As Toronto-area home prices continue to hit fresh records, governments are under pressure to look into measures in order to cool the housing markets. Three levels of government, Mayor John Tory, Ontario Finance Minister, Charles Sousa, and Federal Finance Minister, Bill Morneau agreed to not introduce any measures that would increase demand for Toronto Real Estate.
As of March 2017, year over year price charge for Toronto Real Estate was a whopping 33.2% change. The average Days on Market (DOM) declined -37.5%, as homes get snatched up quicker, due to heated demand. The escalating price growth has made the three levels of governments ‘concerned’ about the pace of Toronto-area home prices.
Immigration and strong employment are some of the main drivers that are contributing to rapid price increases. In other words, the demand continues to grow whereas the supply continues to decline. According to Statistics Canada, approximately 120,000 people immigrated into Ontario from July 1st, 2015 – June 30th, 2016. Most of these immigrants land within the Toronto-area – contributing to the growing demand. Other factors, such as all time low interest rates, and speculators have a role in the growing prices.
Mayor John Tory stated that affordability is a huge concern for the city. Many buyers are being priced out, and flocking out to other cities within the GTA, such as Ajax and Brampton. As a result, suburbs are no longer a ‘real estate bargain,’ as prices for a detached homes for the 905 regions hit the $1 million mark. Some buyers are even going out as far as Hamilton for more affordable housing. Tory says those who are priced out of Toronto commute for hours, in order to get the home they desire.
This brings up an important question – do Torontonians need to adjust their Real Estate expectations? A lot of people are focused on the detached home prices – which have reached the $1.5 million mark, as of March 2017. However, townhomes are considered to be the de-facto form of single family housing. As of March 2017, the average townhouse within Toronto was $761,128 – approximately half of the average detached home. Keep in mind, townhomes usually do provide a similar functionality to single family homes. Many home builders, such as Mattamy Homes are starting to build more 3 and 4 bedroom townhomes with open concepts.
Townhomes are much more affordable, however, the issue is supply: there are not enough townhomes within the Toronto area to accommodate for the heated demand. As of March 2017, only 1726 Toronto townhomes were sold – this is only 29% of the number of detached homes during the same period (TREB).
Mayor John Tory mentioned that the city will focus on speeding municipal building approvals for new development projects – especially for new affordable rental housing, which the city lacks of. Ontario Finance Minister, Charles Sousa, mentioned that the provincial government will unveil the housing plan before the provincial government – which is set to be delivered on April 27th. This housing plan is expected to increase supply, and address demand (such as limiting real estate speculators).
The meeting from the three levels of government essentially led to more of a hands off policy, in terms of supply. Some critics say this is a good strategy, whereas others disagree with it. Real Estate Lawyer, Bob Aaron said the governments don’t care – as they are benefiting from the Toronto real estate boom, raking in millions of dollars from land transfer tax revenues.
“They don’t care, don’t forget they’re living on the land transfer tax” – Real Estate Lawyer, Bob Aaron
There have been several measures made in the past to address the heated Toronto real estate market. One of the measures was doubling the minimum downpayment requirement for the purchase price above $500,000 to 10% (effective as of January 2016). However, similar to other measures introduced, home prices still continued to increase – at the expense of first time homebuyers being priced out, as a result of the stricter regulations.
The biggest issue in Toronto real estate is supply. Active listings have declined 35.2%, year over year, as of March 2017 (TREB). Real estate is essentially a function of demand and supply – low supply leads to higher prices. The government’s strategy of increasing supply is a good solution to address the skyrocketing prices.
The government should encourage developers to build more 3-bedroom, family friendly condo units and/or more higher density low rise development (such as townhomes, and condo townhomes). This would provide more affordable options for families looking to enter the real estate market. Increasing supply will also provide empty nesters with more choices for their next home – which would eventually increase the supply of detached homes within the Toronto area.
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Writer: Jelani Smith
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