TORONTO—The average selling price of all homes in the Greater Toronto Area skyrocketed last month, climbing 33.2 percent from a year ago to $916,567. The latest data from the Toronto Real Estate Board comes as policy-makers mull potential measures to slow the rapid pace of price growth.
Here are some of the factors believed to be playing a role in the upwards trajectory of house prices in Canada’s largest city.
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,” said Dianne Usher, senior vice-president at Johnston and Daniel, a division of Royal LePage.
Lack of Supply
In 2005, the Ontario government introduced the Places to Grow Act, a piece of legislation aimed at protecting the Greenbelt and curbing urban sprawl. 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,” said 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,” said CIBC economist Benjamin Tal. However, the degree to which interest rates are fuelling the housing market may be diminishing, said Tal. “When interest rates are very low for a long period of time, they lose their effectiveness,” he said.
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,” said Usher. The influx of foreign cash into the Toronto market may have increased, said Tal, as some investors who were eyeing Vancouver may have opted to avoid the 15 percent tax in that city.
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.
“Over the past year, we started seeing prices rising on a year-over-year basis by more than 30 percent. You cannot have 30 percent increase in prices without some speculative activity happening.”