Toronto

If Toronto Real Estate Doesn’t Have A Speculation Problem, It’s Overbuilding By 40%

If Toronto Real Estate Doesn’t Have A Speculation Problem, It’s Overbuilding By 40%

Still convinced that the city of Toronto needs to build more housing to bring down prices? It’s a growing city, and housing all these people is applying pressure to prices. Makes sense, but unfortunately there’s no data to support that. Actually, the data shows the opposite. Basic analysis shows the city might be overbuilding by over 40% for the current rate of growth.

Toronto’s Population, and Households

Toronto’s population grew, but not as much as you might think. Population growth slowed from 9% in the 2011 Census, to just 6.2% in the 2016 Census. The 2016 Census counts 5,928,040 people in Toronto, which is 344,976 more people than 2011. It’s solid growth, but it is slowing.

The number of people living in each household didn’t change much either. In 2016, there were 2,135,909 households in Toronto Census Metropolitan Area (CMA). This works out to an average of 2.77 people per occupied home. The number in 2011 was 2.8 people per home, making it only slightly less in 2016. So there’s little reason to think everyone is buying single person pods.

Completions of Homes

Despite slower population growth in the last Census, building completions accelerated. From 2012 to 2016, Toronto CMA saw 175,825 homes completed. This represents a 9.75% increase from the period prior. That’s a home for every 1.96 people that moved to the area, and 41% more than the average household size. That would have to be a pretty wide margin of error from all levels of government for there to be a “shortage” of homes.

Toronto Home Completions Vs Estimated Use

Source: CMHC, Better Dwelling.

Overbuilding By 41%, Or Accommodating Speculators?

So what’s happening with those extra units? Well let’s see. A few months ago our robo-researcher identified 1 in 3 homes listed for resale in Toronto were being sold as never having been occupied. Then there’s the 99,236 vacant homes in the city. The latter is a number so large that Paris, a city with just a few thousand more vacant units, is calling it an emergency. That considered, this sounds a lot like plain ole speculation. The fact that China’s capital outflows are reversing this year, also means it’s most likely domestic speculation.

This doesn’t mean that prices should necessarily come down. Commodities are worth what people are willing to pay for them. It does mean that no amount of building will bring down prices without a change to buyer mentality. Great time to make money as a seller, bad time to be a young person trying to start out in this city.

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5 Comments

  • Reply
    Sam 7 months ago

    Hi, thanks for your insightful posts. Do you recommend a young family with 100k saving to enter to the condo market in Toronto now, or keep renting and wait for markets to cool off?

    • Reply
      Stephen Punwasi 7 months ago

      Thanks for the kind words! I don’t like to tell people what to do with their money, but I’d be happy to give my opinion.

      There’s an emotional factor to buying a home that can’t be quantified. To certain people, having that home is more important than the investment factor. If you’re the type of person that’s always dreamed of owning you home, don’t put your life on hold because market conditions don’t fit your narrative. Just don’t over extend yourself financially, and if you overpay a little consider it the cost of your dream. I’ve wasted much more money on much less.

      If you’re looking at it from a financial perspective, that’s a little different. To get a rough idea, I would take the cost of carrying a home in your budget (final cost, including carrying), and subtract what you would pay for rent. If the difference makes you uncomfortable, removes a ton of cash from your financial plan, or just seems wacky – you know what to do.

      Feel free to hit my email with any questions, [email protected]

  • Reply
    batman 7 months ago

    stephen, this is very good advice, especially how bearish better dwelling is on real estate in canada – shows that you can provide well balances advice.

    for the record, real estate in the six no longer makes sense to me. i see signs of it every day but i don’t feel like the bubble is ready to burst. and if you study historical trends, there are always the same two simple factors that cause the environment to change…lets see how long it takes for the tide to change, because it invariably will.

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