Toronto Is in a Housing Bubble

http://www.greaterfool.ca/2017/03/04/its-official-its-a-bubble/

by kspaans • 9 years ago

121 120 9 years ago

martinald2• 9 years ago

Is there any city that is actually managing to provide enough housing inventory these days? SF, London, NY, Vancouver, Toronto etc - all seem to have low inventories.

Is it simply that there is a multiyear lag before inventory starts coming on stream, or is there some fundamental reason why these larger cities can't provide enough housing?

tmnvix• 9 years ago

I'm not convinced that all of these places are suffering a shortage of accommodation (a shortage of property investment opportunities, certainly).

It's worth remembering that a speculative boom creates extra demand.

As far as I recall it was almost universally accepted that Ireland had a shortage of supply ten years ago. Then the GFC happened and it very quickly became apparent that the shortage was of investment opportunities, not homes.

EDIT:

For some actual data related to this phenomenon, consider the Speculative Vacancies Report[0] published each year by Melbourne group Prosper Australia. Melbourne is, like many major anglosphere cities (London, Sydney, Vancouver, Auckland, etc), suffering something of a property price crisis. Each year Prosper Australia determines which Melbourne properties are vacant using water consumption data provided by the city's water utilities[1].

If you accept the narrative that is usually presented in the media; "prices are high because of a shortage of homes", then you would expect areas with the highest capital gains to be closely correlated with the areas that have the lowest vacancy rates. In actual fact the correlation is unintuitively the other way around - the areas with the highest capital gains have the highest vacancy rates (approaching 30% in the case of Melbourne's Docklands area).

[0] https://www.prosper.org.au/2015/12/09/speculative-vacancies-...

[1] Compare with the method for determining vacancy rates that is typically reported in the media: asking property managers what proportion of properties on their books are currently vacant.

sengork• 9 years ago

Good info. Just to add onto the speculation as to why so many new places are vacant at Docklands I would say that it has to do with foreign owners who want to park (secure) their money outside of their country. We've never had so many empty properties and at the same time so many homeless people around the city area (there seems to be direct correlation between the two).

patrickaljord• 9 years ago

Zoning laws and building heights restrictions and other regulations are to blame. Basically, it's hard to provide enough inventory when doing so in a way that would help (build more buildings and higher ones that can receive more people) is illegal. Why do such regulations exist? Several reasons:

* nepotism, current owners want to keep the inventory low so the price of their property and demand remain high

* nepotism, because owners are afraid tall building will make their city less appealing and lower the price of their property.

* silly zoning laws, because many believe central planning is actually a good thing despite the ridiculous amount of evidence that it doesn't work.

* simple inertia, bad laws and regulations are created all the time but almost never repealed.

I'm probably missing a few other reasons I'm sure others will point them out.

Also something worth saying, owners love to say that adding taller buildings and more buildings and people would kill the spirit of the city. But preventing new buildings has a effect of super high prices that makes it impossible to live in the city, in the end only billionaires can buy homes as investment and don't even live there while the few other building are rented to a few lucky high salary people which creates tension with the rest of the population. So you get a city full of empty houses, super rich people, high salary folks and regular people who are getting kicked out. Real people start living outside the city and its spirit is gone anyway.

jonstewart2• 9 years ago

"Nepotism" is favoritism shown to family relatives. I think the word you're looking for "NIBMYism".

robk• 9 years ago

Some planning seems to work. Portland is one of the most planned cities with its border definition yet it remains very livable. Although I suppose the lack of jobs means pressure is reduced.

ggcdn4• 9 years ago

Some zoning rules could be beneficial. For instance, if cities started mandating 15% of new apartments had to be rentals, or 40% have to be 3 bedrooms, etc. Right now, much of the new housing stock coming online isn't really useful for anyone but single wealthy individuals or speculative investors. And so, without zoning restrictions, we are ending up with cities full of $400,000 empty 1-bedroom condos.

mafribe• 9 years ago

   current owners want to keep the     
   inventory low [...] owners are 
   afraid tall building

I'm slightly sceptical of this argument, because every individual new building isn't enough to impact the market.

In big cities the value of a low-rise house is almost entirely the value of the land on which it sits, and the owners would vastly increase their wealth if the zoning laws were changed so as to allow high-rise construction. Source of information: I own a low-rise house in the center of one of the world's biggest and most expensive cities, and I've tried hard to get building permission for adding a single floor, but that was denied on ground of making my building "out of character" with the neighbouring building.

