Canada's Condominium Magazine
Whatever their personal preference might be, in the end people have to live where they can afford to live. Asked where they would choose to live if money were no object—in this instance that meant having a budget of $750,000—about half of respondents to a Fortress Real Developments poll picked a single-family home in the outer/inner suburbs; another 10 per cent chose a bungalow “in the country”; and 27 per cent opted for a spacious condo of 1,000–1,500 square feet, either downtown or outside the core.
Where people currently live is also an important factor in where they would consider moving to if they needed to move. Nearly two-thirds of current homeowners said they would prefer to stay close to where they lived now, while 38 per cent said they would move to where they could have a larger residence. And in a related question, 60 per cent of respondents said they would be unwilling to increase their commute time for the sake of a larger home. Of those who would increase their commute time, a small percentage would endure an extra hour of commuting every day to have an extra 1,000 square feet in their home.
These results, published in the Spring 2017 Market Manuscript from Fortress Real Developments, give an insight into how homebuyers and would-be homebuyers are coping with the housing “crisis” currently rattling Toronto. Given that government policy, for the time being at any rate, precludes the kind of free-ranging development that existed before 2006, attitudes appear to be changing slowly regarding what is considered acceptable housing.
For example, nearly half (47 per cent) of respondents now see condominiums as a likely home choice for families within the next five years or so, assuming that builders provide condos that are large enough for families. At present, there is a perception that there are not enough family-friendly condos in Toronto, and that it is still more economical to buy outside the downtown core and commute.
Working against this outcome are a couple of factors, including many families’ preference for buying in the resale market where timing is exact—you take possession on the closing date agreed upon with the vendor, not when the developer of a new-built condo says you can.
The other factor is the reality that developers naturally cater to their buyers, most of whom, according to the Fortress report, are “hold-and-rent investors” who prefer smaller units that are easier to rent. If developers are forced to include larger, family-friendly units in their buildings, they must discount some of them to sell them, says Ben Myers, author of the Fortress report. To recoup the lost costs, they raise the prices on other units. Further, many of the larger two-bedroom plus den or three-bedroom suites are in fact built by downsizing buyers or investors looking to rent by the bedroom, not by families.
As for developers, it appears that many of them have accepted intensification as the new normal; 43 per cent now see suburban or urban infill, and high-rise condominium developments as the direction in which their business will be going over the next ten years.
With the high and unexpected price growth in 2016, there is much debate regarding the market dynamics that are pushing up values. In their December Financial System Review, the Bank of Canada indicated that “strong fundamentals underpin housing markets in the Greater Vancouver Area and Greater Toronto Area, but self-reinforcing price expectations may also be supporting price increases.” In other words, people keep buying at higher prices, because they assume house prices will continue to increase.
On the bigger questions—what is driving demand for housing in Canada? Why are prices rising so fast? How many homes are we building each year?—the report provides some answers as well.
In 2016, for example, housing starts in Canada were slightly above long-term averages. The demand is supported largely by record-high immigration numbers; in 2016 at least 300,000 newcomers entered Canada, a favourable demographic trend that is likely to continue to grow through the end of the decade, the report says. The number of Canadians in their prime home-buying years is also projected to grow.
The concept of elasticity in the housing market, which the Myers report calls the most important concept in residential housing today, refers to the ability of the market to respond quickly to demand. When demand increases, prices also increase, but so does supply, thus maintaining balance. In an inelastic market, on the other hand, demand merely drives prices higher, without the addition of new supply. Prices in the resale market in Toronto continue to rise, say some experts, because “self-reinforcing price expectations” support the rise. People assume that if they don’t buy today, they will have to pay more tomorrow. A Bloomberg Nanos poll is cited, in which 84 per cent of respondents expressed the belief that prices would continue to rise in 2017.
Other factors at play in the price of housing include rising disposable incomes and lower mortgage rates.
The Fortress report concludes its section on Toronto on an optimistic note. The fundamental driver of the market has been a demand that outstrips supply. Some of the demand comes from foreign buyers (though no one knows precisely how much), some from investors, and some demand is driven by low interest rates. None of these sources of demand is likely to subside in the near term. And, with twenty consecutive years of price growth in the GTA, there is ample evidence to suggest that rapid price growth is not as problematic as it appears “on the surface.”