Toronto real estate prices are being pushed higher by supply… to an extent. Real estate agents would have you believe that it’s the only factor driving prices higher. Meanwhile, NIMBYs would have you believe it plays no part in pricing. As always, the truth is somewhere in the middle. Supply is a contributing factor to prices, but the scarcity of supply in the Greater Toronto Area (GTA) is greatly overstated.
About Supply
Supply is a complicated topic, so over the next few weeks we’re hoping to demystify some of the numbers for the GTA. It’s true that cities like Toronto have never been more dense, and prices have taken off partially as a result. Now, we’re not going to discuss whether this price increase is justified or not (so put away your shivs). We’re just going to go over some of the key numbers anyone looking at real estate needs to know, before diving into much deeper analysis.
Toronto’s Population Grew 6.18%
The population of the GTA increased, but not all that fast. Census 2016 recorded a population count of 5,928,040, an increase of 6.18% from the previous Census in 2011. That works out to 344,976 more people over five years. Annualized that’s 1.23% per year, or 68,995 people. Population in the GTA is growing, but this would be the slowest pace in decades.
Source: CREA, Statistics Canada.
Toronto’s Dwelling Stock Grew 7.49%
The total number of homes also increased as well. Census 2016 reported 2,235,145 dwellings, which is a 7.49% increase from the previous Census. That’s 155,686 more private dwellings added to the stock over five years. Annualized, this works out to 1.49% per year, or an average of 31,137 dwellings per year. This tells us that housing supply did grow faster than population growth.
Source: CREA, Statistics Canada.
Toronto Prices Increased 49.2%
You already know prices made a huge jump between May 2011 and May 2016, but here’s the numbers to remind you. In May 2016, the price of a typical home in Toronto was $635,600, an increase of 49.2% from the same month in 2011. That works out to an annualized rate of 9.84%, or an average of $41,940 per year. Yes, there’s a good chance your house made more money than you did, working like a sucker.
Prices Rise Almost 8%, For Each Percent Increase of Population
Each percent of population increase, translated to an average price increase of 7.97%. As long as a city becomes more dense, price growth will typically grow faster than inflation. However, how do buyers determine how much more home prices rise than inflation? Arbitrarily.
Turns out, most people don’t sit down and work out fundamentals before pricing the value of a home. Shocker, right? Population did become more dense, which means prices should be rising faster than the rate of inflation. However, supply scarcity may have been greatly overstated, which means land panic premiums are not warranted.
Over the next few weeks we’ll dive over additional pricing factors, like building and zoning constraints, labour, and land value. Also, whether you should give a damn. Just because a developer made bad spending decisions, doesn’t mean a homebuyer should always pick up the cost. It also doesn’t mean a price increase due to poor project management, should translate to price increases across the resale market.
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But at the same time the number of people that bought multiple properties have soared, taking lots of housing off the market. Ditto for domestic and foreign investors (or speculators) that have bought entire floors of condos to rent or stay vacant. By keeping that inventory locked out of the market, supply is of available inventory to buy is lower than population growth.
But at the same time the number of people that bought multiple properties have soared, taking lots of housing off the market. Ditto for domestic and foreign investors (or speculators) that have bought entire floors of condos to rent or stay vacant. By keeping that inventory locked out of the market, supply is of available inventory to buy is lower than population growth.
If Tommy is correct, then that really speaks to the need for vacancy taxes/penalties. New housing units can’t be allowed to be purchased and locked up in a cellar like wine.
It doesn’t matter how much supply there is; pricing is based on demand. That’s it. What if we’re missing the long game? If housing becomes scare, it drives up the cost because, despite what everyone likes to believe the demand for Toronto (and Van out West) is huge. The jobs/entertainment/energy/excitement are all in one place…but we know that. Consumers are forced to shift away from ‘saving to own’ and live in a more ‘New York/London/ reality in that life long renting is a thing. Low end millenials and the group after them are short term thinkers and raised on ‘covering a monthly vs saving for long term goals’. Also, they have less $$$ so I can’t blame them. Demand for rent increases, as we’ve seen, and the prices go up, as we’ve seen. Once the benchmark is set, more inventory can hit the rental market with little fear of depressing prices; the mindset has changed and once that happens there is little to reverse it. The resale market goes up still, driving up rental prices…I know a few investors who snapped up condos in livert village for the mid 200s low 300s 5 years ago and they charge $3700/month now. Debt is paid off in under 15 years and it is a cash cow after that…why would anyone ever sell?
good luck to find someone to pay $3700 for a condo shoe box…
No need for luck. It’s called liberty village my friend!
What about property taxes?
Believe it or not most people who are in the market to sell and or provide dwellings are often behind.
When you are always paying the bank money interest rates are a constant fear. With a few bumps I watched Toronto’s mean price drop from 911 k to – 734k in less than a month, just goes to show you how much speculation is actually occurring in Toronto rather than demand.
If Americans start to vamp up interest rate action Canada will follow and this market will see its true stress test.
Thank you Better Dwelling. Those were great statistics to read about the real estate prices in Toronto.
Hi Daniel, I’ve done some work with respect to the housing market and statscan data (https://public.tableau.com/profile/shafquat#!/)
Reach out if you’re interested in working together
Speak to @StephenPunwasi as well if you don’t hear back from Daniel.
I have also been following your work Shafquat..the C&D against your work was a sign something is being withheld to say the very least. Hope you both connect and can shine more light on what’s really happening in the GTA.
In a nutshell, this article alludes to what I’ve felt and experienced in the last year. I can honestly say I believe the government is still turning a blind eye to the rate of speculative buying and foreign investment in the GTA. And why shouldn’t they? If home sales are a huge part of our GDP (much unacknowledged fact) and the average new home creating upwards of a $92000 windfall for the government, why would they put the brakes on the surging prices in the name of something as irrational as affordable housing for citizens of the GTA. The reporting methods for foreign buying are stated by those that collect the statistics as nothing more than purely unprovable nonsense. Realtors won’t state it on record, but ask a salesperson off the record in a Toronto area new condo release what percent of buyers are not of Canada and you’ll find shocking numbers of 50 percent or more. The pricing is driven by the greed of speculators buying multiple dwellings as either Canadian buyers or foreign, and the greed of our government to keep raking in the cash and maintaining a positive GDP at the expense of affordable housing (while escaping the nagging requirement of creating real economic growth in Canada where we could use it). In the end the people who want to buy a home are being forced out of the option to buy, all so people can make a good return off bricks and mortar as a simple investment with zero interest in living where they buy. If we did what New Zealand just did it would be pretty clear where the truth lies, but that won’t happen because a housing collapse would destroy our economy and no government is going to grab onto a legacy of causing that (even if it is the right choice for affordable housing).
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