I suspect that re-zoning is simply not a vote-winner (like e.g. adding a new runway to an airport), so politicians from all sides shy away from it.

ryanbrunner• 9 years ago

Eh, if anything Toronto works against this theory. Skyscraper development has been a constant part of Toronto for the last ~ 15 years, to the point that the skyline is unrecognizable from what it looked like in 2000. More skyscrapers are built in Toronto than anywhere else in North America.

godzillabrennus• 9 years ago

Chicago is doing a good job. Lots of construction, lots of good returns for investors, and a lot of perks associated with being a large city.

The media focused on the south side murder rate but if you are north of the city there are plenty of safe and wonderful places to live.

HorizonXP2• 9 years ago

Toronto and SF are very different cities with different housing problems.

My interpretation is that in SF, NIMBYism and city council members have blocked most efforts to build high-density housing. This means that it forces the prices on available housing up. SF is experiencing a huge influx of people wanting to live there, and there just aren't enough houses. Affordability is a big issue, and probably the biggest, but there are people that are able to afford the high prices. That line won't go on forever though.

Toronto has not shunned construction, far from it. We've built thousands of condo units. The problem is that they were built for investors in mind. Oh sure, if you're single or a couple, you could manage to get by in a 450-600 sf. 1BD 1BA condo, but as soon as you start to have a family, it feels cramped. A 2BR unit helps, and they exist, but there are not that many. Furthermore, our mentality in Toronto is that to raise a family, you must live in a house. That means moving out to suburbia.

A single-family home, townhouse, semi-detached, or detached, is always going to be in high demand, no matter where you are. In Toronto, it's what most of us were raised in. Getting us to move families into condos is a huge undertaking, and it's made impossible by the fact that developers don't want to build these units simply because no one buys them. It's a vicious cycle. So Toronto's issue isn't a lack of construction, it's a lack of foresight.

Finally, all large cities have this issue because of commuting. In Toronto, your options to get to work in the city are:

1) Live downtown, close to work to walk, bus, or subway in

2) Live in suburbia and spend 0.75-1.5 hours each way driving and/or commuting by bus or train

If you try to find more affordable housing by living further from the city, you start hating your life as you commute the 2+ hours in. It's like trying to live in Walnut Creek and work in SF. It can be done, but why?

Housing is a multi-faceted problem that isn't simply solved by just building more houses. You need to adjust people's expectations, habits, and start building viable transportation options to help move people.

martinald2• 9 years ago

Surely for a growing city what you need is 1bed apartments, for young workers moving to the city? At least in London 1 or 2bed apartments go very quickly off plan, but 3 and 4 bed apartments are really slow to move.

joshlemer3• 9 years ago

I don't quite understand the often made claim that there is simultaneously a dearth of 2+ bedroom apartments in Toronto, as well as a huge demand for them, as well as them being unprofitable for developers.

Shouldn't savvy investors be able to see the market opportunity and put money into larger units?

amyjess2• 9 years ago

If you try to find more affordable housing by living further from the city, you start hating your life as you commute the 2+ hours in. It's like trying to live in Walnut Creek and work in SF. It can be done, but why?

The answer to this is to pressure companies to move their offices out to the suburbs.

One of the reasons why Texas still has affordable housing with good commutes is because a lot of companies have abandoned the traditional central business districts and moved into boomburbs and edge cities.

I live in the burbs, and of the four jobs I've had here, I've commuted farther out into the burbs for three of them (with a 15-20 minute commute by car). The one company I worked for that had offices downtown was the most poorly-run company I've ever worked for; them having offices in a place where no other tech company has offices was the least of my problems with them, but I did think "what tech company in Dallas makes people commute downtown?" when I was working there.

Why are people in Toronto's suburbs not just working in the suburbs? Is it because the businesses there are still stuck in the old model of having all their offices downtown? If so, let's throw huge financial incentives at them to get them to move their offices to the suburbs.

I've been mulling around an idea for a while of placing massive tax penalties on companies that hire people to work in a different county from where they live. Let's make employers pay ten times the income tax on every employee that lives outside the county where they work, and at the same time make it illegal for companies to make a current employee move or discriminate against a potential hire based on where they live. This will make them relocate to where their employees actually live. Or at least get them to switch as much of their workforce to remote as they can. I'm fine either way.

selectodude• 9 years ago

Chicago is doing a pretty good job. In fact, condo values in the downtown area are flat over the last 5 years because of all the new inventory that comes on every 6 months. We could do so much better here, but it's a start.

ggcdn4• 9 years ago

I can't speak about other places, but the design and construction industry in Vancouver is working flat-out and has been since the slowdown in 2008-2010. My employer (engineering consultant) has a backlog of several months of design work. And if the developers want it sooner? Nothing they can do, because all our competitors are the same way.

