Toronto is experiencing an acute shortage of land for construction
Let me give some statistics. In May, price growth for real estate reached a new high – the average price for a detached house within municipal Toronto was 1 million 150 thousand dollars, which is 18.2% higher than prices in May 2014. In the suburbs of Toronto, the so-called zone 905, or the Greater Toronto Area, the average price for a detached house rose to $735,915, which is 13.6% higher than last year's prices. The average price for condominium apartments within municipal Toronto rose to $422,947.
The growth is, generally speaking, impressive. However, like any statistics, these figures do not give a complete picture of what is happening, and certainly do not explain the reasons behind the rise in prices. At the same time, without understanding the logic of the processes, it is completely impossible to predict what to expect next and in which direction the market will develop. In particular, there is interest in the question: why are prices for detached houses rising, and at such a pace?
It has been repeatedly said that Toronto is experiencing an acute shortage of land for construction. There is practically none; everything is built up. Even in the suburbs, where the remaining vacant lots and farmland on the outskirts are being developed, builders have to find free land plots with great difficulty. Currently, one can observe the following picture everywhere: development of plots that have long been untouched. It feels like municipalities are forced to give permission for construction where it was previously prohibited or undesirable. Undoubtedly, this situation of land shortage for new development leads to increased demand and pushes prices up.
Another reason for price growth is the rapid population growth and changes in its composition. Like any prosperous metropolis, Toronto constantly attracts new residents because there are many more opportunities to succeed. As a result, the demand for housing does not decrease, but rather only increases.
The natural growth of the metropolis has also been influenced by the fact that Toronto is considered one of the best cities in the world for living and doing business, with relatively low real estate prices. This has led to Toronto ranking first in the rating of the world's 'hottest' cities for investment in luxury real estate among wealthy individuals. In particular, a report by Christie's for 2015 states that out of the 80 most significant cities in the world, investors show the greatest interest in buying real estate precisely in Toronto.
As I have already mentioned, one of the most important factors for this interest in Toronto real estate is the relatively low prices. For example, while the most expensive estates in Toronto are valued at around 25-30 million dollars, similar properties in New York or the French Riviera cost around 140-150 million dollars.
There is another factor that is now taken into account by investors – the weakening Canadian dollar. Due to the weakening of the Canadian dollar caused by the drop in energy prices, real estate in Toronto has become significantly cheaper in US dollar terms.
Given the completely different price levels, one can fully expect continued interest in Toronto real estate investments, and along with that, price growth.
I also want to draw attention to another subtlety. The statistics presented refer to the average price of a house and the average price increase. However, this does not mean that prices for all houses grew at such a rate.
Those who live in Toronto can confirm that there is a massive redevelopment of the old housing sector underway in the city. Purchasing a plot with an old house, demolishing it, and building a large new house on the plot has become widespread. In particularly sought-after areas, sometimes half of the houses on a street are in a state of complete redevelopment.
As a rule, after such redevelopment, the cost of a new house at least doubles compared to the old one. Naturally, when calculating the average price of houses in Toronto, the new price is taken. This affects such an indicator as the average price increase per year. As a result, in many cases, it is not about price growth for existing houses, but about the appearance of new houses at a much higher price. Therefore, the actual price growth for detached houses in Toronto was not 18.2%, but less.
The same applies to the suburbs, although there the real picture of price growth is closer to the statistical one, since redevelopment is ongoing but not on such a scale. There, however, new construction is much larger, which also distorts the real picture of price growth, but not as much as in the municipal Toronto area.
In any case, according to my own estimates, the real price growth for detached houses is significantly higher than 10% per year. And so far there are no signs that this growth will stop.
Read the continuation of the article:
WHERE ARE CONDOMINIUMS GOING