High Toronto Area Home Prices: The Root of the Problem Explained

There has been much speculation about the cause of high prices in the Greater Toronto residential Real Estate market lately, without success in identifying the root of the problem.

The first question is, what is driving prices upwards?

First we look at the major factors driving supply and demand.

Demand is being driven by extremely low interest rates and approximately 120,000 newly arrived Canadian immigrants choosing Greater Toronto as their home, annually.

The collapse of the Alberta (oil based) economy has driven 200,000 people out of work. Many of these newly unemployed people, and many immigrants that would normally choose Alberta as their new home, are likely migrating to the Greater Toronto Area and compounding the problem of overheated demand.

Both factors, extremely low interest rates and large numbers of new residents, have been occurring for several years and are expected to continue in the foreseeable future.

Turning to Supply, it is limited by the number of new homes and condominiums that Toronto Area Developers are permitted to build.

The current Ontario Government has restricted the amount of land being permitted to be developed with the Oak Ridges Moraine Act, 2001.

The Ontario Ministry of Housing defines the Oak Ridges Moraine as an environmentally sensitive, geological landform covering 190,000 hectares.

The protected land creates a barrier for residential Real Estate development that contains the expansion of the GTA from Brampton to Oshawa.

Higher demand for Real Estate, in an environment of constant or limited supply, puts upward pressure on prices.

Another important factor impacting the price of homes and condominiums is the cost of taxes on sales of preconstruction houses and condominiums.

Taxes on new houses and condominiums include HST, Education Levies, Park Levies, Development Charges, Section 37 charges, Ontario Land Transfer Taxes, and in some cases Toronto Land Transfer Tax.

Greater Toronto purchasers of new houses and condominiums are paying an alarming 15 to 20% in additional taxes!

That means at least $150,000 of a $1M new house and $75,000 of a $500,000 new condominium is tax.

So the major factors effecting the high price of Toronto Area Real Estate are:

An imbalance in the number of new immigrants emigrating versus the number of new immigrants that the Greater Toronto Area can comfortably absorb;

The Oak Ridges Moraine Act limiting the availability of land for residential development; and

The massive, aggregate tax of 15 to 20% on new houses and condominiums.

Ontario Finance Minister Charles Sousa says, “something has to be done to help people deal with soaring home prices in Toronto, especially first-time buyers who find it nearly impossible to save a big enough down payment to enter the market.”

The Toronto Area Baby Boomers are the wealthiest generation ever, in large part, due to the high cost of Real Estate.

The vast majority of working class and middle class Baby Boomers would credit Real Estate as their largest investment.

This is good news for some.

However, our current generation of twenty-somethings will be the first generation of children since the beginning of the Industrial Revolution that will have a lower standard of living than their parents.

They will struggle to afford down payments for their homes and likely live in much smaller spaces than they grew up in due to the high cost of Toronto Area Real Estate.

Record Ontario Government debt, according to the Ontario Financing Authority, is over 327 Billion Dollars and is the highest per capita debt of any state or province in the world.

The Canadian Government seems to be on the same path as Ontario, following advice from the same senior advisor Gerald Butts and others.

It is important to put into perspective the recent Ontario Government announcement of a $2,000 increase in the first time home buyers Land Transfer Tax rebate versus an increase of $10,000 to Land Transfer Tax for residents purchasing a $2,000,000 or more home.

The Government is behind the three major factors that are responsible for the High Toronto Area Real Estate prices.

Perhaps the Government should stop trying to help us.

Scott Davie is an industry leading Real Estate Broker who is a trusted

advisor to many of the GTAs top Developers, creating dynamic results in the sales and marketing of high-rise and low-rise pre-construction projects throughout the GTA.

Davie has been recognized by the main stream media, and by the Real Estate Industry main stream and ethnic media, as a leading expert in new home and condo sales and marketing.

After 10 years at Milborne Real Estate, Scott has recently left his position as Vice President to open his own pre-construction Brokerage.

Davie Real Estate Inc. will be launching in 2017.