The cost of Toronto area real estate soared again in March, with the average price jumping 33.2 per cent from the same month last year and nearly five per cent from February.
The Toronto Real Estate Board (TREB) reported Wednesday that the average price in the area rose to $916,567 last month, up from $688,011 in March 2016 and up 4.6 per cent from $875,983 in February 2017.
TREB said that demand for housing in Canada’s most populated area continues to exceed supply, one of the underlying causes of the huge price increases.
The real estate board reported that the number of properties listed for sale was up by 15.2 per cent from the same time last year – but the number of sales rose by 17.7 per cent.
Meanwhile, Mayor John Tory said the situation is deeply troubling to a lot of people who are trying to buy homes in Toronto. He said responsible, effective action is needed to tackle the issue.
Cynthia Holmes, a professor at the Ted Rogers School of Management, said based on her calculations a household income of $180,000 is needed to afford a house in Toronto. That number does not include hydro and other maintenance fees. According to Statistics Canada’s data from 2014, the average medium income for families in the city is $75,270.
Ontario Finance Minister Charles Sousa has indicated there will be measures in the province’s upcoming budget to address the housing market.
The average price for detached houses in the GTA was $1.2 million in March – up 33.4 per cent from last year but about the same as in February.
The average price for semi-detached homes in the GTA was up 34.4 per cent at $858,202, the average townhouse price was up 32.9 per cent at $705.078 and the average condo apartment price was up 33.1 per cent at $518,879.
For each type of housing, average prices were higher in the 416 area code area covering the City of Toronto itself than in the surrounding 905 area code.
The MLS home price index, which adjusts for the various types of properties sold, was up 28.6 per cent from a year ago.
Jason Mercer, TREB’s director of market analysis, said that rate of price increases accelerated in March because demand continued to grow faster than supply. He also suggested the trend will likely continue.
“A substantial period of months in which listings growth is greater than sales growth will be required to bring the GTA housing market back into balance,” Mercer said in a statement.
TREB has argued against government intervention, such as a tax on foreign home buyers that Ontario’s finance minister said last month is under consideration, and repeated in Wednesday’s report that politicians need to tread cautiously.
“Policy makers must remember that it is the interplay between the demand for and supply of listings that influences price growth,” TREB president Larry Cerqua said.
Here are some of the factors believed to be playing a role in the upwards trajectory of house prices in Canada’s largest city.
Immigration: The arrival of newcomers to the city is a frequently cited reason for rising prices. Roughly 120,000 people immigrated from outside of Canada into Ontario from July 1, 2015 to June 30, 2016, according to Statistics Canada, with a sizable portion of them landing in the Toronto area. “Toronto is a magnet for both other Canadians and for people from other countries, and it’s the economic engine of the entire country,” says Dianne Usher, senior vice-president at Johnston and Daniel, a division of Royal LePage.
Lack of supply: One of the culprits often fingered for soaring prices in the Greater Toronto Area is the lack of developable land. In 2005, the Ontario government introduced the Places to Grow Act, a piece of legislature aimed at protecting the Greenbelt and curbing urban sprawl. However, the legislation is often also blamed for soaring real estate prices, as some argue there isn’t enough land to build homes.
Taxes: Usher says the two land transfer taxes that Torontonians have to pay have also discouraged many from selling their homes, further exacerbating the supply problem. “It’s stopping people from moving up,” says Usher. “They’re renovating and adding on instead of moving.”
Low interest rates: Borrowing rates have been hovering near record lows for nearly a decade, making mortgages attractive and propelling buyers into the market. “Low interest rates clearly have been a very significant factor,” says CIBC economist Benjamin Tal. However, the degree to which interest rates are fuelling the housing market may be diminishing, says Tal. “When interest rates are very low for a long period of time, they lose their effectiveness,” he says.
Foreign buyers: Ontario Finance Minister Charles Sousa has floated the idea of implementing a tax on foreign buyers similar to the one implemented in Vancouver last year. But whether or not foreign money is playing a significant role in Toronto remains a point of contention. “We don’t have the data to determine the volume of foreign buyers,” says Usher. The influx of foreign cash into the Toronto market may have increased says Tal, as some investors who were eyeing Vancouver may have opted to avoid the 15 per cent tax.
Speculators: Speculative investing – purchasing a home in the hopes of turning a profit, rather than to live in – has been in the spotlight lately as one possible explanation for accelerating home prices in the Greater Toronto Area. Tal says the steep rise in prices over the course of 2016 and early 2017 suggests that something beyond the usual supply and demand factors is at play. “If you look at the trajectory of house prices in the GTA, until 2016 it was robust but it was predictable,” says Tal. “Then, over the past year, we started seeing prices rising on a year-over-year basis by more than 30 per cent. You can not have 30 per cent increase in prices without some speculative activity happening.”