Tomorrow is Halloween, but to be honest, the only thing that’s kind of frightening me right now is how expensive new condos in the Greater Toronto Area are getting.
According to the latest figures from Altus Group and the Building Industry and Land Development Association, the average price of a new condo unit in the GTA increased 6.5% year-over-year to $841,159. Earlier this year in March, the average price of a new condo was $780,839. That means over the last six months, the average price of a new condo in the GTA has increased more than $60,000!
It wasn’t that long ago that the average price of a new single-family home in the GTA was hovering around $800,000, which makes me think, will the average price of a new condo hit $1 million? In September 2019, the average price of a new single-family home in the GTA was just over $1 million, down 3.4% from a year ago.
There are a couple things that could happen. I can see new condos being priced so high that it is no longer a profitable investment for those planning on renting them out. Recent figures from Urbanation found that rent for purpose-built units in the GTA hit an average of $2,515 in the third quarter of 2019. That’s the slowest rate of growth in the last two years, and during this time the vacancy rate remained basically the same. This suggests $2,500 may be the ceiling.
What if it’s the same for the condo rental market? There has to be a point where prices get so high that investors have a more difficult time finding a tenant that can afford to pay enough to make the investment worth it. If this happens and investors fall off from the new condo market, we’re going to see a big slowdown in activity, and potentially a bunch of supply on the market. This would cause prices to drop. Some first-time buyers may see this as a good thing.
Another thing I could see happening is more first-time buyers deciding to save slightly longer in order to afford a single-family home instead of a condo. There are new condos in Toronto launching at $1,200 a square foot, and new freehold townhomes in surrounding areas like Richmond Hill starting in the $800,000s.
Let’s make a comparison. Say there’s a 1,300 square foot freehold townhome in Richmond Hill for $850,000. That same amount of money would only get you 700 square feet in downtown Toronto.
At these price points, it’s no longer about what you can or can’t afford. It’s about where you want to live. Anyone who wants to live in a single-family home is going to just save longer and buy the home they want. If you want to live downtown in a walkable, convenient neighbourhood, then you’ll save for a new condo.
What I’m concerned about is that in order to accommodate the GTA’s projected population growth, we need to be building more high-density housing near major transit nodes, but according to a Toronto Real Estate Board report from 2017, only 23% of would-be buyers prefer condo living.
Where does that leave us? It seems like the only way to ensure the GTA’s housing market is healthy moving forward is to somehow generate a shift in housing preferences so that there are more households who prefer condo apartment life. How is this done? I’m still thinking about that.
All this said, the average price of a condo in Manhattan was just above $1.6 million in the third quarter of 2019, and that’s 14% lower than a year ago! So, maybe I’m worrying too early and there is still plenty of room for new condo prices to rise and investors to make money!