And if they somehow got it sooner? Still nothing they can do, because all the supply chain is also backlogged! You need to contract with a rebar installer now if you want to start building your fancy new condo in 2019.

Tiktaalik2• 9 years ago

This is why the "just add more supply" argument is so flimsy. It assumes that cities aren't adding more supply, and it assumes that there are no real physical constraints to growth.

The City of Vancouver raised development fees in order to hire more people to approve development faster. Some will say they're still apparently not adding supply fast enough. Maybe the rate of supply creation isn't the problem here...

ng12• 9 years ago

I think New York is doing great. They're rezoning neighborhoods in Queens and Brooklyn to allow for more high-density housing. One of my favorite little factoids is that Brooklyn had four different tallest buildings in 2016 and they were all residential. And it's working -- average rents in Brooklyn are dropping.

Apocryphon3• 9 years ago

Montréal?

titanomachy2• 9 years ago

Definitely. I think Berlin as well, the housing there seems remarkably affordable relative to incomes.

simlevesque2• 9 years ago

No Montréal is horrible don't go there you won't like it.

jseliger• 9 years ago

Tokyo: http://www.ft.com/cms/s/0/023562e2-54a6-11e6-befd-2fc0c26b3c....

Houston and Dallas: http://time.com/80005/why-texas-is-our-future/ or, somewhat less usefully, http://www.forbes.com/sites/scottbeyer/2016/08/31/why-is-aus....

The big problem is zoning: https://object.cato.org/sites/cato.org/files/serials/files/r... as it was implemented in the '70s: http://www.amazon.com/Zoning-Rules-Economics-Land-Regulation...

By the way, there is much heat in discussions about housing prices and urban development, but very little light and much misunderstanding. A good rule of thumb is simple: If you don't see any reliable sources being cited, there's a good chance that the assertions aren't true or don't encapsulate the most important parts of the supply-demand picture.

amyjess2• 9 years ago

The real reason Dallas and Houston are growing fast while remaining affordable is because we can sprawl forever.

The Dallas area has no natural boundaries whatsoever; there are no mountains and no coast, nothing to stop development from sprawling out constantly. I was born in 1984, and I've lived in Dallas my entire life. I've seen the suburbs balloon in size like you wouldn't believe; and I'm not just talking population here, but area. The idea that we have continuous suburban development extending all the way north to Prosper (and soon Celina) blows my mind. Suburban development used to peter out in the northern half of Plano, and honestly southern Plano wasn't fully built-out either (there even used to be huge unincorporated enclaves in Plano).

Another is business culture; companies, especially tech companies, have largely chosen to avoid the central business district and instead locate their offices in the edge cities [0] and the boomburbs [1]. Blame historical happenstance: this phenomenon was entirely thanks to two companies who decided in the 1950s to locate their offices in Richardson instead of Dallas. One was Texas Instruments, which was founded as a startup in Richardson (none of the founders were native Texans, oddly enough), and the other was Collins Radio (now Rockwell-Collins), an established company from Iowa who decided to put their Texas campus in Richardson. Between the two of them, anyone in North Texas who wanted into the tech industry worked in Richardson. After that, the founders of TI decided to start a technology-oriented university so they can grow their own talent right there in Richardson. Soon, they handed over the university to the state, who promptly renamed it the University of Texas at Dallas (despite it actually being in Richardson). Since then, UTD has become the most prominent school for engineering and computer science in the entire southwest (when I went there, the phrase "MIT of the southwest" was bandied about a lot), cementing Richardson as the home of the tech industry in North Texas.

I find it interesting; housing prices actually have spiked in the Dallas area thanks to an unexpected surge of demand (I expect prices to go down soon, as new sprawl catches up to the demand), but Richardson is still one of the most affordable cities in the Dallas area, and it's still recognized as being one of the best cities in the US to live. That combination of affordability and quality of life is rare; usually, the two are inversely proportional. You can still find a good house in Richardson for under $300k, and if you look carefully, you can go below $250k.

Now, I don't know too much about Houston, but it's pretty low on natural boundaries. Sure, it's not too far from a coast, but that's only to the south, and right now Houston's sprawling north and west. No mountains, either. I don't know much about how the business culture evolved, though.

[0] https://en.wikipedia.org/wiki/Edge_city

[1] https://en.wikipedia.org/wiki/Boomburb

branchless2• 9 years ago

Fiat supply is infinite. Give the banker overlords your labour. Now.

glbrew• 9 years ago

Cleveland!

Tiktaalik2• 9 years ago

I think there's lots of cities that are providing "enough" housing inventory, and I'd put Vancouver and Toronto into that category. These cities have more housing starts than ever before. They are building aggressively.

