You’re likely already familiar with the dual plotlines of the Toronto property market: condominium and freehold housing - and how they differ in both momentum and trend. Now, a new report sheds light on those differences and explores the consequences of the fast-growing chasm between high and low-rise housing.
A research firm, Real Net, along with the Building Industry and Land Association (BILD), have come together to chronicle the record-setting price gap between low-rise and high-rise housing, which this past year hit just over a whopping $251,000. To put this in context, back in 2012, the average price difference between the two markets registered at a modest $75,000. In 2014, the gap widened dramatically, with the average price of a low-rise home in Toronto rising to $705,813 (an 8% jump from the year prior), compared to the average price of a high-rise unit rising only 4% to $454,476. So what’s happening?
Supply and Demand
The width of the gap between housing supply and demand has significant power, in both pushing and pulling prices in parallel or opposite directions.
In the downtown Toronto real estate market, the scarcity of low-rise housing stock continues to push these prices upward at a considerable rate. Meanwhile, companies continue to develop empty parking lots (which were once the locations of industry) or tear down low-rise freehold housing to build new high-density stock. The new condominium suites are increasingly smaller, in an effort to keep the acquisition cost affordable while serving the demand of a younger demographic and the investor profile. One consequence of this type of dwelling is that they appreciate more moderately, statistically speaking. At the same time, when low-rise houses are torn down, if they aren’t in locations where high-density is approved by the City, they’re subsequently redeveloped into luxury housing for affluent professionals. These low-rise homes are more expensive to produce, often double the size of what preceded them, and slathered in all the fashionable and opulent finishes that the affluent gravitate to. This makes those properties increasingly out of financial reach for many homebuyers, particularly those Buyers who are trying to climb the property ladder out of their condo and into the low-rise housing market.
Another critical factor in the widening price gap lands squarely on our low interest rate environment, which the Bank of Canada recently cut in a dramatic move. As banks make mortgages more affordable, they create a larger crop of Buyers, more bidding wars, and, consequently, higher selling prices.
Strict policy and restrictions around land use - from both provincial and municipal bodies - are impacting builders’ ability to construct new homes. There still exists a decade-old provincial policy meant to encourage high-density housing, which is predominantly responsible for driving up the number of new condo developments. The inability to create (or make available) new low-rise housing makes prices appreciate even more.
It’s also about location, location, location. With much of the new high-rise condominium construction centred in the City of Toronto, the price chasm resonates more dramatically there, where both land and low-rise housing are at a premium. Moreover, high prices mean that high-rise condominium living is essentially the only go-to housing option for a growing segment of the home-buying population. Basically, if you can’t pony up the minimum $600,000+ to acquire a habitable low-rise freehold structure in the City, then your only option is the condominium.
To illustrate this, during the month of December, in the 8 MLS districts that span from Coxwell Avenue in the east to the Humber River in the west, and from Lake Ontario north to St Clair Avenue, there were around 149 low-rise listings and 1368 high-rise listings for sale. That’s roughly ten times more high-rise condominiums for sale than low-rise property. Even more telling are the sales stats; 208 low-rise properties sold in December and 351 high-rise units traded. Basically 3 out of 4 low-rise properties sold in December but only 1 out of 4 high-rise units secured a buyer. Think about it: the low-rise housing market is one-tenth the size of the high-rise market, so demand is fueling competition and resulting in bidding wars and a spike in value. Conversely, the high-rise market, being ten times larger, is trading at a pace which is contrary to the low-rise market.
The sale prices also reinforce the gap in values between these markets. With demand for high-rise properties less intense than low-rise, their values are not escalating as fast. Incidentally, the average price of a low-rise sale in December in these 8 MLS districts was $893,210, whereas a high-rise housing sale averaged $489,714; this falls in line with the statistical difference BILD calculated for the City as a whole. So, to recap: 3 out of 4 low-rise dwellings are getting snapped up at an average cost of $893,000, and 1 out of 4 high-rise dwellings are trading at an average of $489,000. These figures represent a barometer of value for each housing type in downtown Toronto.
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