This week, TREB published its numbers for April and 2015 was one for the record books. With over 11,300 sales being reported last month, it was the busiest April in the history of the Toronto Real Estate Board. With so much interest in the market these days, we thought it would be fun to look back at how the GTA real estate market has evolved over the past decade and led up to this point in time. Here is an article we published this past October in our 10 year anniversary edition of COLLECTIONS magazine, and written by our friend and occasional contributor George Carras from RealNet Canada Inc., Canada’s leading real estate information services company.
The Greater Toronto Area (GTA) has transitioned away from ground-oriented housing toward high-density condominium housing over the last decade and the shift has had a profound impact on the market.
With Harvey Kalles Real Estate’s COLLECTIONS magazine now celebrating its 10th anniversary, we thought it would be fun to take a look at how the market has evolved since issue #1 hit the streets in 2004. Interestingly, COLLECTIONS has had a ringside seat to a definitive era, with some of the most important changes in the history of the GTA property market having occurred over the past decade. Housing markets are highly complex and are shaped through the response to a multitude of interconnected forces. A simple formula helps explain the evolution of the market conditions. Outcome = Event + Response. Market outcomes are both a function of the events taking place, and more importantly, the response to those events.
Understanding the response to four key events over the last decade is essential to understanding the majority of the current market conditions.
The first notable event in this context has been population growth. During the last decade, the GTA’s population grew by approximately one million people, and that event produced a demand response to develop more housing. Technology today makes it possible to take the “shop” out of shopping and the “place” out of workplace, but people fundamentally need a place to live. Whether they own or rent may be a function of choice or economics, but the fact remains that population growth has been and continues to be a main driver for the need for new housing in the GTA.
The second defining event during the last decade was the introduction of a series of new land use policy initiatives established by the provincial government during the 2005/2006 time period. Unfortunately, these changes are not well known to most people, despite the major influence they have on the housing market today. These policies were about managing growth through intensification, and included the introduction of the Green Belt Act and the Places to Grow legislation, which essentially prescribed a “grow up and not out” approach to the future of the Golden Horseshoe region. The response to this event was the shift toward high-rise development and away from more traditional ground-oriented housing forms, producing an extremity condition in the market between low-rise and high-rise home types.
The third defining event was the great financial crisis of 2008, and the interest rate response that followed. Since Canada was in a relatively better economic condition than most other countries during this time, the decline in the interest rate environment that followed the financial crisis helped support home price affordability through a period of uncertainty.
The fourth defining event was transit — less so regarding the delivery of new transit, but rather the lack of new transit being built across the region to help implement the intensification strategy. While intensification was the plan for land use, it was not well-matched by new transit. As a result, the ensuing gridlock is causing major commuting challenges across the region, unable to efficiently connect where people work and where they live. These conditions are currently reflected in property values, and will continue to be influential until new transit options are in place.
Back in 2004, the region’s population growth was largely satisfied through the creation of more ground-oriented housing forms (detached homes, semi-detached homes, townhomes and links). Look at the difference the last decade has made in the housing market. In 2004, the most commonly purchased new housing type was the single family, detached dwelling, outselling apartment condominiums by a ratio of two to one. The average size of those detached homes at the time was 2,409 square feet. The average price paid for one of these detached homes back then was $371,063, representing an average unit price of $154 per square foot.
Fast forward to 2014, where the most commonly purchased unit type is now the condominium apartment; condos outsell detached homes by a ratio of almost three to one. The average size of apartment living space is now 806 square feet, making the size of the most common form of new housing about a third of the size of what was most commonly purchased 10 years ago. At an average selling price of $472,270, the cost of a new condominium apartment in the GTA comes in around $586 per square foot. That is an increase of 281 percent in price per square foot over the past decade.
Intensification has been producing an extremity condition in the GTA housing market that is set to continue. Those extremities are reflected in the supply, size and price between low-rise and high-rise housing in the GTA. As of June 30, the REALNET® New Home Price Index for a low-rise home in the GTA reached a new record high of $680,529, representing an increase of 6.6 percent from last year, while the Price Index for a high-rise home grew by only 1.5 percent.
The widening price difference between the two forms of housing is a very important insight towards better understandingthe overall GTA housing market. While the average price difference in the past was approximately $75,000, that price difference has been growing steadily since 2011 to a new record gap of over $243,000. That gap is likely to continue to grow in the future due to government supply policies.
The market going forward will continue to be influenced by our collective responses to these and future events. The new housing we are building today will be the stock for the resale market in the future. While the region is expected to grow by another 2.4 million people over the course of the next 24 years, and the intensification policies of “grow up and not out” remain in effect, expect the price of the home types that we are making less of to rise in relation to those that we are making more of. Also, anticipate that size and convenience trade-offs will be a bigger part of the housing decision in the years ahead. As we look to the future, there will likely be three moves available to the average family seeking affordable options — move up, move out or move in:
MOVE UP and embrace family living in smaller spaces in urban high-rise developments.
MOVE OUT and deal with commuting to the outskirts of the Greater Golden Horseshoe in order to acquire affordable ground-oriented housing.
MOVE IN. With an aging baby boom generation owning most of the detached housing in the GTA, and their children now forming new families, moving in together could well become a necessary strategy to overcoming affordable housing challenges.