The problem is that of speculative investment driven demand that is detached from local realities. This sort of irrational demand is endless and cities can't possibly be expected to keep up.

At this point this new housing supply is being partially left empty due to absentee owner/investors. It doesn't make sense.

Cities need to keep adding supply, but higher levels of government also have to have a look at new tools to control demand, such as more stringent lending rules and unoccupied housing taxes. In Canada foreign capital is an issue that has fuelled the housing bubble, but lax lending requirements and low residential taxes have also contributed.

roschdal• 9 years ago

With stocks hitting new all-time highs almost every day, global bond yields at or near zero, and Canadian home prices at nose-bleed levels, it seems like everything these days is in a bubble.

A photo-sharing app with a market capitalization of 34.69 billion. Yes, it's a bubble.

iaw2• 9 years ago

I've downvoted your comment because the article is referring to a very specific localized housing bubble in Toronto due (potentially) to the behavior of foreign investors.

This is not an article about startup or the US stock-market bubble.

mistermann3• 9 years ago

The fact that there are bubbles in numerous places isn't irrelevant though.

kareemm5• 9 years ago

I live in Vancouver - which has become one of the most unaffordable cities in the world[1] and am from Toronto.

Watching Toronto's market explode is like watching a horror movie that I saw take place in Vancouver over the last two years. The politicians, press, and real estate industry are spinning the same stories their counterparts in Vancouver did without providing an even plausible explanation for the rocket ship growth.

The key issue with Vancouver's market is that prices have become decoupled from local incomes. The same thing is happening in Toronto.

In Vancouver, the main driver of decoupled home prices is foreign investment dollars, mainly from China. I suspect the same is true in Toronto because prices there started exploding after Vancouver instituted a 15% tax on foreign buyers in August 2016.

If you're interested in understanding the key drivers of the Vancouver real estate market, this paper by a SFU professor summarizes the data, provides a sensible solution, and convincingly refutes the tropes that are often provided as reasoning for the market's explosion:

http://www.sfu.ca/content/dam/sfu/mpp/pdfs/Vancouver's%20Hou...

1 - where unaffordable is defined as the ratio of median home price to median income.

verelo8• 9 years ago

I don't know how to write this without sounding entitled, so here it goes anyway: I own a house in Toronto (purchased May 2016), I do not believe it's affordable for your average Canadian, but I do think it's still within reach for skilled people who are willing to make sacrifices to make it possible.

Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible.

When hunting for a house in Toronto there were 3 things that really bugged me that would be great to have addressed before we freak out over the possibility of foreign money:

1) "Second round of offers". It's a trick relators play. Basically they get all the offers together and then come back and say "uh, they're all super close, we're looking to get an outlier". Of course some people come back with bigger offers...and the highest is accepted, or the highest offer from the previous round is accepted.

2) Poorly done home-owner renovations. People doing shitty renovations and then later selling the place (often these are flips). Uneducated buyers see these 'improvements' as positive things when most of the work will be to be re-done due to the job not being done properly. It just keeps Home Depot humming and inflates the cost of the house by the cost of materials + repairs down the road. It's compounded by the fact all offers [in practice] need to be unconditional or they won't get considered. So no inspection, the buyer doesn't get the chance to really find out until later. Sellers often include inspections, but these are always terrible sources of info.

3) Illegal housing; So many listings say "Potential basement suite", and people do the math expecting to get $800-1500 / month extra income from it. They say "potential" in the listing because it's nearly impossible to create an actual legal basement apartment in your house in Toronto [and they know it], but people are willing to risk it or simply unaware of the exposure this places on them. Legal basement apartments need fire rated rooms, to include a parking spot (which is super hard to do in Toronto!), have a separate HVAC system and much much more. 99% of basement apartments do not comply, but due to either people not knowing, or not caring, they rent them out to increase their housing budget. Banks are partly to blame here, they enable this by increasing the lending amount accordingly based on an assumption that the second unit will be rented 10/12 months per year.

I think the thing we're truly seeing here is what access to cheap capital produces in established major (aka historically low risk) cities. Interest rates are sub 3% with no signs of increasing, people make decent money and are willing to sign up for 30 year commitments. There is risk, but when you look at the key factors, it's pretty low give the likely outcome over that time horizon. This isn't a small suburb hours away from a major city [i.e. Hamilton Ontario - where prices are going up despite the fact lots of the residents commute hours to Toronto every day] where one company going broke will send everyone into the poor house, it's a major city with a very good history of having available skilled work.

I'm personally more worried about robots taking skilled jobs than I am the possible housing market crashing. Those things will probably be related events, and housing will be one of the many industries not ready for that shift.

