Toronto is known for its beautiful architecture, an abundance of culture, and diverse communities. But when it comes to housing, there’s no denying that Toronto has been experiencing a real estate boom. The average price of a detached house for sale in Toronto is $1.2 million, according to the Toronto Real Estate Board (TREB).
So how can we explain this astronomical rise?
Despite the recession, several reasons make housing prices still high in the city. These are;
It’s a Global Market
Toronto is a city known for its multicultural population and diverse culture, but it also has a high level of diversity in race and socio-economic background. For example, there are many Asian immigrants living in Toronto, which makes up about 20% of the population.
Chinese immigrants in Toronto have steadily increased from 2000 to 2015. The average price per square foot for a detached home rose from $440 in 2000 to $1,030 in 2015.
This makes sense because Toronto has many wealthy people who want to live near downtown and commute across the city by transit or car instead of owning their vehicles.
This means that they don’t have to spend much on transportation or gas, making them more likely to purchase a house that costs more than $1 million than if they were living alone or with their families in other cities they’ve previously lived in around North America like Vancouver or Montreal where housing prices are lower.
As mentioned in our previous blog post, Toronto’s population has been steadily increasing over the years, contributing to the higher demand for housing.
With a population of 2.8 million people, Toronto can be considered one of North America’s most important markets for new housing construction and sales.
The number of houses sold within TREB’s territory also rose by 30percentt from the last ten years, demonstrating a high demand for homes in Toronto despite rising prices.
Restriction of buildings
Several urban condos for rent in Ontario for the past two decades are comprised of bedsitters and single-room units. This restricts the expansion of urban condos for rent in Ontario, condos for sale in Toronto, and housing choices for buyers, which has led to an increase in average house prices.
Toronto’s economy has been booming over the past decade, and this has created a demand for city-living in the form of condominiums. The average price of a detached house for sale in Toronto has risen by 35 percent in the past ten years, while the average house price in Toronto rose by 24 percent during that same period.
Lack of Affordable Housing
The lack of affordable housing options also contributes to high house prices in Toronto.
According to TREB, only 3,000 affordable homes are available for purchase in Toronto at an average sale price of $480,000 or less per unit. This is a significant decrease from 4,000 units available for sale at an average sale price of $520,000 or less per unit from 2014 to to-date.
A lot of these affordable homes have already been sold since 2011, and this is why there aren’t many choices available for buyers on a budget who want to buy a home within their budget.
The rising cost of living also means that people have to spend more on living expenses, which might not be possible for some people.
The recent announcement by TREB that it will be launching a new program to help buyers find affordable homes also indicates that there is a lack of affordable housing options in Toronto. This is problematic because the lack of affordable homes can be frustrating for people looking to buy their first home or move into a larger home.
As the housing market in Toronto remains competitive and the supply of affordable homes is limited, buyers should consider making offers on properties located outside of the city’s borders to save money on living expenses.
Being an Expensive City
Another reason why prices have increased so much because Toronto is rapidly becoming one of Canada’s most expensive cities. According to a Royal Bank of Canada report, Toronto is now ranked as Canada’s second-most expensive city after Vancouver (where real estate prices are also rising).
The average price per square foot for condos for sale in Toronto was $741 as of September 2015 compared with $669 in 2014, according to TREB. This means that condo prices are increasing faster than house prices.
This is because condo buyers can afford higher unit sizes and need less space than house buyers.
Toronto is also clearly experiencing a real estate boom due to investors from other countries who wish to make money from rising housing prices.
There are approximately 50,000 foreign home buyers in Toronto. This is an increase from 10,000 in 2010. To put that number into perspective, that’s more foreign buyers than the entire population of Montreal!
Foreign buyers have been attracted by Toronto’s relatively low-interest rates and lower property taxes.
This has led to high demand for housing in the city. It’s estimated that over 35 percent of all new home sales are made by non-residents.
