Welcome to my blog on housing, culture and design, where I explore the many facets of housing and home in Toronto.
In this post, I'm exploring the rise of a new standard and price point for luxury executive residences homes located in former ethnic neighbourhoods. The speed with which Buyers are snapping them up signals a market shift in the commodification of Toronto shelter. Why? Because over the past couple of years, here in the real estate trenches I've been witnessing a decline in the quick 'flip' property market, and the budding of newly-built higher-quality bigger-footprint contemporary dwellings that are meeting growing demand.
Flipping Was, Until Recently, All The Rage
With the rapidly increasing house prices in the years prior to the implementation of the Fair Housing Plan in 2017, realtors could easily see the sizable segment of contractors and speculators who were snapping up fixer-uppers in lower price points and, after investing varying degrees of money, time, and materials, flipping them for profit while riding the wave of real estate speculation and skyrocketing value appreciation. Operating within a boom ensured a lot of them made money.
However, while to the layman flipping homes may seem like a great way to make a tidy profit (thank you for the misnomer, HGTV), in reality, I think it's one of the hardest ways to be assured a financial reward. Why? Because there are so many moving parts when you're embarking on a flip and, in this renovation and refresh business, where profit is highly contingent on how fast you can get in and out, time becomes a mitigating factor on whether you financially win or lose. You need to efficiently execute and elevate a property to a level and standard where consumers are willing to financially reward you for all the associated costs before your carrying costs eat your profit in shifting market conditions. Yes, there are those who have (and can) successfully time the market to flip a home, but when you consider all the costs of buying and selling a home in Toronto, in addition to the real costs of renovating a vintage property that will quickly suck up a contingency fund, the potential profits are generally lukewarm. In fact, I believe in many instances the financial gains flippers garnered was more a function of the entire market soaring in value more than the value-added improvements they completed.
If you're just beginning to explore the Toronto real estate market, here are three important posts which offer some insights: Dear Urbaneer: How Much Profit Should I Expect Climbing The Property Ladder?, Dear Urbaneer: What Are The Closing Costs For A Property Purchase?, and Dear Urbaneer: How Can I Keep My Flip from Flopping?.
And if you want to delve deeper and see some real-time examples of failed flips and get some tips on how to build equity with intelligent upgrades, you should definitely read my piece called On Flipping - Or Building Equity - For Toronto Real Estate Buyers.
The Housing Stock In Downtown Toronto Is Mostly Obsolete
In Part Two of my bi-annual Toronto real estate forecast - I use real example sales to illustrate the Buying trends which are reshaping the downtown Toronto housing market. These include the most significant transference of wealth from one generation to another in the history of Canada, the speed by which urban professionals have embraced raising kids in condos, the decline in the filtering of housing stock up and down the property ladder as homeowners stay put, the substantial growth of the renovation industry, the entrenchment by boomers to age in place and, now in its infancy the coming wave of multi-generational living. But what I didn't touch on in my forecast which warrants mention, is the growth of two buying segments: purchasers who intend to substantially transform an existing dwelling into a new home for their own use, or the shelter trade who are tearing down vintage properties to build new luxury residences in their place for profit.
As I wrote in What To Do When My House Is Considered A Teardown?, the value of most downtown Toronto properties is primarily in the value of the land. In fact, most vintage freehold houses in the city - which typically are between 100 and 150 years old - have structures and components which are well past their prime if not downright obsolete. For many of these dwellings they're in a condition that no longer warrants capital investment, but better serve in their highest and best use as land ready for redevelopment. The city's housing stock has reached a critical threshold in age and utility where it is no longer suitable for refreshment.
Coinciding with this are the rise of high-earning professional technology and creative classes who covet a centrally-located dwelling with village shopping, proximity to green space, and with a short commute to work by bike or transit. In fact, there is a voracious and growing appetite for quality new homes in Toronto, particularly by urban families seeking that 'forever home' where the children have a single stable address until they've grown. For a recent snapshot on what's tantalizing the tastebuds of urban buyers these days, and what's trending in shelter, check out How Toronto Real Estate Near Queen Street – East & West – Is Climbing In Value and Ten Toronto New Builds That Recently Sold For Between $2M And $10M.
*44 Fern Avenue in Roncesvalles Village is one of the new builds Urbaneer proudly sold to a neighbourhood family who upgraded from their 3bed semi.
The Margins And Buyer Pool For New Builds Are Larger
There are a number of reasons I'm witnessing a shift from flipping to new builds. When the government interventions were implemented and effectively dampened the scorching hot freehold housing market causing Buyers to withdraw - and the mortgage stress test impacted the ability for everyone, including flippers, to easily access larger sums of capital - it derailed the speculative “get rich quick” market. As property values flatlined amidst buyer restraint, it forced inexperienced flippers to withdraw from the market, deflating the competition and the demand for fixer-upper flips. As the shelter industry regained its footing, those construction firms still operating in the urban market had less competition, which resulted in their having a larger cache of properties to select from. And they started selecting sites that could support a luxury new builds rather than the quicker, but riskier, and lower-profit-generating flip.
