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What does Toronto’s housing future hold?


VANCOUVER — For years it was the thunderdome of Canadian real estate. Vancouver’s price surges and subsequent social issues were seen as the premier example of what happens when unattainable housing expenses hit a Canadian city.

No matter how hot the Toronto housing market got — and home prices rose 300 per cent in three decades, adjusted for inflation — it enjoyed one cold comfort. It was not the most expensive city in the country.

Until now. Toronto has overtaken Vancouver’s most-expensive-city mantle. And it’s a heavy burden.

Comparisons to Hong Kong and San Francisco’s housing problems have long been common for Vancouver, as has pushback from residents demanding action from government to cool the city’s real-estate market.

A real estate sign is pictured in Vancouver in 2018. House prices have still been climbing in recent years but they aren't seen to be surging in the same way as Toronto's.

Now, some experts think, some of those actions have indeed stifled prices — while at the same time, Toronto has managed to catch up to and actually surpass its Pacific sibling’s jaw-dropping house prices for the first time in decades.

Some in Toronto are worried what it means for their city; others wonder how it came to this.

A recent report from RBC Economics made it official: Toronto became the most expensive market in January, with the composite MLS benchmark price — meant to focus on properties with qualities “typical” in desired homes — hitting $1.260 million, compared to Vancouver’s $1.255 million.

A late January report from TD Economics working with figures from December said the GTA saw prices rise 40 per cent from 2018 to 2021. During the same time, Vancouver’s increased just 13 per cent.

Experts say there’s a number of reasons for the change — supply, demand, government regulations.

In both cities, there are taxes in place meant to cool down the market: In 2016, British Columbia introduced a foreign buyers levy, which in Vancouver is set at 20 per cent. The province has a two per cent transfer tax for properties worth more than $3 million, among other measures. (Ontario introduced a 15 per cent “non-resident speculation tax” in 2017 and both the province and the city of Toronto have land-transfer taxes.)

Re/Max real estate agent Peter Milne, who got his licence in 1991 and works in both markets, sees a search for peace of mind.

“Really what people are looking for is stability in their investment,” Milne told the Star from his home in Gibsons, B.C., a town a short drive and a 50-minute ferry ride from Metro Vancouver.

In recent years Vancouver has been hammered by climate events like heat domes, smoke from forest fires and flooding, and there are also fears of earthquakes and tsunamis. It’s made people wonder how real estate could be affected over time, Milne said, adding he suspects this may have people shying away from the Vancouver market and looking to invest in Toronto property instead.

“I think Toronto, honestly, has a much more stable environment,” he said. “There’s a lot more discussion among younger, more intelligent buyers, about tsunamis and flooding from the Fraser River and what would happen if all the snow on the mountains melted.”

Though the GTA doesn’t have mountains, Toronto Royal LePage real estate agent Simeon Papailias said an effect similar to Vancouver’s mountains and ocean was created when the greenbelt around Toronto was formed. Creating a boundary for possible developments has limited supply and made property in the GTA more valuable, Papailias said.

“We’ve created a Vancouver in Ontario,” Papailias said.

A guided hike in 2017 moves through the Goldie Feldman Nature Reserve in the Happy Valley Forest, part of the greenbelt around Toronto that one expert suggests drives up GTA house prices.

He said different zoning could allow for more homes and greatly alleviate Toronto’s price crunch. As things stand, a lack of listings is also driving up prices — people are afraid of selling their homes and not being able to find a new one.

It’s a far cry from 1991, when the average sale price of a home in Toronto was $234,313, according to figures from the Toronto Regional Real Estate Board.

One of Toronto’s deputy mayors, Ana Bailao, says she’s deeply concerned.

“I spend most of my time on housing issues, because I think it will be fundamental for the kind of city that we’re building and growing,” Bailao said.

She said, in her nightmare scenario for the city, working-class people and young families won’t be able to live in the city. Such a scenario, she said, could hurt Toronto’s ability to attract talent and investment from around the world, ultimately jeopardizing its future.

