You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market. 

Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.

If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out. 

I would like to try and be a bit more nuanced than that. Here are 3 thoughts:

1)

There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that

“We came to Toronto,” she says, “because it’s a place where you can work, it’s a place where you can live well, it’s a place where there is hope.” -Jane Jacobs (1971)

It was my birthday this week (May 2nd). But it was also the birthday of someone far more noteworthy. This past May 4th marks what would have been Jane Jacob’s 100th birthday. (She passed in Toronto in 2006.)

In commemoration of this, Toronto Life published a photographic essay, along with a short piece by Joe Berridge. Joe is a partner at the urban design and planning firm Urban Strategies. He’s also a great storyteller.

Here’s an excerpt:

Jane didn’t do nice—Toronto’s default emotional setting. She was cantankerous and argumentative: once you got on the wrong side of her, that was that. About 20 years ago, when I was working as an urban planner, we were on a panel together at Boston College. I was making some remarks about city planning she clearly thought rubbish—and she just interrupted me. “Joe, Joe, Joe,” she said (her squawky Scranton, Pennsylvania, accent made it sound like “jaw, jaw, jaw”). “You’re tacking nansense.” The audience agreed. After I spoke, an incomprehensible social science professor took the stage. Jane wasn’t fond of academics—she didn’t think they knew much—but to make matters worse, he kept addressing her as Professor Jacobs. “Staap calling me prafessa,” she barked. “I barely graduated high school.” He and I both slunk offstage in shame, clutching our notes.

Toronto Life recently published an interesting article called Stuck in Condoland. A lot of people have mentioned it to me, so there seems to be a lot of interest in the topic. It basically profiles the lives of a few young families who live downtown and are trying to raise young children in relatively small condos (think 700 square feet).

I thought it was interesting because I like the idea of small and efficient living. The average post-war bungalow in Toronto was probably less than 1,000 square feet. And so this modern notion that you need a big house in order to properly raise a family is a relatively recent phenomenon. Although we’re a richer city today and that’s what happens when people become wealthier: they consume more.

But the article also makes it seem that developers only want to build small condos and that larger condos and single-family homes just aren’t profitable enough. Thus the reason all these families are being forced to into tiny shoeboxes in the sky. But that’s not really true.

Look, just like every other for-profit business on the planet, developers are concerned with making money. And so they will always look for ways to increase efficiency, drive down costs, and so on. But there are certain realities of the market that developers don’t have control over.

First, developers aren’t building new single family homes in the city (at any sort of meaningful scale) because there’s no land to do so. And because the land use policies in place and the current thinking around how we can more sustainably build our cities for the future dictate that we should be building more intensely. In other words, building up. So it’s not a question of developers not wanting to build single family homes; it’s a question of not being able to.