A series of recent data points have come out that serve as a warning on the state of Canadian housing, particularly for us in Ontario. None of them is encouraging.
The first is, I confess, driven partially by an anecdote. I recently had a chance to catch up with an old friend, someone who’d lived and worked in the Toronto area and raised their children here before moving (for family reasons) out of the province. Their children, now young adults, had stayed in Toronto but have both now decided to leave. The problem, my friend told me, was rent. That was it. It was a single-issue decision. The rent in Toronto was too high, and they couldn’t find a place to live, even together, that made financial sense considering the salaries available in their fields. One is moving to another Canadian jurisdiction with more affordable housing; the other is heading to the United States. In both cases, rent is, again, the single issue. They can afford to live in the cities they can find jobs in.
I’ve been mulling that one over since I heard it a few weeks ago. Rent prices are something that are tracked, and behold! On Tuesday, we got fresh numbers. Condo rents are slightly down in Toronto. Very slightly — just over 1 per cent. A 1 per cent dip probably isn’t enough to change the calculus for the young people packing their bags, and, indeed, any causal link probably flows the other way: maybe rents have dipped slightly because so many people have given up that demand has (barely) dropped. (For reference, that’s a year-over-year number — even the newly dipped number is still massively higher than any other previous year. Condo rents, per square foot, are up 60 per cent since 2015. Which is … yikes.)
So, yeah. That’s not amazing. I always make a point of trying to fact check the interesting anecdotes I hear against whatever data is available, and I’m confident that my friend’s observation that Toronto is increasingly unaffordable for young adults checks out!
What’s interesting, though, is that this conversation and the new data about rents stabilizing and even slightly declining need to be seen in the broader context of a Toronto real-estate market that has been sending weird signals for a few months now. Single-family houses are doing fine, in terms of asset price, which is great news for the people who already own one (yay!) and bad news for anyone trying to get into one. The condo market, though, is getting battered. The problem, as succinctly summarized in a recent article in the Financial Post, is that condo prices are now at a price point where investors (the majority of purchasers) can no longer afford to buy them, particularly given higher interest rates, the recent cuts notwithstanding. But developers can’t lower the cost of construction much, due to their own costs of building, which include labour and borrowing and materials costs, plus permits and taxes.
In Toronto, we might finally have discovered the point beyond which the market could bear no more. So in Canada’s largest city, multi-unit construction — the absolute lynchpin of whatever plans we may have to tackle the housing crisis — is stalled. No one wants to build homes that they aren’t convinced will sell for a profit. Condo starts are falling, despite the absolutely insane demand for housing in the GTA. The demand is there, but the financial conditions aren’t.
Mike Moffatt, the go-to guy for all matters related to housing in this country — and what a catastrophic nightmare that job must feel like most days — had a Twitter thread earlier this week in which he looked at not just the housing numbers, but also the population numbers. Housing starts (mostly one-bedroom units) have dropped 14 per cent in Ontario. Meanwhile, over the past year, Ontario has added more than 200,000 people, roughly equal to the entire population of Oakville. As Mike quipped/lamented in his thread, the only way the math works out here is if we’re expecting to put four people into every new bed.
Which was just Mike’s charming way of saying that the math doesn’t work.
I confess to a degree of morbid fascination here. Our housing crisis is now so bad that it’s producing results that aren’t just bad — they’re absurd. I mean that in the very literal meaning of the term: “wildly unreasonable, illogical, or inappropriate.” We have put ourselves in a situation in which the following things are all true at once: housing has probably never been getting this much political attention, there is near-universal recognition that this is a major crisis demanding coordinated action, young people are leaving our biggest city because they literally can’t afford to live there, and we cannot build the houses we need — and are in fact building fewer than we previously built — because the economic incentives are now borked.
Again, the best term for this is absurd. There is no logic to any of this. But, worse, there is no easy way out of this. Until rents fall massively, young people will continue to leave to find a place they can afford to live decent lives. That won’t happen until supply ramps up massively. But supply can’t ramp up massively because the economic incentives don’t work, and, in fact, we are moving backward when our plans require us to be accelerating construction, not losing ground.
I confess I am at something of a loss here. I don’t really know how to end the column, because there isn’t much more I can say that hasn’t been said. In his thread, Moffatt noted that Canada overall is getting housing starts up, so that’s a sliver of good news. Those of us here in Ontario, though, particularly in the GTA, may be left finding ways to enjoy the increasing absurdity. If that’s even possible.
Donate