Foreign investors have purchased these properties at a fraction of their value compared to Canadian citizens and permanent residents who must pay the provincial property transfer tax (PTT).
The PTT is calculated based on a property’s assessed value when it comes time to transfer ownership.
If you buy a house for $1 million, you’re required to pay $25,000 in taxes when you sell it instead of someone with Canadian citizenship who pays $600! That difference can add up over time!
As mentioned above, the average price per square foot for condos in downtown Toronto was $741 as of September 2015 compared with $669 in 2014, according to TREB.
What if the government imposes a heavy tax on the investors?
The introduction of this new tax may increase demand for housing and make houses more affordable while at the same time deterring investors from purchasing real estate properties.
However, it is not clear if this measure will be enough to curb Toronto’s expensive housing market and curb its growth.
Although this tax is a temporary measure, it has already been in effect for several months, showing positive results.
In May alone, the Ontario government received more than $7 million in property transfers from people affected by the tax. This amount was much higher than the $2.5 million collected in April and the $4.4 million collected in March.
The new data also revealed that 80 percent of those who made property transfers were from China and Hong Kong, highlighting that foreign buyers are a big part of Toronto’s real estate market.
However, these numbers do not include all transactions as they only focus on buyers affected by the provincial tax.
Therefore, it remains to be seen how many more buyers will be deterred by this new measure when they come across its hefty 15 percent price tag on their purchase and how many more investors will choose to invest their money elsewhere instead of investing in Toronto’s housing market.
Construction of New Condos
Aside from the investors, the city’s housing market is also experiencing a boom due to the construction of new condominiums.
This has led to increased condo units available for purchase and a corresponding drop in prices. For example, the average sale price of a condo unit in downtown Toronto increased by 28 percent compared to the other years.
Supply and Demand
It is essential not to forget about supply and demand when explaining this situation; economists have pointed out that supply does not meet demand in Greater Toronto Area (GTA). There is currently a shortage of supply in the GTA. This may be because the city has experienced rapid population growth over the past decade. In 2006, Toronto’s population was roughly 2.5 million people, but by 2016 it had grown to 2.8 million. The city’s housing stock has not kept up with this rise in population, and this has led to a higher demand for real estate, which prices have been forced to rise in response.
The federal government also announced its new mortgage rules back in October 2016, which has made it more difficult for homebuyers to qualify for mortgages with larger down payments. This could also explain why fewer houses are available than usual. Another reason why there is such an imbalance between supply and demand is the increasing popularity of condos instead of detached homes.
Condo sales have increased by 50 percent since 2012, while detached houses for sale in Toronto have only increased by seven percent during that same period. The condo boom that Toronto has been experiencing over the past few years is driven by many factors, including an increase in population and decreasing availability of single-family homes. It is now becoming increasingly challenging for homebuyers to find affordable single-family homes within the city, turning to condos instead.
There is a lot of debate over whether or not the condo boom will continue. Some analysts believe that the condo market will soon be saturated, leading to a drop in prices, while others believe that the demand for condos will keep growing for years to come.
The condo boom has not only affected homebuyers but has also affected developers as well. The rising popularity of condos has caused an increase in demand for new houses for sale in Toronto and construction projects, putting pressure on developers who have been forced to raise prices in response. The average price of a newly-built condominium increased by 0.5 percent from 2015 to 2016, mainly due to development charges (DCS) increases.
DCS are fees developers pay towards various government-funded infrastructure projects such as public transit, parks, libraries, etc. They are calculated based on how much area a building covers and how high it is built (i.e., floor space ratio). A report published by RealNet Canada Inc., a real estate data firm, found that DCs have increased by 50 percent from 2011 to 2015. This increase in DCs is one of the reasons why newly-built condominiums are becoming more expensive.
So how does someone who makes an average salary afford to live in Toronto?
