Toronto real estate prices are being pushed higher by supply… to an extent. Real estate agents would have you believe that it’s the only factor driving prices higher. Meanwhile, NIMBYs would have you believe it plays no part in pricing. As always, the truth is somewhere in the middle. Supply is a contributing factor to prices, but the scarcity of supply in the Greater Toronto Area (GTA) is greatly overstated.
Supply is a complicated topic, so over the next few weeks we’re hoping to demystify some of the numbers for the GTA. It’s true that cities like Toronto have never been more dense, and prices have taken off partially as a result. Now, we’re not going to discuss whether this price increase is justified or not (so put away your shivs). We’re just going to go over some of the key numbers anyone looking at real estate needs to know, before diving into much deeper analysis.
Toronto’s Population Grew 6.18%
The population of the GTA increased, but not all that fast. Census 2016 recorded a population count of 5,928,040, an increase of 6.18% from the previous Census in 2011. That works out to 344,976 more people over five years. Annualized that’s 1.23% per year, or 68,995 people. Population in the GTA is growing, but this would be the slowest pace in decades.
Source: CREA, Statistics Canada.
Toronto’s Dwelling Stock Grew 7.49%
The total number of homes also increased as well. Census 2016 reported 2,235,145 dwellings, which is a 7.49% increase from the previous Census. That’s 155,686 more private dwellings added to the stock over five years. Annualized, this works out to 1.49% per year, or an average of 31,137 dwellings per year. This tells us that housing supply did grow faster than population growth.
Source: CREA, Statistics Canada.
Toronto Prices Increased 49.2%
You already know prices made a huge jump between May 2011 and May 2016, but here’s the numbers to remind you. In May 2016, the price of a typical home in Toronto was $635,600, an increase of 49.2% from the same month in 2011. That works out to an annualized rate of 9.84%, or an average of $41,940 per year. Yes, there’s a good chance your house made more money than you did, working like a sucker.
Prices Rise Almost 8%, For Each Percent Increase of Population
Each percent of population increase, translated to an average price increase of 7.97%. As long as a city becomes more dense, price growth will typically grow faster than inflation. However, how do buyers determine how much more home prices rise than inflation? Arbitrarily.
Turns out, most people don’t sit down and work out fundamentals before pricing the value of a home. Shocker, right? Population did become more dense, which means prices should be rising faster than the rate of inflation. However, supply scarcity may have been greatly overstated, which means land panic premiums are not warranted.
Over the next few weeks we’ll dive over additional pricing factors, like building and zoning constraints, labour, and land value. Also, whether you should give a damn. Just because a developer made bad spending decisions, doesn’t mean a homebuyer should always pick up the cost. It also doesn’t mean a price increase due to poor project management, should translate to price increases across the resale market.
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