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Recently we’ve been talking about California’s Proposition 13 and how it may be creating a disincentive for longtime homeowners to move. They’re enjoying below market property taxes, and so they stay put, even if they may have too much house.
But this concept of “overhousing” isn’t unique to California. The Globe and Mail just ran a piece talking about how Toronto’s designated “Neighborhoods” are losing people as the nests empty out, seniors remain put, and the broader city booms.
The rate of depopulation that created the spare bedrooms in Toronto’s low-rise neighbourhoods is stark: “Since 2001, about 52 per cent of the land mass of Toronto has reduced in density of population by about 201,000 people,” Mr. Smetanin says. “Other parts of Toronto have grown by 492,000.”
The irony of this phenomenon is that the city’s Official Plan considers these Neighborhoods to be “physically stable”, as well as “one of the keys to Toronto’s success.” However, things are clearly changing behind that physical stability.
CIBC World Markets recently published this report by Benjamin Tal talking about the Toronto and Vancouver housing markets. Here is an excerpt:
“But when the fog clears it will become evident that the long-term trajectory of the market will show even tighter conditions. The supply issues facing centres such as Toronto and Vancouver will worsen and demand is routinely understated. Short of a significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure.”
It’s a good read. Worth your time.
One stat that stood out and directly relates to some of the topics that we frequently talk about on this blog is the shift in Toronto from low-rise to high-rise housing.
In the report there’s a chart showing the “change in [housing unit] completions” in 2016 as compared to 2000. The switch from low-rise to high-rise is almost 1:1 in Toronto. In other words, we substituted high-rise housing for low-rise housing.
I think this speaks volumes about the fundamentals underpinning the Toronto condo/apartment market. We are continuing to build up because it is the future of housing in this city.
Over the past 5 years or so, real estate headlines in the Greater Toronto Area have often focused on the rapid appreciation of low-rise housing. High-rise housing simply wasn’t appreciating at the same rate – at least in aggregate terms.
But 2017 has brought a different story.
If you look at BILD’s “New Homes Monthly Market Report” (data provided by Altus Group as of July 2017), you can see that high-rise pricing is now on a similar trajectory to low-rise pricing.
Here is that graph:
This sharp uptick in pricing is also apparent when you look at the average price per square foot of new high-rise inventory. As of July, it was $764 psf across the GTA. See below.
At the same time, average unit sizes have also jumped up to 871 square feet. So not only are new high-rise homes becoming more expensive on a normalized basis, they are also getting bigger, which further increases prices.
I recognize that we’re only seeing data up to the end of July, but, from the looks of it, 2017 is shaping up to be an extraordinary year for the condo.
Of course, part of the reason this is happening is because remaining inventory for both low-rise and high-rise product is hitting 10-year lows. We’re back to the topic of supply.
If you’re curious how some of these numbers have changed from the month prior (June 2017), check out this post.
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