New condo prices are rising, a good amount of GTA residents are apparently “miserable,” and some renters are “seriously considering” moving out of the Greater Toronto Area due to high housing prices.
To get a better grasp on housing prices in the GTA, we reached out to Ben Myers, President of Bullpen Research & Consulting Inc., to answer a few of our questions.
Newinhomes.com (NIH): According to the recent Angus Reid Institute findings, 47% of GTA residents believe housing prices are high because the GTA is a desirable location. 30% blame low interest rates, 35% blame wealthy investors, and 42% blame foreign investment. What would you say is the main cause of high housing prices in the GTA?
Ben Myers (BM): The main cause of high housing prices is a lack of new supply, especially low-rise housing supply. The Yellowbelt, the Greenbelt, Lake Ontario to the south, intensification targets, under-funding of sewer and water infrastructure, NIMBY pushback at the planning stage, and lack of government spending on affordable and social housing have prevented supply from reaching the 50,000+ new units required annually to keep up with demand.
There are several other major factors including the fact that population growth in Ontario is close to the highest level in over 40 years, employment growth is strong, and we’re attracting top talent from across the globe.
There is no doubt that low interest rates, speculative buying, and offshore capital have played a role in rising housing prices, but not to the extent that the lack of low-rise housing supply and immigration have.
NIH: A shocking 27% of GTA residents are hoping for housing prices to drop by 30% or more over the next few years – essentially a major crash. Do you see this happening? What could cause it?
BM: I’d be interested in knowing how that 27% breaks down between owners and renters. If you don’t own a home, you may want to see prices crash so you can afford something. I’d be surprised people would want to see the value of their biggest asset drop by 30%.
The problem with a renter hoping for a housing crash is they typically happen in tandem with a recession, where consumer spending is declining and there is widespread job loss. After a 30% decline in prices, is that renter going to feel comfortable buying? Maybe they’ll wait until prices start to rise again, but perhaps that’s just the proverbial dead cat bounce. I’ve never understood someone cheering for a recession and financial ruin for others, so they can gain.
I certainly don’t expect a price drop of that magnitude, especially after the major correction that occurred last year. If anything could cause a housing crash in Canada, I’d say it emanated from a black swan like global financial situation, like a currency crisis or a terrorist event. I wouldn’t be surprised if that crisis was started from a Trump tweet!
NIH: Do you believe housing prices have peaked or are they still climbing?
BM: House prices have not peaked in the GTA. We’re on the same trajectory as New York, San Francisco, London, Hong Kong. Condo apartment prices are topping $1,000 per square foot for non-luxury downtown product, I wouldn’t be surprised if it was $2,000 per square foot in less than 10 years.
I expect demand to remain high, while the number of new units will shrink, while the cost to deliver that supply is skyrocketing: There are fewer downtown sites to develop, land costs are spiking, construction costs are spiking, the elimination of the OMB will reduce the number and height of towers, well-intentioned planning policies like TOcore will increase average unit sizes and thus average prices while reducing total units built, higher interest rates will drive financing costs up, increasing financial regulation will reduce the availability of upfront equity, municipalities are raising their fees and development charges while lengthening the approvals process, the intensification target is increasing, land speculation is increasing, and the Greenbelt is expanding, to name a few!
NIH: How about access to TREB sold data? Will this affect housing prices?
BM: I don’t think the opening of TREB data will impact housing prices, if people really wanted to know the value of homes that have traded near them, there are free sites out there that have published data for years, or like me, they would pay for a subscription to Teranet’s Geowarehouse program. It will just lead to more people trying and failing to sell their home privately.
NIH: Are you surprised that 59% of renters are “seriously considering” leaving the GTA due to high housing costs?
BM: It doesn’t shock me that people would want to leave the GTA for more affordable housing. In my consulting practice, I see GTA-based buyers fueling housing demand in places like Peterborough, Orillia, Niagara Falls, and Kitchener-Waterloo. If a family doesn’t want to raise their children in a high-rise building, or commute from the outer suburbs because those are the only affordable options, it might make more financial sense to look for a job and a home in a less expensive market. If you’re a single person working in a field that doesn’t pay well and you have no family that ties you here, a move out of the GTA seems like a logical consideration.
NIH: The survey results suggest that there is an overwhelming amount of support for the government to get further involved to cool the market. Do you agree?
BM: I certainly haven’t heard as many rumblings about more government intervention in addition to the Fair Housing Plan, OMB reform, and the new mortgage stress test – in fact, I’m hearing more complaints about the recent moves than support for more. If anything, I see people grumble about the elevated level of immigration and the recent surge in refugees, which they believe has contributed to surging real estate prices. What they don’t realize is you can have that elevated level of demand via immigration, if you permitted enough supply to offset that demand.
Once again, we extend a big thank you to Ben Myers for taking the time to discuss housing prices in the GTA!