Why the Toronto Housing Market is so Unaffordable

The last couple of years has been interesting for our team as we talk to many people from the Greater Toronto Area who want to go to Calgary. And we had the privilege of helping a lot of them move into our city.

The more Torontonians we talk to, the more we get curious about what this migration is all about. So we went to the GTA and asked some of their residents about their opinion on why the GTA is potentially becoming so unaffordable for so many people and what can be done about it.

Understanding the Problem

In February 2021, Royal LePage published a report saying nearly half of Canadians aged, 25 to 40 own their home and a quarter of these homeowners purchased a property since the onset of 2020. And 68% of the non-homeowners millennials plan on buying a house within the next five years.

In August 2022, Royal LePage came out with a second report that said six out of 10 non-homeowner Canadian millennials would love to own a home in the future, but they would have to relocate to do so. And that is the problem!

Leaving the city, you reside in because of unaffordable housing is not a good thing. Millennials who are coming of age and want to have families feel the urgency to find a place where they can grow and have hope for their future.

Land Value

According to Daniel Foch, a real estate agent in the GTA, the real estate market in Toronto is not always going up as others perceive. In 2017, home prices in Toronto dropped 30%. Vancouver had the same story in 2016 when they had their non-resident speculation tax.

To understand what is happening in Toronto, you must go backwards and understand a little about Vancouver.

When you look at the map of Vancouver, you will see lots of mountains and oceans all around, causing it to be landlocked. You will see the same thing with the map of Toronto.

What’s fascinating is when you overlay downtown Toronto over Vancouver, you can fit Vancouver, Burnaby, New Westminster, Richmond, Port Moody, most of the northeast sector’s Tri-Cities, and even most of Burrard Inlet into that space. That is how big downtown Toronto is. That is not including the GTA and all the areas on the west, east and everywhere else.

The map of Toronto has a greenbelt representing a protected area that cannot be developed to preserve farmland and wildlife. Then, the other side of the GTA is water masses, so they are also landlocked.

The city currently has a population of 6.3 million, which is still growing. With that amount of people, the only way for real estate to grow is up. Since the city is landlocked, its land value inevitably goes up.

That is the difference between Toronto and Calgary. Our city has more land space to grow out.

Market Trends

By the end of 2017, the benchmark price for the GTA was $756,600, and as of October 2022, it was at $1,098,000. That is a mind-blowing $341,000 increase!

Home prices in Toronto have been on a steep incline for about five to seven years and counting, causing a lot of urgency and fear of missing out.

With prices jumping so quickly, many feel like they are being priced out of the market. This trend has been challenging for many buyers as they need to qualify for hefty mortgage costs swiftly while not having the capability to do home inspections due to the momentum of the real estate market.

Everyone has a different perspective on purchasing real estate. Realtors need to have the ability to be situation managers for their client’s expectations. When somebody puts a bid in on a house and lose, there is undoubtedly an emotional reaction to that, and it is their agent’s job to keep them buoyant throughout the process.

Bank of Mom and Dad

For a family with a household income of $150,000, affording an average home amounting to $1,300,000 to $1,800,000 is like a mountain that is impossible to climb. But some fortunate millennials have the privilege of going to the Bank of Mom and Dad. This bank is not a thing in Calgary but is prevalent in the GTA.

The bank of mom and dad is all about homes built in the 1990s owned by parents of millennials now. These properties gained massive amounts of equity over the years.

For example, a house in Millcroft, Burlington, built in the mid-1990s, sold for over $700,000 in 2009. This property is currently listed on the market for $2.4 million! That hefty equity is what funds the Bank of Mom and Dad.

Jeff and Catherine owned some homes in the GTA over the years and recently have become the Bank of Mom and Dad. They lived in Toronto when they married, then transferred back to Montreal in 1994 and stayed there for 12 years.

The couple moved back to the GTA in 2005. They sold their 4,000-square-foot house for about $100,000 more than what they paid for it after being there for five years. They used that money to pay $640,000 for a high-end 3,000-square-foot house in Burlington and stayed there until 2019.

