Toronto vs Vancouver: Which will have the highest house prices in a decade?
Toronto is set to rival Vancouver for high housing prices as family homes become more scarce.
Toronto could see house prices hit the stratospheric levels of Vancouver’s within a decade unless ways are found to cool demand or boost the supply of single-family homes, says one of the city’s leading housing experts.
Too much concern has been focused on Toronto’s condo boom and fears it’s about to go bust when the bigger issue for the city is the “dramatic” escalation in prices for single-family homes and demand that continues to far outstrip supply, says veteran housing consultant Barry Lyon.
There is a growing realization that the GTA housing market, and Toronto in particular, has become very much a tale of two markets — houses and high-rise condos.
And while everyone is focused on all those glass-and-steel highrises pushing up into the sky, not enough attention is on the ground where construction of new single-family homes has dropped like a rock.
Demographics, demand and the unrelenting desire to live in a house like our parents did are conspiring to drive up competition for a dwindling resource — houses — while much of what’s being built across the GTA is ever-shrinking condos.
The effects are especially being felt in older Toronto neighbourhoods close to transit.
The average price of a house in the City of Toronto hit $568,436 in April while the Holy Grail of housing — a detached single-family home — averaged $831,214, a virtual doubling in just a decade, according to Toronto Real Estate Board figures.
The typical detached home in Vancouver runs over $1 million, although the market is showing signs of softening.
Price growth in the GTA, however, of close to 10% year over year is showing no signs of letting up. The market remains so tight — with sales far outstripping active listings for much of the last four years — that bidding wars and bully bids are now occurring even in 905 neighbourhoods.
In fact, the GTA housing market has undergone such profound change over the last decade due to restrictive greenbelt policies, strong immigration, a resurgence in urban living and unrelenting demand driven by the lowest interest rates in history, that even housing experts are struggling to understand the long-term implications.
“We’re now starting to see a stabilization of high-rise (condo) pricing that is overdue and very healthy, but we don’t see any such thing coming in the single-family home market,” says Lyon.
“There just aren’t enough homes,” to satisfy demand. “It’s not out of line to believe that without government intervention in some form or another, we could see Vancouver house prices here within the decade.”
BMO Deputy chief economist Doug Porter considers the GTA the “hottest” market in the country right now. Friday the bank warned that the softening in Vancouver could see foreign investors, who helped fuel the upward push in Vancouver prices, start looking to Toronto.
While spring is traditionally the busiest period in the real estate market, the GTA buying frenzy actually started in January this year, realtors say, because of warm weather and bank mortgage-rate wars.
Last year some 17,460 new detached, semis, row and link houses sold across the GTA, a 60 per cent decline from the 38,414 sold just a decade ago, reflecting the dramatic shift from home to condo building, says George Carras of RealNet Canada who monitors the new home and condo markets for the Building Industry and Land Development Assoc. (BILD.)
Condo sales, on the other hand, almost doubled in a decade from 15,263 sales in 2002 to 28,466 last year because of the record levels of condo construction.
While all those condos have brought new life to downtown streets and office towers desperate for young talent looking to live close to work, the growing concern is their shrinking size makes them poor long-term housing prospects.
“The road ahead in all of this is taller and smaller,” says Carras, noting that the average GTA condo shrank by 52 square feet, down to 820 square feet, by the end of 2011 and lost another 30 square feet just in the first three months of this year.
While most agree provincial greenbelt policies were needed to curb sprawl and push intensification, the concern is they seem to be working with unexpected vigour, especially in pushing up already high house prices.
At the same time, more homeowners seem to be opting to stay put rather than fork over tens of thousands in real estate, land transfer taxes, legal and other fees, which is further tying up supply and driving up competition for what relatively few homes are out there, housing experts say.
While the number of resale homes traded via MLS were up 17.9% in April over a year ago, active listings rose by less than four per cent, says Jason Mercer, senior analyst with the Toronto Real Estate Board.
“If we continue to see the market conditions as tight as they are that would suggest we’re going to continue to see very strong price growth.”
Lyons’ bigger fear is what’s coming down the road unless Ottawa starts raising interest rates, even just a percentage point or so to cool the market, or builders don’t start getting more creative in catering to a full range of buyers.
“My concern is looking five and 10 years ahead when all these young people living in these downtown condos partner up and have children. They are going to be looking for houses.
“That’s a major concern that we all should have.”