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Toronto Doesn't Have A Housing Bubble

Written by Posted On Friday, 09 August 2019 09:45
Toronto Doesn't Have A Housing Bubble

On any given day, you might encounter an article about Canada’s real estate market and the impending crash. For first time home buyers — or those who are counting on their real estate properties to fund their retirement — this news can be unsettling. But what do we make of these predictions and this talk of a bubble?

In my opinion, there’s isn’t one, at least not in Toronto. I’m not suggesting that prices will always rise or that we wont see pauses in the market, or even a slight decline. But the idea that prices will suddenly bottom out just isn’t realistic.

In Toronto, we’re used to hearing this sort of news — the media has been talking about the housing bubble in Toronto for the better part of a decade, and all the while prices have continued to rise. It’s not just up and coming neighbourhoods that have seen growth; even condos for sale in high end neighbourhoods like Yorkville and King West continue to increase in value. And though many would suggest the increase has to stop sometime soon, it doesn’t, not as long as people want to live in Toronto.

Low Supply

Toronto suffers from an extremely low supply of housing which has lead to very high prices, so much so that there’s no simple fix or government policy that can quickly turn things around; that, coupled with the fact that Toronto is growing faster than any other city in North America, means that Toronto’s notoriously low supply of housing will be stretched even further.

As Jason Mercer of TREB put it: “supply is more of less flatlined.” Prices in Toronto are in part dictated by supply and as long as supply remains low, prices will remain high. Federal and provincial government policy might attempt to curb prices, but as we’ve seen in the past, these polices often trigger a pause in buying only to have things heat up again a short time later.

Another issue with supply is that much of it is being scooped up by investors — thus, even if housing supply greatly increased in the GTA, it might not result in falling prices.

The Cost of Rent Is Motivating Buyers

While one might suggest that buyers will move to the sidelines in favour of renting, vacancy rates for rentals are at historic lows and the cost of rent is at historic highs. Because the cost of rent is tied to mortgages and investors don’t lose money on a rental, the cost of rent will rise alongside the monthly payment of a mortgage.

Recently, rental control laws were lifted for any unit which was occupied for the first time after November 15, 2018, meaning that all new rentals can allow the market to dictate the cost of rent — which can only lead to higher rents.

The competitive nature of the rental market makes buying more appealing as buyers seek stability, and if buyers cannot afford single family homes, they’ll look to condos and townhouses. We might see single family homes peak in the future and condo prices rise, however, population growth will ensure that Toronto’s limited stock of houses steadily attracts buyers as well.

Higher Prices Will Mean More Balance

Rising prices could potentially produce a more balanced market, where neighbourhoods that were overlooked are suddenly in demand, but it won’t result in a “bursting bubble”. In fact, this balancing act has already been happening as buyers move further from the downtown core in search of affordable housing — areas like Mimico and Midtown have been attracting developers who are looking to cash in on the flow of new buyers.

It’s true that Toronto might lose residents to neighbouring cities like Mississauga, Oakville, and Hamilton, but as long as Toronto is in the economic driver’s seat in Ontario, there will always be buyers who are willing to pay more to shorten their commute.

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Robert Van Rhijn

Robert Van Rhijn is a Toronto based Realtor and Broker-of-Record at Slate Realty Inc. He founded Strata.ca in 2018 — a Toronto condo website featuring data and analytics you don’t need to be a statistician to understand. You can connect with Robert at robert@strata.ca.

https://truelofts.ca/

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