Finally, having said all this, a well timed quote from a conversation i had on Friday "If i lose half the value in my house, i won't be upset or surprised...I went into it assuming things might not go my way". Not everyone has that luxury or time horizon to not mind waiting around like I do, but I'd encourage more people to not see a house as an investment but more as a cost (as you would rent) and use that emotional response you get to help you justify your next decision in the house buying process.

JabavuAdams• 9 years ago

That's nice and all, but the median household income in Toronto is $76k.

pessimizer• 9 years ago

Single data point as an example: Last month a friend, who between he and his partner make approx. $200k (before tax) combined household income, bought a semi-detached property on the east end (west of the DVP, south of Dundas). "$200k you say, that is a lot!", right, it isn't insignificant, but it's also just two skilled people who make $100k in a major city. There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon). It's just not as impossible to do as people say, but most of us are not willing to pack a lunch every day, stop drinking lattes make it possible.

That single data point is in the top 3% of Canadian incomes.

hourislate• 9 years ago

There are a significant volume of $100k jobs out there (so if they lose them, I suspect they will find another fairly soon).

Are you sure you're talking about Toronto? My wife who is is an Executive in a particular industry has told me that there are engineers from Waterloo making 55-60k a year. At her last assignment there were several folks with CS Degrees making 55k and a UoT Grad with a Masters in CS making 65k. Being from the US she was surprised at the level these Grads were being utilized and quite astonished that they would be working for such poor wages.

Anyway, the home we had in Bloor West Village was purchased in 2005 for 440k.That same house (nothing was done to it) sold for 1.4 million within the last year. 11 years and a 1 million appreciation. Quite the investment.....

If things continue at the current rate that home will be worth about 10 + million in the next 10-15 years.

nvk• 9 years ago

I think you nailed it.

1. On top of that, there is also the fact that 100K new ppl move into the GTA every year. A good chunk of the wants to live in DT Toronto, further reducing the small supply;

2. Toronto produces 30% of Canada's economic output;

3. By many metrics, Toronto is extremely underpriced for the job and quality of life you get compared to other countries' largest cities;

4. Toronto is the 3rd largest North American city;

5. It's possible part of the prices are just tracking the USD as the CAD dropped ;and

6. The truth is, the majority of the Canadian population won't know/accept that in this single city people make 5-10x the income they make, hence "bubble" being thrown around as the obvious answer.

eigenvector6• 9 years ago

The fact that the market is still (barely) accessible to top 2% earners doesn't change the fact that it could be accessible to many more people, without harming anyone but a small cadre of real estate agents and speculators, if the city would allow responsible intensification of existing neighbourhoods with midrise infill construction.

3 years ago your friends might have needed only $100k income for that semi, and in 3 years it will require $400k. Will your friends be earning $400k in 3 years? I doubt it. It's Toronto, not San Francisco.

In 3 years the number of families that could afford that semi-detached home went down by a factor of 6. [1] That's a problem.

I agree with you that the Toronto situation isn't as bad as others because Toronto has the most robust economy in Canada. A lot of the demand is driven simply by the fact that the city is a magnet for people from all over the country. I don't think the market will ever "crash". But the city's growth will be limited if the income needed to live in its core continues to rise from top 20% (2005), to top 10% (2013), to top 2% (2017) to top 1% and beyond. How will business attract highly mobile tech workers when a home in Toronto comes the same as SF but salaries are 1/2 or less? Since you live in Toronto you know the city is doing a desperately bad job of building new mass transit to alleviate the shortage/cost of housing the central parts of the city.

[1] http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/f...

edblarney5• 9 years ago

The average income in Canada is about $40K

1 $100K earner is in the top 20%. Having both is quite rare.

You've made the opposite argument: those people should easily be able to afford a relatively nice home.

Homes are completely out of range for normal Torontonians, and it's a problem.

9q• 9 years ago

I'm from New Zealand and we are having the exact same problem in our largest city, Auckland.

It's now at about 20% Chinese population as well.

I have no problem with immigration and foreigners buying houses, but they are making it basically impossible for the average Kiwi to consider purchasing in Auckland, and it is somewhat of a problem when a single group has been allowed to purchase in such intensity in a single area.

The wider New Zealand population is quite angry about it, but the government seems to be denying a problem. The problem was they were happy taking in foreign money, with complete disregard for the inevitable consequences.

They are now going to be implementing much increased tax on foreign buyers to try and stop the problem.

hobolord• 9 years ago

I've just moved to Auckland from Vancouver, and yeah it's pretty much the exact same thing happening in both cities. It's a bit bizarre to see and live here

lacampbell2• 9 years ago

I'm from New Zealand and we are having the exact same problem in our largest city, Auckland.

