When looking at the housing boom in Toronto it’s easy to wonder how all of the properties could be occupied. Many point to an investor bubble which will burst at some point crashing prices. There are some important factors to consider when evaluating the housing market in Toronto.
Under a high growth scenario StatsCan predicts the Canadian population will roughly double in the next 50 years (approx. 2 mortgage cycles). From 2009 to 2014 Ontario’s population is expected to increase by over 700,000. The last census showed that approx half of immigrants to Ontario settle in the GTA with 70% of those settling in Toronto. Population growth will continue to have a strong influence on the demand for homes in Toronto.
Over the next 30 years the demographic landscape will change quite dramatically as the baby boomers move through the various stages of retirement. The peak of the boomers are around 50 years old which is an age where mortgages become paid off, kids are through university, and retirement savings become a priority. The demographic effect for this dominant group over the next 10-20 years will be a weakening of demand for large family homes and a strengthening in demand for smaller homes with less maintenance (bungalows and condominiums). Over the longer term we will see a flattening in the age pyramid which should lessen the effects of any given cohort moving through life cycle changes (like we have seen with the boomers).
There is almost zero growth in the number of freehold homes (detached, semi-detached, some town homes) in Toronto. There is very little land within the city limits that can be newly zoned as residential neighbourhoods where these homes could be built. As a result the main change we see to the housing stock is conversions from smaller homes on large lots (often bungalows) to larger 3 story homes and renovations. Due to historically low interest rates we see a lot of renovation occurring in this sector. The increase in home prices has dramatically outpaced income growth but this should be expected given population growth and improvement in the quality of the homes due to a renovation boom.
Unlike the freehold home market there has been tremendous growth in condominium developments. Most notably the Concord CityPlace development along the west Waterfront. Other areas that have experienced a growth in condo devel0pments are Liberty Village, King West, Queen West, and the most surprisingly Toronto’s East end (Beach, Leslieville).
The public is concerned with the number of units being built and a potential condo bubble. It is very important to understand that there has not been any significant growth in rental developments so most of these buildings are designed to serve pent up demand for rental units. Some of the CityPlace developments are currently 90% renter occupied. The demand of rental units and the influx of new immigrants to Toronto continue to keep demand for Condos high and supply still relatively low. The best buys are currently in Toronto’s East communities; Leslieville and the Beach should be on your radar if you’re in the market.
Brian Hawrysh – Managing Director – Spring Realty Inc