You might be thinking “what is he talking about, of course house prices drop especially during recessions”. Let me explain. I am only speaking for the city of Toronto, also known as the 416. There are 3 factors I will cover:
1/Employment
2/Demand
3/Supply
EMPLOYMENT
Let’s start with employment. Imagine If you were to stand high above at the corner of Yonge & Bloor and look south to the lake, you will see the following employment sectors:
Banks, Law Firms, Accounting firms, Investment firms, Government, Hospitals, Universities, Film and Tech industry to name a few. Toronto is a multi legged economic city and is not reliant on one or two sectors to drive the demand for people to work & live here. I have read that Toronto's region economy is 20-23% of Canada’s GDP. You’ve heard the saying location, location, location. It’s really jobs, jobs, jobs.
DEMAND
Let’s look at demand. Demand is driven by immigration which the federal government is increasing number of newcomers to 500,000 by 2025 from the current 400,000. Newcomers go where the jobs are which are here in the city of Toronto.
SUPPLY
Let’s look at the supply. Ok I’ll try to be politically correct here. It’s extremely difficult to get anything built in the city. It takes years, white hair and high blood pressure. Let me give you a few examples:
Our latest design build project. If you don’t know what that means, it’s building a custom home. It took us getting the city counsellor involved to get the building department to issue the permits. The file sat in a blackhole in the city . It was magical, the counsellor’s office sent out an email to the building permit department and voila the next morning we had our permits. It’s very slow getting approvals to do anything in the city.
Another example: We want to add a parking pad to the front yard of the house on a private property. After completing the design, the application and paying the fee, the city asked us to get a petition signed by over 50% of the neighbourhood to support adding a front parking pad. After door knocking for weeks to get adequate numbers the city said they will be sending out ballots for the neighbours to vote. Not only this is a duplicate of what was done, they said it would take 8 to 12 months to get parking approval. You would think we are asking to build a condo tower!!
Another example: On another project the neighbours objected for us to build a single family home, we went to the committee of adjustment. Some of the comments and objections were: We are against the project because we don’t like the look of the house, another person questioned what colour brick would be used!! The objections were illegitimate, unreasonable and should have never been considered. The only thing the objections accomplished was to delay the process. That project, which was to build a single family home, took 12 months to get the permits and only 10 months to build. It took longer to get approval than actually building a house!! There are many more stories I can share to show building housing in the city is extremely difficult. I didn’t get into the fees and charges the city asks for. Increasing supply of housing in the city is extremely slow and difficult. I don’t see how the city will ever catch up with population growth.
City of Toronto’’s population growth is projected to grow from current 2.46 million to 3.1 million by 2031 which isn’t that far away. That’s another 600,000 people who need homes. We are not building enough to accommodate population growth.
Let's step back and look at the big picture: We have a diverse economy in the Toronto region, population growth and difficulty in adding supply. This is a recipe for house prices and rents in the city to appreciate above inflation over the long term. Yes there are economic cycles where prices dip, but expect strong growth in house prices and rents in the city. If you want to win the lottery: Buy a house and hold on for a long time. Congrats!! (Pardon the sarcasm).
Looking to buy a house in the city, reach out.
Until next time happy home hunting….
*Reference: Toronto’s projected population growth