The thing is it's happening everywhere in NZ. The provinces are getting worse as well. For reference, a median multiple of 3 is considered affordable.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&o...

Not a single region in NZ is affordable - and this is from 2012. It's only gotten worse.

powerapple• 9 years ago

The biggest reason why these are preferred place for Chinese is that they are immigration country without extradition treaty with China. It is not even about investment. They can lose 50% money and still be happy to do it.

yingbo• 9 years ago

It is too easy to blame certain people from certain countries. That's how Trump got his new job.

skosch• 9 years ago

Thank you for the link to that paper. I've been looking for a casual but comprehensive analysis of the situation for a while. Thank you!

kareemm5• 9 years ago

You bet. It's gold.

jfolkins2• 9 years ago

"So just rent, says the curmudgeon. Well that isn’t cheap either. The average rent price in Vancouver proper in late 2015 was $1,079 for a one bedroom and $1,368 for a two bedroom.30 The latter is the highest in the country, while the former is not far behind top spot. And there is anecdotal evidence that rental rates on new units have surged. Suck it up, says the curmudgeon."

As someone who wrote code to forecast the demise of the housing bubble back in 2008, RENT vs BUY is still the strongest argument in my mind.

In 2005 I could choose to rent a 3bdr/2bth for $800 per month or I could buy it for $1200 per month.

Today, I feel like things are frothy but rent is actually more per month than "buying." I'd be curious to see when rental vacancies go up. That to me is a strong signal that a correction may take place in that local market.

eyko• 9 years ago

The rise of buy-to-let schemes have only made matters worse. Investors are buying real estate to rent at a high profit whilst a couple of decades ago individuals would buy a second and third home as a future investment for their children (or whatever other reason) and would put it in the rental market, which was competitive, in order to help pay the mortgage. Low interest rates meant by the time their kids were of age the house could have almost paid itself.

Many of us chose to rent because rent was cheap, we were young, not wealthy, and most importantly didn't know if we would love in this or that city for much longer (perhaps we came to study and moved on to look for our first jobs).

By the time rent became unaffordable, or at least much more expensive than a (lengthy) mortgage, we had also been prices out of home ownership because we don't make enough even with our partner's wages combined. We just couldn't get a mortgage at the prices houses are going. It feels like been between a rock and a hard place.

Bombthecat• 9 years ago

Just a question. In Germany, a city earns also income from renter's.

So, something like that happened in Frankfurt in some areas.

Rent skyrocketed. Only offices.

Later in self interest the city changed some areas to living areas. With affordable living and rent.

Is this the same in Canada?

On other side note. I think why no city stops it. They are hoping to be the next new York. High rent, high income renter's. High income for the city.

Usually reality proves them wrong.

HorizonXP2• 9 years ago

I just bought a house in Toronto last June. In Etobicoke, quite literally on the outskirts of what you can still call Toronto before entering the suburb of Mississauga.

We got extremely lucky with our home purchase. We had an amazing agent that we've known for years, and we had only started looking in February. By April, we had our home purchased, with a June closing. We had one offer fall through, which in hindsight, thank God that it did. This was our first home purchase (and property).

We managed to snag our house for $5k under listing, after offering $10k under listing. We managed to avoid a bidding war, as no other offers came in. When we found this home, we moved quickly, making an offer that night, and giving them 24 hours to respond (we extended it to 48 for goodwill). This was a home that was renovated from top-to-bottom, and as an engineer, I'm happy to say was done properly.

With that context, now you know why I say we got extremely lucky. We worked hard to make our own luck, but I can't control the opportunities presented to us.

Anyway, we've watched many of our new neighbours sell their homes for 6-7% higher than what we paid. One of our neighbours has an open house going on right now and there are dozens of families coming in cars to check it out. It's listed $20k higher than what we paid for our home, and it's likely to go for $50k above that. We've seen the pictures, and it does not compare to the quality of our home.

So yeah, we might be in a bubble, but people are trying to buy. Speculators and investors may be the ones driving up the prices, but I think there really is just that much demand. People want to live here, and they'll find a way to pay for it.

Personally, I'm not too bothered by it since I didn't buy it as an investment. Sure, I do care about my home value, I want to make some money when I sell in 10 years to move to another home. But that's my unfair advantage compared to everyone else: I can live in my home as long as necessary to wait until the market recovers if this bubble were to pop.

edblarney5• 9 years ago

"Speculators and investors may be the ones driving up the prices, but I think there really is just that much demand. "

Only 5% of buyers need to be speculative. They drive the 'price anchoring' for the rest - including the banks who 'deem the property to have x value'.

That's how bubbles work - a small number of 'price insensitive buyers' create poorly anchored prices which drive everyone else into the mania.