During this lull, I believe a subtle shift was occurring in the profile of urban buyers which I allude to above. While the real estate market was flatlining, the growth and concentration of affluent buyers in the City of Toronto never stopped. In fact, because of the macro trends which are diminishing the supply of freehold listings in the original City of Toronto - has coincided with a burgeoning demand for executive housing - both the cost-effectiveness in tearing down and building a new dwelling and the resulting potential profits is fueling this shift towards luxury downtown houses in the central core.
While the missing middle may find it hard to believe, the freehold market in the original City of Toronto valued between $1,700,000 and $2,500,000 (which comprises most any bungalow top-up and substantially renovated single-family home that was executed over the past 15 years) isn't as strong a resale market as there's so much supply currently on the market, It's the luxury housing market which has a supply crunch relative to demand. That these higher price points also portend greater profit margins means that contemporary 4 bed 4 bath luxury dwellings with a lot of pizzazz and panache are where it's now at. Today's affluent buyers - who have much deeper pockets than those even a decade ago - demand generous quality on-trend turn-key architect-designed housing.
None of this "Ugh.. you're showing me a dated used house? No thanks!!"
Two Toronto Real Estate Sales (Of Many) Which Shocked Everyone
Quite recently those of us who sell downtown Toronto real estate have been surprised at the pace and speed of the recent run on values for detached houses. During the same week in mid-September a detached house near College and Bathurst listed at $1,190,000 - that was structurally compromised - garnered 16 offers to land at $1,960,000 (65% over the asking price!), while a detached house just west of Roncesvalles Village requiring significant upgrades listed at $1,299,000 garnered 16 bids to land at $1,950,000 (50% over the asking price!).
These sales were extraordinary, but as substantially renovated houses sell in these areas for $3mil+ and new builds approach $4mil, the precedent has been set for a whole new wave of urban renewal. Sadly, what sales like these indicate is the middle class will imminently be priced out of the central core in the detached (and semi-detached) housing market. As affluent homebuyers continue to favour the beneficial qualities of urban living - and increasingly covet centrally-located neighbourhoods that have long been deemed 'working and middle class' where shelter scarcity dominates; competition will continue to drive up prices.
The Next Wave Of Redevelopment In The Original City Of Toronto
While I believe the demolition and rebuilding of housing stock in the original City of Toronto are going to become increasingly commonplace and significantly transform the fabric of our downtown neighbourhoods, I personally hope this is not limited exclusively to the luxury single-family market. With this trend I'm also witnessing the beginnings of small two and three-unit infill condominiums on existing single-family sites (a blog is forthcoming on this topic) while increasing political pressure is being advocated for higher density builds in single-family neighbourhoods that will result in properties containing upwards of five or six legal units designed to accommodate different household structures. This will require a change in Toronto's urban planning approvals and permitting process so that these 'Yellowbelt' neighbourhoods - which are currently zoned exclusively for single-family homes and currently comprise 70% of Toronto's land area - can have more units and greater densities as-of-right.
I recently explored this both from a development and design perspective, including the movement for other urban centres to address this history of exclusionary zoning practices in my posts called 'Toronto Real Estate, Yellowbelt Zoning & The Missing Middle: Part One - and - Part Two'. If you're future-thinking on how shelter may change in the near future, these posts offer insight on where urban housing will soon evolve.
What has characterized so many of Toronto's unique neighbourhoods over generations is the way that the housing stock has evolved to meet the tastes and lifestyles of the current buying segments. Certainly, we can anticipate that many of Toronto's neighbourhoods which have remained fairly aesthetically static over the past few decades - will look very different ten years from now! I'm hoping we may be pleasantly surprised as we watch the next stages of the housing evolution.
For those who are engaged in the shelter industry, like the Urbaneer team, we are fascinated personally and professionally by the mitigating factors which are reshaping Toronto real estate. After all, understanding the market in the context of both here and now, as well as where we're going, all play into making the optimal decision when it comes to buying and selling real estate. It's also our passion, and it is incredible to be able to be on the cusp of the waves that flow into the market, leading change.Whether you're purchasing a personal residence, or you're investing in your financial future, we're here to help! Serving liberated, progressive pro-urban Torontonians for over two decades, our friendly, fashionable boutique real estate service always has your interests at heart. Building clientele for life, consider letting us help build your real estate portfolio, one property at a time.
If you enjoyed this piece, here are some of my other posts on Toronto real estate you may like including:
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Thanks for reading!
-The Urbaneer Team
Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000
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*Love Canadian Housing? Check out Steve's University Student Mentorship site called Houseporn.ca which focuses on architecture, landscape, design, products and real estate in Canada.