Here's a potential scenario:

“When you have investors competing with first-time buyers who walk in with a couple of [baby] strollers, typically the investor is going to win,” Mr. Pasalis says. “They are well capitalized. They can pay a higher price. And this is why our home ownership rate is declining, because more and more homes are actually going into the hands of investors who rent them out, and amplifying home and amplifying condo prices. We are seeing that.”

But let's break this down a little.

Where are these first-time buyers walking into? Is it a resale home showing or is it a pre-construction showroom? If it's the latter, then we know it's going to be difficult / atypical for them to make a buy decision so far in advance. They already have multiple strollers in hand, do they want to wait 4-7 years for their pre-construction home to be ready?

I would also add that in our current environment -- where investor demand for pre-construction homes has waned significantly -- the development industry has not seen a marked uptick in end-user demand. Why are they not stepping up now that they're not being outbid by investors? In my opinion, it's an ideal time to buy!

One reason could be that people who own strollers still largely prefer low-rise housing. Maybe it's for reasons of affordability, maybe it's a cultural bias, or maybe it's a genuine preference. Either way, let's turn our attention to resale homes. In this scenario, who is likely to pay the most?

If you're an investor, then you are looking for a specific yield. And so in theory, it should be a mostly dispassionate decision: "Here's the most that I can pay in order to meet my minimum returns. Do not exceed." But the question is whether is this is going to be more or less than what a stroller-owning group of people would pay.

The answer is probably that it depends. However, if the answer is that the investor wins and they then turn around and rent it to people who own strollers, is this actually a problem? And if this same investor happens to own 25 other rental homes and they're all rented to people who own strollers, is this an even greater problem?

I suppose it is a problem if you're worried about Canada's homeownership rate, which has in fact declined from about 69% (in 2011) to 66.5% (in 2021). But what does this even mean? Is a higher homeownership rate always better? Does Canada have a target number? As of February of this year, the homeownership rate in Switzerland was only about 36.3%. And the last time I checked, it was still a rich country.

There is nothing wrong with renting. I know wealthy people who have opted to rent their entire life because they enjoyed the flexibility and/or had better places to put their money.

All of this said, the argument in the above scenario is that, but for investors outbidding people with strollers, these homes would be more affordable and that would in turn increase the homeownership rate. It's a similar argument to, but for foreign buyers or but for Airbnbs, these homes would be more affordable.

But in a city like Toronto, we are building very little in the way of new low-rise houses. New supply is virtually non-existent. Similarly in Seattle, they are now building more accessory dwelling units than they are single-family houses. So it is any wonder that demand is constantly outstripping supply and that prices are being bid up?

In my opinion, a better solution is to rethink how we build our low-rise neighborhoods. And here and here are two good places to start.

The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply? 

Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite. That creates an additional income stream and helps with overall affordability.

In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at Junction House.) 

But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.

Here's a potential scenario:

“When you have investors competing with first-time buyers who walk in with a couple of [baby] strollers, typically the investor is going to win,” Mr. Pasalis says. “They are well capitalized. They can pay a higher price. And this is why our home ownership rate is declining, because more and more homes are actually going into the hands of investors who rent them out, and amplifying home and amplifying condo prices. We are seeing that.”

But let's break this down a little.

Where are these first-time buyers walking into? Is it a resale home showing or is it a pre-construction showroom? If it's the latter, then we know it's going to be difficult / atypical for them to make a buy decision so far in advance. They already have multiple strollers in hand, do they want to wait 4-7 years for their pre-construction home to be ready?

I would also add that in our current environment -- where investor demand for pre-construction homes has waned significantly -- the development industry has not seen a marked uptick in end-user demand. Why are they not stepping up now that they're not being outbid by investors? In my opinion, it's an ideal time to buy!

One reason could be that people who own strollers still largely prefer low-rise housing. Maybe it's for reasons of affordability, maybe it's a cultural bias, or maybe it's a genuine preference. Either way, let's turn our attention to resale homes. In this scenario, who is likely to pay the most?

If you're an investor, then you are looking for a specific yield. And so in theory, it should be a mostly dispassionate decision: "Here's the most that I can pay in order to meet my minimum returns. Do not exceed." But the question is whether is this is going to be more or less than what a stroller-owning group of people would pay.

The answer is probably that it depends. However, if the answer is that the investor wins and they then turn around and rent it to people who own strollers, is this actually a problem? And if this same investor happens to own 25 other rental homes and they're all rented to people who own strollers, is this an even greater problem?

I suppose it is a problem if you're worried about Canada's homeownership rate, which has in fact declined from about 69% (in 2011) to 66.5% (in 2021). But what does this even mean? Is a higher homeownership rate always better? Does Canada have a target number? As of February of this year, the homeownership rate in Switzerland was only about 36.3%. And the last time I checked, it was still a rich country.

There is nothing wrong with renting. I know wealthy people who have opted to rent their entire life because they enjoyed the flexibility and/or had better places to put their money.

All of this said, the argument in the above scenario is that, but for investors outbidding people with strollers, these homes would be more affordable and that would in turn increase the homeownership rate. It's a similar argument to, but for foreign buyers or but for Airbnbs, these homes would be more affordable.

But in a city like Toronto, we are building very little in the way of new low-rise houses. New supply is virtually non-existent. Similarly in Seattle, they are now building more accessory dwelling units than they are single-family houses. So it is any wonder that demand is constantly outstripping supply and that prices are being bid up?

In my opinion, a better solution is to rethink how we build our low-rise neighborhoods. And here and here are two good places to start.

The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply? 

Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite. That creates an additional income stream and helps with overall affordability.

In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at Junction House.) 

But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.