Though Greater Vancouver’s prices have risen, government measures taken in recent years have helped keep more astronomical increases at bay on the West Coast, according to TD’s report.

Fewer restrictions and tighter markets, partly brought upon by less-responsive supply, resulted in price gains in Toronto, said the report by TD economist Rishi Sondhi.

“Government restrictions in the (Greater Vancouver Area) have been a big factor behind the narrowing gap in Vancouver and Toronto home prices in recent years,” Sondhi said.

The TD report showed that in December, Vancouver had a mere four per cent lead in prices; in January, Toronto surged ahead.

Sondhi told the Star measures such as the foreign buyers’ tax had an impact on prices in the Vancouver, which had the tax in place before Toronto.

“They did their intended trick,” Sondhi said. “They slowed activity.”

A tale of two hot real estate markets

Toronto and Vancouver have the most expensive homes in the country

$1.26 million

Benchmark price of a Toronto home

$1.255 million

Benchmark price for a Vancouver home

277.3%

15-year price change in the Toronto market

153%

15-year price change in the Vancouver market

Source: MLS Home Price Index. Source: Canadian Real Estate Association

Another reason for Toronto narrowing the gap is simply its size, said one expert.

David Hulchanski, a professor of housing and community development at the University of Toronto, said money laundering, globalization of the housing market and “financialization” are affecting both cities.

“Houses and condos and apartment buildings are nice little packages of places to store wealth,” Hulchanski said. “Those get traded locally, nationally, globally now. There’s a lot more money chasing places we live in.”

In 2019, a report by Transparency International Canada said more than $20 billion in “anonymous money” since 2008 had flowed into Toronto’s real estate market without any oversight. During the same time period 50,000 homes were purchased by corporate entities.

After three decades of growing wealth inequality, those who have become wealthier are able to finance home purchases for their children and can buy multiple properties. Short-term rentals (e.g. Airbnb) are also pushing up prices and creating rental shortages, Hulchanski said.

Toronto’s larger population size of 6.2 million people compared to Vancouver’s 2.6 million offers more homes for speculators and money launderers to “play with,” which can lead to more heated price increases, he said. Moreover, salaries in high-end occupations tend to pay more in Toronto than Vancouver, further driving up prices, Hulchanski added.

All told, in the last 15 years, Toronto prices are up 277 per cent; Vancouver’s, 153 per cent, according to MLS numbers. Hulchanski said it’s “too early to say” whether part of the reason for Vancouver’s slower growth is the measures brought in by government, but he thinks it is likely a factor.

Earlier this month, a glimpse into what is propelling home prices across Ontario became available when the province released its housing affordability task force report. The report lays part of the blame for high prices on not enough housing being built in the province, suggesting 1.5 million new homes are needed over the next decade to address the shortage.

The crunch is leading to Toronto having the longest average commute time in North America — 96 minutes — as people are forced to buy further away from the city. The report named five recurring “themes” to help ease real estate woes, including more housing density across the province, ending rules blamed for delaying new housing and giving financial support to municipalities building more housing.

Now, according to the Ontario report, some estimates say about 70 per cent of land zoned for housing in Toronto is used for fully or semi-detached homes. Sondhi’s report for TD also pegged supply as an issue driving Toronto’s prices.

However, Hulchanski said while more supply is always something cities can use, it’s “illogical” to argue it will help much with affordability.

“No developer or groups of developers in a region is going to swamp the market,” he said. That would mean “they have to sell what they build for a lot less than they hoped for. They’re not going to do that.”

Strict disclosure laws on who owns properties plus strict speculation taxes are among solutions able to slow down Toronto’s real estate, he said.

Meanwhile, Bailao said she expects concern over home prices in Toronto to continue growing. She worries “a lot” about what it means for Toronto in years to come.

“More and more people are talking about the impact of not being able to live and rent in our city,” she said. “Is that fair? What impact is that going to have on future generations?”

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