Prices for residential real estate soared in the Greater Toronto Area in 2016 and the trend is expected to continue in 2017.
“The high cost of real estate in Toronto is across the board— in resale homes, new high-rise condos and low-rise houses,” said Scott Davie, former vice president with Milborne Real Estate.
Just why are GTA prices so high and what’s driving them up? Davie recently sat down with the Epoch Times to explain what’s behind the continued escalation in home and condo prices.
There are several factors driving housing demand, Davie explained, including low interest rates and immigration. About 120,000 new immigrants choose to move to the GTA each year. These people aren’t just those from foreign countries who have opted to make Toronto their home. The collapse of Alberta’s oil-based economy and the loss of 200,000 jobs has immigrants who would normally choose Alberta as a place to live to looking to Ontario instead.
Many Canadians who have lost jobs in the west are also moving to the GTA where they have better employment opportunities. This has been happening for several years and will continue for the foreseeable future, said Davie.
In the Toronto area, there is also a housing supply problem, said Davie. Toronto area developers are limited in the number of new homes and condos they can build.
The Ontario government restricted the amount of land that can be used for development, with legislation such as the Oak Ridges Moraine Act of 2001 that prohibits development on 190,000 hectares deemed as environmentally sensitive, and the Ontario Greenbelt Plan, enacted a decade ago, that protects 800,000 hectares surrounding the Golden Horseshoe and runs through the GTA.
This protected land has created a barrier that has limited expansion of the GTA from Brampton to Oshawa, while at the same time demand for homes is increasing. This has put upward pressure on house prices, Davie explained, and caused former small communities such as Milton, Caledon, Bradford, and northeast Markham to boom as developers look for places where they can build. The land shortage has also been compounded by lengthy delays in the municipal approvals process, as it can take in excess of a year for a project to get approval and on the market, said Davie.
The taxes imposed on pre-construction homes and condos are another factor affecting prices. These include HST, education levies, park levies, development charges, Section 37 charges (for community benefits such as parks, libraries, etc.), Ontario Land Transfer Tax and in some cases, the Toronto Land Transfer Tax.
Buyers of new homes and condos in the GTA are paying a staggering 15 to 20 percent of the purchase price in taxes. That would be $150,000 of the cost of a $1 million new house or $75,000 of a $500,000 new condo, Davie pointed out.
To recap, Davie said the price escalation is due to: the number of new immigrants coming to Toronto beyond what the GTA can comfortably absorb; the limits on land available for development; and massive taxes.
While the increasing prices have been good news for GTA baby boomers who are the wealthiest generation ever, thanks in large part to their investment in real estate, said Davie, it’s not good news for the current generation of twenty-somethings. They will be the first generation since the Industrial Revolution who will have a lower standard of living than their parents. They will struggle to afford down payments for homes or condos and will likely live in much smaller spaces than the ones they grew up in, due to affordability.
The federal government has also imposed new mortgage qualifications on first-time buyers that will take a number of them out of the market because they won’t be able to get mortgages with major banks. The vast majority will still be able to arrange financing, albeit they may have to deal with alternative lenders other than the big banks and pay higher interest rates, said Davie.
He also pointed out that while a recent Ontario government announcement does offer first-time buyers a $2,000 Land Transfer Tax rebate, at the same time purchasers of homes of $2 million or more will have a $10,000 increase in their Land Transfer Tax.
The major factors driving up home prices in the GTA—immigration, land constraints and taxes—have all been created by government, Davie pointed out, and suggested perhaps it’s time for government to stop ‘helping’ the housing market.
Davie, who has more than 30 years’ experience in the GTA real estate market and has worked for Milborne Real Estate for the past decade, will be lauching his own business, Davie Real Estate Inc., in early 2017.
He plans to work with developers who are interested in doing innovative things in terms of architecture, design, public relations, and marketing, and who desire to bring creative new projects to the Toronto area market.
Tracy Hanes is a GTA-based freelance writer specializing in the real estate market.