Those 'buyers' are there only because the banks are happy to give them loans using the asset as backing.

You don't need to be bothered by it as long as you are willing to sit on it for 10+ years and can afford to make the payments.

paulpauper• 9 years ago

sigh..take bubble predictions with salt (people are really bad at predicting this stuff) http://greyenlightenment.com/crying-wolf-holding-the-pundits...

You also have to take into account for the fact the Canadian dollar has fallen 25% to the Greenback since 2013

iaw2• 9 years ago

I've downvoted your comment because the article is referring to a very specific localized housing bubble in Toronto due (potentially) to the behavior of foreign investors.

This is not an article about startup or the US stock-market bubble.

Addressing your actual comment by paraphrasing Burton Malkiel: "The market can invest irrationally for a surprisingly long period of time."

arjie• 9 years ago

Everyone always uses that quotation to make unfalsifiable claims. Either the prediction is true or the market is irrational.

kspaans• 9 years ago

A fair point, given that blog has been calling for a crash in Toronto since 2010. :D

myth_drannon• 9 years ago

So then why the house prices in many cities in Canada went down in last couple of years except Toronto and Vancouver ?

MattyMc• 9 years ago

I own a semi-attached house in Toronto that I purchased last May with my fiancee. I have a few critiques of this article related to the context it places Toronto's housing market, and some of the souped-up language used.

Why compare the Toronto housing bubble with that in Japan or the US? You don't have to look further than Toronto for a direct comparison; [housing prices in Toronto decreased by 40%](http://www.torontocondobubble.com/2013/02/toronto-housing-bu...) between 1989 and 1997.

Second, a bully offer is not an "aggressively high" offer by definition. A bully offer is simply an offer that is submitted before an agreed upon offer date. He offers no evidence to his argument that houses are going for 6-figures above the asking price.

Last, ideally these statistics would have been given in context. Don't pull two historical housing bubbles and then compare their growth to Toronto's. Rather, pull all fast growth housing markets and compare their behaviour to Toronto's. In other words, how often is this growth not a bubble?

I'm 32 years old and consider myself very fortunate to be able to own in Toronto. This will allow my family to live in the city I love. Many of my friends are facing the choice where if they wait and growth continues they'll may be priced out permanently, but if they buy into the market they may be sitting on a bubble. There was tons of bubble talk when we bought, but we were more worried about being priced out.

lhorie• 9 years ago

He offers no evidence to his argument that houses are going for 6-figures above the asking price.

This definitely is happening, but it's cherry-picked data. I live in what's considered a desirable area for chinese people (warden and steeles), and the latest sales around my area have mostly been for 6 figures over asking, with some being as high as 200k over asking. But around Unionville (a posh neighbourhood a few mins north), sales have actually been under asking (although, to be fair, the asking prices there are typically >1.5M)

Email me if you want a data source.

increment_i• 9 years ago

The rocket ship rise of real estate in the GTA and indeed the entire Golden Horseshoe has certainly been bizarre to witness. I live in Hamilton and commute into the GTA for work. We bought our modest 3 bedroom townhome here in 2015. About four months ago our neighbour (who had a basically identical home) sold their unit for 100k higher than we paid. This week, a comparable home was listed for about 180k higher than we paid. So, in under 2 years, the current market value of our house would have seem to appreciated by almost 200k. This is a solid hour commute (by car) from the Toronto core.

So yeah, I'm not too sure whether to be extremely happy or extremely worried..

titanomachy2• 9 years ago

It's difficult for me to judge the significance of that because you report the $ increase instead of %, without a base value.

idiot_stick• 9 years ago

you report the $ increase instead of %, without a base value.

Think of the $200k in terms of average annual household income, which is relatable.

ska3• 9 years ago

This article: http://www.cbc.ca/news/canada/toronto/toronto-real-estate-fe...

Claims a 35.4% year over year increase. So that's a hot market.

geodel• 9 years ago

Seems like a bubble when Asians are buying Canadian properties instead of just buying petroleum or cars etc.

fiatjaf• 9 years ago

Of course it is. The central bank has inflated.

HugoDaniel• 9 years ago

So is Lisbon

20160226• 9 years ago

Someone would be dismissed if they said Manhattan, London, Paris, and Rome are in a bubble. It's just accepted that only the rich can buy there.

Toronto's housing situation is called a "bubble" because it's transitioning to a similar, global city status, and a lot of people are having a hard time facing that owning a house there is not meant for them.

I live in High Park. In a one bedroom apartment. I see for sale signs everywhere plastered with 'sold above asking!' labels.

The cold reality in Toronto is that it's just supply and demand. There are a handful of houses, and a handful of people with the resources to buy them and live in this beautiful place.

