Real estate prices in Toronto show no signs of slowing down, as demand continues to outpace available supply. Lack of infrastructure and vast bureaucracy mean this problem will likely continue for the foreseeable future.
Home prices in the Greater Toronto Area (GTA) are rising at a record-set- ting pace, permanently squeezing locals and first-time buyers out of the market. But behind the headlines and complaints about lack of affordability is a much more fundamental problem: Toronto has a massive shortage of housing supply. A lack of infrastructure is making things worse. The population of the GTA has expand- ed significantly over the past ten years, but housing supply has dropped. New home inventories are currently less than half of what they were a decade ago. In 2006, the GTA had 30,400 new homes available on the market. By 2016, that figure had dropped to just 13,670. This decline is even more significant in low-rise markets, where the number of detached, semi-detached and townhomes declined from 17,529 to only 1,876 over the same period. At the same time, the GTA’s population surged more than 17% in the past de- cade. Something isn’t adding up. A deep dive into the numbers shows two major roadblocks to building more homes: lack of infrastructure and more bureaucratic red tape. Both feed off and reinforce one another, creating a scenario of seemingly endless price growth in the available housing stock. In complying with provincial policies, developers have been building and selling fewer low-rise homes than they did a decade ago. However, demand for these types of homes has not declined with supply. In fact, demand has increased, leading to a sharp acceleration in prices. Below is a break- down of average home prices in the GTA every year:
• Detached: $974,698 • Semi-detached: $673,738 • Townhouse: $621,601 • Condo townhouse: $476,824 • Condo apartment: $416,252 A lack of low-rise availability is pushing more buyers into condos and high-rises. Builder inventories of high-rise con- dos fell last year to their lowest level in a decade, while average prices for those homes surged to a new record. For developers that want to build, a cumbersome approval process and stringent zoning bylaws further delay the process. This is a direct result of the government’s intensification policy combined with fewer serviced land. Despite popular belief, the issue to the GTA’s sup- ply shortage is not a lack of available land. Instead, the problem is a lack of available property with critical infra- structure that makes housing development possible. In the GTA, this is due to years of underinvestment. Industry experts note that most land currently set aside for growth has no access to water or waste management services. The lack of infrastructure is causing a chain reaction in real estate pricing, especially in and around major transportation routes like the TTC and Go Stations, where home prices are the highest. The chain effect is not merely concentrated in the downtown core but stretches as far east as Oshawa and around the golden horseshoe into Hamilton. A lack of land stock suitable for dense development also means that new projects cannot possibly ad- dress the lack of housing supply in Canada’s most populous region.
There’s a strong reason to believe the supply crunch will continue as more people move to the region. The population of the GTA is estimated to be around 6.8 million in 2016. That’s an increase of more than 8% over the past five years. Estimates show the region’s population will climb above 7 million in 2019 and approach 8 million by 2026. Policymakers, therefore, have a signifiant hurdle in front of them: streamline the development approval process while making land development sites infrastructure-ready. A failure to ad- dress these challenges will only intensify the supply crunch. References  Bryan Tuckey (January 28, 2017). “Past time to tackle the GTA’s housing supply crunch.” The Star.  TheRealEstateToronto.ca (January 13, 2017). “Real estate property price trend in Toronto.”  Bryan Tuckey (January 28, 2017). “Past time to tackle the GTA’s housing supply crunch.” The Star.  Toronto Star (October 15, 2016). ‘Why there’s a lack of shovel-ready land.”  Greater Toronto Marketing Alliance. Population Forecast and Growth Rate.