Thursday, February 11, 2021 / by Mario Daniel Sconza
I think, upon reflection, that we must remember that the GTA condominium market is fundamentally strong. Speaking of fundamentals, there are 7 points that come to mind to reinforce this: 5 demand-based and 2 supply-based. But before we get into the objective quantitative analytical stuff, let's talk for a moment about Toronto.
Toronto is a great city. It is safe, tolerant, multicultural, the world's envy with its arts, restaurants, neighbourhoods, parks and ravines...it is truly an incredible city! We all are fortunate to live here and many worldwide would agree.
1. Immigration, there are two schools of thought – build the wall or open up. Canada has averaged about 260,000 new immigrants per year for the last several years. Our government realizes that immigration brings talent and prosperity. We are expecting 1.2 million new immigrants over the next three years. Historically most come to Ontario and most of those people settle in the GTA. This is an incredible stimulus to our city that helps Toronto prosper.
2. Job Growth/Creation – Toronto has created more new tech jobs in the last five years than New York, Washington D.C., Seattle, Austin and Silicon Valley combined. This is incredible and is a trend that will continue.
3. Interest Rates – are at unprecedented lows. According to a recent article in The Economist magazine, financial-induced recessions/slowdowns were analyzed over hundreds of years compared to pandemic-induced slowdowns. The observation was that when a pandemic-induced slowdown occurs, interest rates stay much lower longer, which virtually guarantee high asset prices (i.e., real estate).
4. Global comparison – Toronto by size is the 4th largest city in North America; however, Toronto is not even in the top 50 cities worldwide. The world thinks and operates in US dollars, so based on this, Canada is 30% less expensive with a lot of room to grow.
5. Price appreciation – the last buyer's market we had in the GTA for an extended period of time was between 1990 to 1994. Since 1995, prices have increased virtually every year. Volumes dropped temporarily during Dot Com crisis 2000/2001, SARS 2002/2003, Financial crisis 2008/2009 and COVID-19 2020. Buying and owning Toronto real estate is one of the best and safest investments you can make.
6. Supply – CMHC says that the GTA needs 50,000 – 55,000 new homes per year to maintain a balanced market (i.e., modest appreciation 2-4% per year). Over the last 10 years, the GTA has received a total of about 30,000 to 40,000 new homes per year. This is far short of what is needed.
7. The Greenbelt – in 2005 over 2 million acres of potential development land was frozen by the provincial Greenbelt legislation. This preserved precious farmland but effectively choked most of the supply of affordable low rise, single-family homes. Before the Green-belt legislation (pre-2005), two-thirds of the new home supply was low rise. By 2015, only one-third of the GTA new home supply was low rise at significantly higher prices. The volume of condominiums brought to the market after 2005 has increased dramatically, but the supply is still insufficient to satisfy the demand. CIBC stated in a report that the most expensive real estate in the world is typically in the places with limited supply, such as islands (New York, Hong Kong, Singapore). The same study suggested that Greenbelt legislation effectively turned Toronto into an island.
These are all facts rather than my opinions.