With the recent closure of tech real estate brokerage TheRedPin, it’s become clear that Toronto’s affordability crisis is putting pressure on all areas of real estate, from buyers to brokerages.
Toronto’s affordability crisis began when the city saw an unprecedented surge in housing prices in the winter of 2017. That surge came just after B.C. introduced a 15% tax on foreign buyers in 2016, setting a new precedent for government intervention and changing real estate in Canada in a big way. Is it fair to say that B.C.’s foreign-buyer tax was the spark for our affordability crisis?
Let’s look at the sales data.*
What caused Toronto’s affordability crisis?
Back in August 2016, the average condo in Toronto was selling for $529/PSF. That was the month that B.C. introduced the Foreign Buyer Tax, a 15% tax on residential property purchases by foreign nationals or foreign-owned corporations.
By April 2017, the average condo in Toronto was selling for $687/PSF. That’s a 29.8% increase.
Now consider sales activity during that time.
There were roughly 2,374 Toronto condo sales in April 2017, which is on par with the 2,377 condo sales in April 2016.
The similar number of condo sales during the high spring real estate season indicates that Toronto’s monthly condo inventory sits around 2,000 to 2,500 units. Sales in both 2016 and 2017 were essentially as high as the city’s inventory would allow. So why was there a near 30% price difference?
Huge price increases in real estate rarely happen unless there is a lot of demand competition. Well, we all remember the vicious bidding-wars in the winter of 2017. The Toronto real estate market was flooded with far more active buyers than 2016.
Where did all those buyers come from?
The data and the timing strongly suggest that they were displaced demand from the B.C. real estate market. Maybe not all foreign buyers, but simply active buyers, investors, and speculators who were discouraged from purchasing in B.C. for one reason or another.
That huge western wave of buyers drove up real estate prices in Toronto, and it impacted every sector from freehold houses to basement apartment rentals.
The prices softened just a little in the spring when Ontario implemented its own Non-Resident Speculation Tax and the Fair Housing Plan. We know now, however, that the impact was more psychological than anything else, because the prices picked up in the summer, steadied into the fall, and have risen again this spring to an average of $725/PSF
Considering Toronto’s condo price and sales data, there is a direct correlation with the B.C. foreign-buyer tax. There was certainly a large shift in buyer activity from Vancouver to Toronto during the winter and spring of 2017. Mere coincidence?
If you look at condo sales in Vancouver during that period, you see a notable decrease in activity.
How did Vancouver real estate impact Toronto?
In May of 2016, there were 783 condo sales in Vancouver. In the months that followed, the news spread that the B.C. government was planning to implement a 15% tax on foreign buyers. That tax came into effect August 2, 2016.
Guess what happened?
There were 689 condo sales in June 2016, 574 sales in July, and 429 condo sales in August 2016. Summer can often experience a slowdown in real estate activity, but looking back just one year, we see there were 679 condo sales in August 2015. That’s a year-over-year drop of 250 sales.
Vancouver’s fall season saw a continued slowdown in condo sales, culminating in only 266 condo sales in December.
It is very difficult to believe that active buyers and investors, who were previously very interested in purchasing Canadian real estate in Vancouver, simply walked away from their real estate pursuits. Instead, they turned their attention to the Toronto market.
And now, the average two-bedroom condo in Toronto is selling for $710,685.
Seven. Hundred. Thousand. Dollars.
Is there another cause for this?
Is Toronto’s affordability crisis a national real estate issue?
Surprisingly, the condo market in Toronto is performing well. Demand is strong, and prices continue to rise. That is due largely to the $1,000,000 entry point into the freehold market, as well as the limited supply of housing in the city.
Condos are selling well in the $500,000 – $700,000 range–the market’s so-called “sweet-spot.” However, those prices present a very real affordability crisis for many prospective buyers. And the situation is much more critical than simply saying Toronto is a world-class city. Toronto certainly is a world-class city, without a doubt, but it’s a world-class city suffering from a domestic affordability crisis.
While many young people are managing to find opportunities to purchase a valuable condo or home in Toronto, another cohort of our city’s population is deciding to move away from Toronto, seeking homes and futures they can invest in elsewhere.
We released a study back in September of 2016 comparing global condo prices, which showed Toronto was actually quite affordable relative to other cities around the world. But that was before the B.C. foreign buyer tax, before the huge shift in buyer demand and activity, before the implementation of Ontario’s Fair Housing legislation, before a $200 increase in average rental rates, and a 29.8% increase in average condo sale prices.
With the extent of new development happening in Toronto, you would think we would be free from the pains of an affordability crisis. Just take a look at these slides from Joe Berridge’s presentation at the Institute on Municipal Finance & Governance to get a sense of Toronto’s development from 2000 to 2025.
The City of Toronto is rapidly growing, building new urban hubs for people to live and work. And yet our affordability crisis is very real, and the data suggests it began with a shift of real estate activity from the west coast.
We don’t really want to blame Vancouver for Toronto’s current situation. Prospective homeowners in Vancouver are in an even tougher situation, with the average condo selling around $1,000/PSF. What we want to address is that all areas of real estate in Vancouver and Toronto are under pressure these days, from buyers to brokerages. Did you hear about the closure of TheRedPin?
Canada is a wonderful place to live, and the global demand to purchase residential property in Canada isn’t going away. Shifting the demand from Vancouver to Toronto is just kicking the can down the provincial road. B.C.’s foreign buyer tax legislation did impact Toronto real estate. But should we blame B.C. for Toronto’s affordability crisis?
No. Of course not.
It would be more helpful to stop thinking about Canadian real estate with the polarized mindset of Toronto vs Vancouver. It’s clear that changes in provincial policies and legislation can have much broader, national impact. We are all in a housing-affordability crisis, and the younger generations can only run so far before the fate of our major cities catches up with them.
*Data sourced via Condos.ca Market Report as of June 19, 2018