Toronto and Vancouver are in constant competition for who can have the most expensive real estate market in the country, and despite the pandemic and current economic recession, home sales continue to boom in both locales.
While would-be homebuyers crossed their fingers for a lucky break as a result of the health crisis and resulting months of lockdown, the Toronto market said “eff you” and returned with a vengeance after a brief blip, with prices continuing to rise citywide to over $100,000 more than they were last year, on average. Prices actually tripled between 2000 and 2017, and are only going up.
Even shacks on decent plots of land in the city are going for prices unaffordable to most, and many millennials are coming to terms with what they’ve always sort of known: they’ll likely never be able to own anything in Toronto, seeing as anyone looking to afford a home in this city realistically needs to have a six-figure income.
But aside from the obvious factors of being a growing hub for a slew of industries, being a world-class city that is one of the best on the planet to live in, and having a thriving nightlife, restaurant, and music scenes along with tons of opportunities, there are a few other reasons why buying a house in Toronto is so damn expensive.
Taxes and fees
Development charges — which have increased by as much as 878 per cent since 2004 — add more than $150,000 to the price of an average new-build condo. These fees go to the city when a developer applies for a building permit, and are then transferred to the buyer in the end price.
There are also land transfer taxes, which are paid to the province upon the closing of a real estate sale and add, on average, $54,000 to the price of a detached home in Toronto, per the Financial Post.
Property taxes, which will not impact a home price but will certainly limit who can afford to buy the property based on their long-term financial situation, accrue to be thousands of dollars per year on your typical detached home in the city, which on average now goes for $1.52 million.
These fees all go toward upgrading city infrastructure needed for residential areas, like sewage, water and roads, and are higher in Toronto than other cities.
“One reason in particular for our high Land Transfer Tax and Development Charges is that provincial legislation restricts how the City of Toronto can generate cash flow,” real estate representative Steve Fudge says.
“Unlike many North American cities, Toronto cannot add a surtax on income, or a sales tax on products (like gasoline), or tax education or health care facilities. Yet.”
Immigration and foreign investment
Hundreds of thousands of immigrants come to Canada each year, and being the biggest city in the country and the locus for so many industries and so much economic activity, Toronto is an easy choice for a place to settle down.
This means a growing population and increased competition for limited housing in the city.
And then there are foreign investors, who drive up property values beyond reasonable levels — and Toronto is now the world’s second-most overvalued housing market, with foreign investors owning somewhere around $38 billion of the city’s housing supply.
Ontario has thankfully implemented a non-resident speculation tax of 15 per cent as of 2017.
Low lending rates
With mortgage rates in Canada slashed to record lows due to the pandemic people are now able to afford more house with less. This increases competition amid an uncertain time when buyers would normally be inclined to put off big financial jumps like real estate purchases.
Also, because Canada’s banking system is so strong, a housing crash like the one that happened in the U.S. 12 years ago is highly unlikely.
Those darn boomers
Those who had the foresight to invest in real estate in the city back when things were actually affordable — aka baby boomers — are pretty unlikely to let go of their property to downsize, relocate or move into retirement homes earlier than absolutely necessary.
According to a study by consulting agency Altus Group per the Financial Post, single-family homes — that is detached, semi-detached and townhouses, which still make up a large chunk of housing in Toronto and are the most expensive type — are “the preferred living option” of 71 per cent of Torontonians aged 65-74.
“People generally want to stay in their homes and, increasingly, support systems are in place to allow this to happen,” the news outlet says.