For the rest, take the GO train.

eigenvector6• 9 years ago

The difference between Toronto and the oft-cited "global cities" of New York, London, Paris, etc. is that all of those cities have a proportionate number of extremely high-earning or high-wealth individuals to support their astronomical housing costs. Manhattan is expensive, but if you work for Goldman or Google you can still afford it. And you can see that this is true because New York, London and Paris all easily support a huge number of businesses catering to the everyday needs of high-wealth individuals. High-end restaurants, luxury car dealerships, tailors - whatever luxury stuff you can imagine, you will easily find it in London or New York.

That is not the case in Toronto. The issue is not that prices are going up, but that they are going up exponentially in a way that doesn't relate at all to the growth of the local economy. Toronto is a city where an expensive restaurant is one that charges more than $40 for an entree. You will not find $100 cocktails or $500 tasting menus a la Hong Kong or New York in Toronto, because there would be nobody to buy them. You can still get a haircut for under $20 and see people in $300 off-the-rack suits in the Financial District, because the people there earn $70,000 or $80,000 not $800,000 or $8,000,000 as in NYC/London.

Supply and demand are both issues, there is a lot of the latter and too little of the former. But to say that Toronto has transformed into one of the richest cities on Earth simply isn't true in any regard except its housing market. And that is precisely the problem - it has the housing market of London with the salaries of Cleveland.

carterehsmith3• 9 years ago

> in the Financial District, because the people there earn $70,000 or $80,000 not $800,000 or $8,000,000 as in NYC/London.

Uh, that is way, way off. A person making 70-80K/year in Toronto Financial district is like... junior analyst, junior software developer or so. That person is not going to make 10X or 100X as much in NYC or London.

edblarney5• 9 years ago

Toronto has 'global city prices' without 'global city industries and wages' to support it.

NYC is fully of bankers, global elite.

SF is fully of tech-stars.

Toronto has no such industries with lots of super high paying jobs.

ska3• 9 years ago

And Vancouver has even fewer.

theluketaylor• 9 years ago

The toronto bubble has begun spilling outwards to much of southern ontario as toronto homeowners cash out and move to the smaller cities. Here in Kitchener-Waterloo about 1.5 hrs from toronto house prices leapt 20-30% in the last year, primarily though all cash deals far above asking or assessed value. People flush with toronto cash are over the moon about spending so little on a house (even though it's still an insane figure divorced from reality). And they don't care what shape it's in since they since have more than enough cash leftover to gut the house and redo it.

Foreign money being injected into the process isn't helping, but I think the real problem in Toronto is unbelievably low interest rates and easy access to mortgages. Families are being approved for loans of such absurd proportions that everyone who has entered the real estate market in the last 10 years is house poor. Even small interest rate increases will make payments unaffordable and the whole teetering mess will come down.

Governments have exactly zero incentive to do anything about it, since greater property values means more revenue without the mess of a tax increase. The Ontario land transfer tax isn't high enough to stop anyone from speculating, but it's plenty to cash in on the situation.

branchless2• 9 years ago

It's weird, former UK colonies don't usually have a problem with land speculation, artificial scarcity and money laundering.

ska3• 9 years ago

    but I think the real problem in Toronto is unbelievably low interest rates and easy access to mortgages.

This really is key. There was no 2008 housing collapse in Canada, but the larger economics pushed interest rates down hard towards zero.

Think of it as housing prices rising to capture most of the cheap money available on loan. If we see a significant and quick increase in prime rates it could see a real bloodbath develop.

nibstwo• 9 years ago

Yes, Toronto is probably in a house bubble. Is it in a housing bubble, though? If doing more with less is the goal here (as opposed to less inflation on houses in Toronto) why are people missing the relative affordability of condos and apartments? A large flat structure with lots of mostly unused land (by percent utilization) is horribly inefficient.

A condo costs less to live closer to the interesting things like work and culture and the higher density means the bottleneck resource (land) is utilized much more efficiently. I know there are cultural reasons not to, but to me living in houses is not something we would necessarily ever choose if we started today with a blank slate.

I think a world more along the lines of 80-90% green space with a sprinkling of 100+ storey condos in variable sizes and trim levels would be more livable. I struggle to see why one would want a backyard let alone feel entitled to one.

I think the relative price of land to median income will increase as population does (pretty easy to assert) and that we should instead just build very high density buildings surrounded by green space instead of engaging in zero sum competition for an unused backyard.

We talk so much about AI making web services better as a form of progress but how much of the middle class budget goes to web services? Sure it could make life better in the future but housing density could make life significantly better now.

Toronto Is in a Housing Bubble

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