sees two key factors responsible for the unusually low starts.
The first is economic circumstances, including our current high interest rates and subsequently low affordability, as well as a poor economic outlook, which are influencing buyer's behaviours and developers' decisions about future projects.
The second, and in our view, the more rudimentary and true underpinning causal factor is extremely prolonged delays within the development approval process portion of a housing projects life span.
We would like to make clear that most other mid-sized cities in our province which are subjected to the same economic circumstances, are outperforming Peterborough in terms of new housing starts by a great margin.
This fact leads us to inquire about why we as a city are a standout laggard in new construction starts, for which we can only point to the second cause of development approval delays.
So let us start by identifying the current economic pressures that are causing new construction starts to be lower this year than in recent years, or historically average years. After which we will go on to show how this factor alone does not go far enough in explaining our extremely low new housing start numbers.
We have just undergone an unprecedented interest rate hiking cycle which saw the cost of borrowing money go from nearly 1%, all the way up to around 6%. This has had a massive effect on not only new home buyers purchasing power, but also the sentiment for the economic forecast.
With uncertainty around ongoing inflation rates for our most basic goods such as food and gasoline, the threat of even higher interest rates, and therefore even worse affordability, looms.
Such an environment bakes a mentality of uncertainty into the market, where buyers are scared to purchase a home not only because they are uncertain what their monthly cost of ownership will be on a go-forward basis, but also for fear that prices may see a further decline.
Subsequently, developers lose confidence in starting new projects. Whether such projects are as small as a single speculative residential home, or a 30+ unit condo development, not only are their costs of completing and holding this project uncertain, but both the timeline they may have to hold it for and the price they may ultimately receive for the product are uncertain as the pricing trend over the last 12 months has been negative.
In concert, we have a situation where buyers can become hesitant to buy, and builders can become hesitant to build.
And while these factors can have a real effect on the number of new home starts. It can be argued that in our current macroeconomic environment, interest rates stabilizing, new incentives for home buyers to increase affordability, and material prices and labor rates will only be decreasing in the mid-term, all of which combine to make an equally strong counterargument to the negative outlook position. This positive or bullish outlook statement just articulated is the reason that a strong baseline of potential home buyers have in fact continued to purchase resale homes over the last 6 months, and some segments of our market have seen prices increase for the first time in 9 months.
The negative outlook theory of why new starts are not happening already has one crack in its armor.
A further and fully damning blow to the notion that negative economic outlook is the main contributing factor in our low housing starts this year, is that other mid-sized cities throughout Ontario, who are subject to nearly identical macro and micro economic conditions, are massively outperforming Peterborough in terms of new housing starts.
To provide a few examples, Belleville (113 starts YTD), Kingston (318 starts YTD), and London (959 starts YTD), all outperform Peterborough by margins over 2:1 when viewing the total number of new construction starts in the first half of 2023 as a ratio to their total populations. Our neighboring city of Kawartha Lakes outperformed Peterborough by a ratio of over 5:1 when viewing new construction starts as a function of population, producing 312 new starts in the first half of 2023 with a population of just over 70,000.
Belleville CMA, Population: 111,184 Housing Starts Jan-June 2023: 192
Kingston CMA, Population: 172,546 Housing Starts Jan-June 2023: 318
Peterborough CMA, Population: 128,624 Housing Starts Jan-June 2023: 70
City of Kawartha Lakes, Population 79,247 Housing Starts Jan-June 2023: 312
Therefore, while the economic situation can certainly be seen as responsible for some portion of the causality behind this year’s low total starts, it can not explain why other cities have not seen their starts suffer as badly as ours.
So why do other cities continue to outperform us in regard to new home starts?
Our association believes the answer lies in the compounding effect of many years of development application review and approval delays.
These delays have led us to have far too few development projects underway currently, and have created a new housing market that functions more like an oligopoly than a free market. That is to say, builders have little incentive to lower their prices in our current environment to sell off product on their remaining available lots, not only because there is little competition forcing them to do so, but also because they will have nowhere to go next. No next development to put their construction machine to work on. Essentially they are staring down the end of the line.
This is much different than times of the recent past when local builders and developers would have 2-3 subdivisions in some phase of construction at any one point in time, so there was always a consistent and stable flow of production that could be initiated.
But now, instead of lowering prices and continuing to build at a quicker pace, and turning their capital over onto the next project, they must slowly initiate new builds at a pace which allows them to keep their staff employed, in order to avoid laying off staff and having to re hire in a few years when a new development may be approved for them to start.
In short, there are just too few building lots available and building projects underway in Peterborough and it has led to a paralyzed market.
So why do we have so few lots available? The answer can be quite complicated and lengthy, but let us start by looking at the anatomy of how new building lots and building projects come to be - the development approval process.