First off, it’s essential to understand how housing in Toronto is priced. If you live in the city’s core and make an average salary, you will be spending about $2,000 per month on rent. However, if you live in a part of the city that is less expensive than the core, your monthly rent would be lower. For example, someone who lives near the beaches and has an average salary could expect to pay less than $1,000 per month for rent. To afford this low-rent housing, you would need to earn an income of over $40,000 per year. This is roughly the same amount that someone who makes a six-figure salary could expect to make after taxes.
People making much less than this amount of money will have a hard time paying their bills if they want to live within Toronto’s downtown core. In fact, according to a recent report by Credit Suisse, it costs almost twice as much money ($4800) as it does for those making more than $100,000 per year ($2400) just for rent in Toronto’s downtown core.
The reason why this is such a problem for low-income earners is that they don’t have enough money to live on. To illustrate this point, let’s use the example of someone who makes $20,000 per year. If they want to live in a downtown condominium and make an average salary, they would need to earn over $100,000 per year to afford the average rent of $2,000 per month. This would mean that they would only be able to save about 6% of their income each year.
However, if they want to live in a condo near the beaches and make an average salary of less than $40,000, it will cost them over twice as much money (i.e., $4800) as it does for those making more than $100,000.
This means that they will only be able to save about 2% of their income each year. In other words, low-income earners can’t afford to save much money.
For low-income earners to start saving more money, they will need to earn more money and save a more significant percentage. However, the amount of money is primarily determined by their job type and location.
For example, someone who works as an accountant in Toronto’s downtown core will likely make much more than someone who works as an accountant in a suburb of Toronto. In fact, according to StatsCan, the average annual salary for an accountant working in a city like Toronto is $82,000 per year. In contrast, the average annual salary for someone working as an accountant in a city like Barrie is only $57,000 per year.
You can see that those working as accountants in downtown Toronto earn much higher salaries than those working as accountants in Barrie.
There are many more jobs available for accountants in cities like Toronto, whereas there are fewer job opportunities for accountants in cities like Barrie.
As you can see from the above examples, it makes sense for low-income earners to move into cities with many job opportunities and high salaries. In other words, it makes sense for them to move into cities that are close to downtown or near the beach.
What about preconstruction houses for sale?
There are many preconstruction condos and houses in Toronto’s downtown core and new condos for sale. New condos are becoming more expensive as they are now being marketed as luxury units. In the past, two-story condo projects were sold at a much lower price, so buyers of high-end properties are now looking for more luxurious options.
However, if you want to live close to the beach and make an average salary of less than $40,000, you will have to pay over twice as much money as you would have to buy a pre-construction condo for sale in a suburb of Toronto.
In other words, if you want to live in a preconstruction house for sale in Toronto’s downtown core, it will cost you an average of $175,000.
On the other hand, if you want to live close to the beach and make less than $40,000, it will cost you only about $87,500. You can buy a preconstruction house for sale in Ontario than Toronto’s downtown core.
As you can see from the above examples, living within Toronto’s downtown core is very expensive for everyone except those who are well-off or very high earners.
However, this situation will likely continue unless something changes for the better.
How is this issue resolved?
To address this issue, the City of Toronto has implemented several measures to increase the housing supply.
According to the City’s Official Plan, Toronto aims to increase the number of new houses for sale built by 20 percent by 2024.
In addition, it is also planning on building more cheap houses for sale in Toronto plus affordable units and intensifying zoning in areas where these are lacking.
The City’s latest plan will also help set cheap houses for sale in Toronto by increasing density limits on certain types of land zoned for commercial purposes.
This will allow developers to build up to 9 stories on some currently zoned lots for low-rise residential development and two stories on lots zoned for industrial purposes.
The inclusion of a laneway house program will also help ease the shortage of rental properties in urban areas such as downtown and King West.
It will also provide more options for first-time homebuyers who wish to buy a home instead of renting one. This measure was finalized after years of public consultation with residents and stakeholders from various communities across the city.