View of Toronto from an apartment window
The fact is that the gap in average prices for condominium apartments and detached houses has now reached a maximum and crossed a certain psychological threshold, currently standing at about $320,000. And this is not just about Toronto or Vancouver, which serve as a barometer for Canada's condominium market; the same picture is observed in all major cities across the country. Over the past 10 years, the difference has doubled, reflecting the overall trend in Canadian real estate prices. In cities, detached houses have risen in price by an average of 90%, while condominium apartments have risen by 48%.
The largest gap is observed in Vancouver, where house prices have risen by 120%, while condominium apartments have risen by only 50%. The picture is practically the same in Toronto and Calgary
Realities of the detached house market
There is a perfectly rational explanation for this phenomenon. The fact is that both in Toronto and in other Canadian metropolitan areas there is an acute shortage of land for development. Therefore, land is becoming more expensive, leading to an increase in the cost of detached houses, as well as the cost of land for multi-story construction.
As a side effect, this leads to a decrease in activity on the private home market in good neighborhoods, as owners rightly believe that selling a house makes no sense since it is appreciating year after year.
In turn, the reduction in supply on the market leads to the fact that homeowners who would like to change their neighborhood or move to a house more suitable for their current situation do not take this step for fear of not finding what they want. All this leads to a chain reaction of listings being washed out of the market, the emergence of panic demand, and rising prices.
As a result, it can be said that at present, houses in Toronto are becoming inaccessible to a large category of potential buyers. Currently, on the private home market, the main participants in transactions are those who already own property, as well as wealthy newcomers – typically foreigners who have earned fortunes in other countries and are investing money in Canada.
For those who are just entering the Toronto real estate market and do not have sufficient funds, the only affordable option at present is to buy a condominium apartment. As for those who still want to purchase their own house, it is worth looking at the suburbs, but keeping in mind that commuting to the city center will take at least an hour (and longer during rush hour).
Why are condominium apartment prices rising more slowly?
The fact that prices in the condominium market are rising much more slowly than for detached houses also has a logical explanation. First of all, this can be explained by the large volume of condominium construction. The boom in condominium construction that began more than 15 years ago continues to this day and shows no signs of slowing down.
It is precisely the large volume of condominium construction that is the main factor stabilizing prices in the condominium market and making them still affordable for first-time home buyers.
Another factor can be considered that traditionally builders erected buildings with small apartments intended for single people or families without children. As a rule, these are young people with no large savings. Many were helped by their parents when buying. The same category is the main tenant of condominium apartments purchased by investors for subsequent rental.
A distinctive feature of this category of citizens is limited funds and an inability to pay more. Therefore, the absence on the condominium market of groups of buyers willing to pay more for small apartments also restrains price growth.
This situation forces construction companies, for whom the cost of construction is constantly rising, to seek solutions to keep selling prices from noticeable increases. And since there are no miracles, the solutions come down to increasing the number of floors, reducing construction quality, and decreasing apartment sizes. At the same time, prices for apartments in new homes from builders are rising, but not as quickly as they could.
Psychological aspect of the condominium market
I think that the condominium construction boom in Canada will continue for quite some time. After all, as is known, there is a catastrophic shortage of detached houses within the city limits, their prices have risen significantly and continue to increase rapidly. Therefore, there are simply no alternatives to condominiums, especially when it comes to living near the business district or in popular areas.
But there is another factor that has appeared not too long ago – a change in attitude toward living in condominiums. As recently as 10–15 years ago in Toronto, living in high-rises was the lot of low-income people or young people just starting out in life. Every self-respecting member of society was simply obliged to own a house. Not to rent a dwelling, but to own it.
At present, this mindset is changing dramatically. Living in condominiums is becoming the norm, and in many cases it is even preferred over living in a detached house in the suburbs. Recently, more and more people are choosing this lifestyle, moving into condominiums from their own homes.
But the most numerous category is, of course, those young people who lived in small apartments, grew up, started families, and want to continue living where they are used to.
This trend is gaining momentum, and builders have seized upon it. Recently, many more condominiums with two-bedroom or even three-bedroom apartments designed for full families have been built. Until recently, such apartments were relatively rare.
It is worth adding that buying two-bedroom apartments for rental is more profitable than one-bedroom ones. In general, demand for this type of apartment emerged about five years ago, but by now it has become more pronounced, and builders have begun to include more two-bedroom apartments in their projects.
Elena Ryabinina.
"Russky Toronto".