Long before a new housing project starts, the path from concept to shovels in the ground must follow a lengthy series of steps. Most projects follow a similar set of steps, first progressing through a pre-consultation, then an application submission, which is reviewed for completion, after which the technical review cycle begins and can vary greatly in its length and frequency of back and forths.
Next, in the case of a new plan of subdivision or any larger development, the application will normally be subject to a review from the general committee, followed by a review from city council, and will then be up for the formal appeal period. After all of this, there can still be hefty “conditions of approval” attached to approvals, such as further studies and implementation of such studies being required.
These exact steps can vary depending on the size and scope of the development application, and whether the plan requires such things as minor variances or zoning by-law amendments.
Delays throughout the entirety of the development approval process have a multi-pronged and compounding effect on hindering new housing starts.
First, the obvious, a project conceived of today can take a decade until construction starts, so the raw delay here has made it so that our market has not been able to quickly adapt its production levels to the new provincial targets.
Next is the way that these delays have a compounding effect, as delays can take so long that studies done at the start of the process are invalid as the project nears its approval, and are issued to be redone all over again. Examples are environmental or traffic studies that are completed during the initial phase of application submission and technical review, which need to be redone towards the end of the applications review process many years later, since so much time has elapsed between the initial reports that they have been deemed stale dated. These consultations and studies all need to be paid for by the developer, adding to engineering and design fees which can exceed well into the hundreds of thousands of dollars before the applicant has even gotten a firm commitment that the project will ever be approved.
Further to this point, is that with great delays in the approval process, the assumptions from the developer or builders original proforma when they initiated the project, are all subject to drastic change. In many cases, projects have been delayed so far from the original start date that initial assumptions about labour rates and availability, material prices and availability, and potential sale price for the housing units have all changed enough that the original assumptions no longer apply, and the project may no longer be feasible or could require drastic changes to its engineering to revise the product to fit the current market constraints, leading to a further round of revisions and reviews.
The totality of this lengthy and complicated process, requires builders to be very well capitalized in order to buffer these long periods of large cash outflows with no cash inflows, making it so
that very few participants can enter the game and compete meaningfully in the home building or development industry. It has also created an effect where, all things being considered, builders and developers would rather invest their capital in other nearby municipalities rather than Peterborough, as betting on getting your development off the ground here has become a risky proposition. So instead we see construction manpower, capital, and design ingenuity flock to other cities to put their skills to use in a more reliable and predictable environment.
So why do these delays occur in the first place?
There are many factors which contribute to development approval delays, and the topic is vast and complicated enough that it has warranted the commissioning of third-party consultation and reporting in recent years.
Some of the most notable topics which have been outlined in the 100+ page 2021 report by Dillion Consulting are:
In regards to these core issues, most items have seen progress since the report was originated, but nearly all of these items are still ongoing issues.
Our association understands the issues in hiring new staff in our extremely competitive job market, but from an outside perspective, question why all the other municipalities previously mentioned which exist in nearly identical labor markets are all managing to greatly outperform the City of Peterborough in new housing starts by great margins in spite of similar labor issues. This point leads us to believe that while more staff can aid in solving the current planning chokepoints quicker, the more fundamental issue is one of process rather than horsepower.
This brings us to our next point, which is that the implementation of the AMANDA system, and a subsequent reporting and tracking system for key performance indicators, are items that our association sees as absolutely pivotal in working towards a more affordable Peterborough.
To pull an excerpt from the Dillion Consulting report:
“Peter Drucker, perhaps the most highly regarded management thinker/guru of the 20th century, often noted that “...you can’t manage what you can’t measure”. Results-focused KPIs will promote a DAP culture of accountability within any municipal management team, and KPI data/targets will inform a municipal staff team’s decision about which DAP files to work on at any given point in time.
The City does not currently track/report on Planning/Engineering DAP actual timeframes, nor does it establish evidence-supported timeframe targets. The City’s required Planning/Engineering DAP IT modernization toolkit is not yet in place to deliver a results-driven management cycle or accountability framework.”
In regards to the topic of incomplete applications and resubmissions which do not address all planning staff comment items from the technical review cycle of the application process, this point is a very deep topic, and is the source of ongoing discussion between our association and the planning department which we hope to resolve together.
In regards to the decision-making and third-party choke points, many tools have been handed to the municipalities in the recent provincial legislation from Bill 109 and Bill 23, which have not been fully implemented as of yet.
Our organization understands that making sweeping organizational change is akin to turning a 1000-foot ship, in that progress can be slow to see and require much persistence.
With that said we feel that our recently appointed CAO Jasbir Raina is the right person for the job, and we look forward to continuing to dive into the further nuances and driving factors behind development approval delays over the coming weeks and months.
Our association feels a strong resolve in working towards solving these issues because as the statistics make clear, the need for a change is urgent.
Mitch Cleary
President PKHBA.