In 2020, they sold the house for $1,500,000 gaining $860,000!

Aspen Woods is a beautiful area in Calgary, very similar to Millcroft in terms of estate-type homes with high-income individuals and families living there. In 2010, a four-bedroom, 3,000-square-foot house in this area sold for $782,000. That exact same home sold in 2022 for $1,015,000.

There is a big difference between the pricing of homes in the GTA and Calgary.

Moms and Dads in Toronto are leveraging their properties and pulling equity out of their primary residents when they have wound down or not working as much. This is how parents in the GTA, Vancouver and Fraser Valley utilize their investment to help their children buy their properties.

The average gifted downpayment first-time millennial home buyers received last year was $82,000. Those moving up to a new property from a townhouse or a condo had an average of $128,000.

As of September 2021 in Vancouver, the average gifted value for those moving up from one property to the next was a staggering $340,000 from the Bank of Mom and Dad.

House Hacking

Another way that many home buyers can afford properties if they don't have the Bank of Mom and Dad is house hacking. This is also a term that has yet to come up that much in Calgary, but you can see it online and in major cities.

House hacking is all about finding ways to generate income from your home. For example, you could buy a duplex or a triplex instead of purchasing a townhouse or a semi-detached house. You can use one unit as your residence and rent out the others to help subsidize the cost.

Gino Saullo, another realtor in Toronto, bought their house in Burlington for $1,100,000 about five years ago. Now, their home is worth close to $3,000,000!

His home increase was a shocking 272% going from 1.1 to 3 million in just five years.

Here's the thing, in 2017, the benchmark price in Calgary was $450,000. If we were to take that same numbers today, the price for the typical house in the typical neighbourhoods would go to $1,200,000.

Growing Out

Seeing these price increases cause a lot of fear for Calgarians wanting to move up. But Calgary has more land space to grow out, which can potentially keep the affordability where it needs to be.

Many Torontonians are feeling frustrated over the unaffordable lifestyle and housing in the GTA. They are looking for a place where they can grow, plant roots and live the life they want to without having to feel like they can't afford anything and they are being taxed to the nose.

That is why we see all these people leaving their homes in unaffordable cities, hunting and driving until they find something reasonable. These are people who are qualified with a solid income. They have incredible families, and they want to contribute to a community, but they can only do it in a place where affordability exists.

Alberta is Calling

The government of Alberta made a smart move in spending money in Toronto and Vancouver, saying Alberta is calling. Frustrated millennials from those places searching for affordability and a better lifestyle seized the opportunity and answered the call!

Having these people move to Calgary is like building brand loyalty to customers while they are young. They are putting their roots down as they build their own families here. As they grow, they will be deeply rooted and be a part of the community for their entire lifetime.

Toronto is heading to a totally different path. The GTA is turning into a world-class city mainly attractive to young professionals who are transitory by nature. It is slowly becoming like New York City, where people go for job opportunities and to be in front of the global economy, but without the intention of staying there long term.

However, that route is associated with many people complaining about affordability. In turn, many people will be forced to move out, and it ends up being a good thing for places outside Toronto where the capital starts to move.

The Breaking Point

A lot of people want to live in Toronto, but if they cannot afford to, they will not stay, especially through the recession, which can exacerbate the situation.

That splits people into two different categories. If you see millennials staying in Toronto, buying a condo or townhouse most likely have help from the Bank of Mom and Dad. Then, after about 20 years, they might afford a detached house in Forest Hill.

The rest of the people will end up being part of the mass exodus migrating to other provinces because many families do not have that $200,000 to gift to their children to help them out. And if they do, parents might not even require their children to stay in the GTA and allow them to invest elsewhere where they can have more value for their dollars.

If you are thinking of making a move to Calgary or have any questions, we would love to help. You can reach out to us at info@chamberlaingroup.ca or 587-316-5400.