March 7, 2022 | drive until you qualify
“Drive until you qualify.” Ever heard that phrase before? Well, if you haven’t, let me explain. The logic goes something like this: If you cannot afford to purchase a property in Toronto, you begin to drive out of the city centre until you find a property you can afford. So, a 30 minute drive out of Toronto would likely be more expensive than a 90 minute drive. The longer your commute, the less expensive your property would be. It’s more of a rule of thumb than a science. We know there are exceptions. Oakville is more expensive than most of Scarborough, even though it is a little further away. Still, as a general rule, “Drive until you qualify” has been how many people think about real estate in Toronto
But during the past four years, this rule of thumb may not carry the same sage advice it use to carry. Why you may ask? Well because properties outside the city are increasing at a faster pace than inside the city core. In other words, if you drive out of the city in the past four years, the substantive drop in price may not be as much as you once thought. We are not near the point where it costs more to live outside of Toronto, but the last four years has shown that the price gap between the Core 416 of Toronto and the rest of the outer 416 and the 905 regions has shrunk.
To put this in graphic terms. If you drive out of the core 416 in the graph below…
… the prices you find outside this area has, on average, increased more.
Thanks to Outline Financial, I can show you in our next graphic below, just how much the gap between the core 416 and the outer 416 and 905 has closed.
Some people may argue that this has arisen because of the remote work revolution that has accompanied our Covid lives in the past 2 years. They would only be partially right. For starters, this trend began a year before Covid was even known to us. Covid was merely the accelerant. Secondly, many will argue that Toronto has far more condos than houses when compared to the outer 416 and the suburbs, but if we look at this graph below that looks exclusively at active listings for detached houses, we can see that there is more of a supply problem outside the city than inside.
So why is this happening? It’s true that Covid’s push for remote work is partially to blame. It is also true that Toronto’s house prices, even though they are not growing as fast as the outside areas, are still more expensive and rising. The other problem has to do with inventory outside of the city. People who still want houses are looking outside the core 416 for affordability. When people flock to the last bits of affordable houses, it attracts more of the buyers to fewer properties, and drives up the price. In other words, the missing middle is going to where they can find a house that they are able to purchase. Some buyers don’t want small condos, and as I’ve discussed in past blogs, there is a missing middle of townhomes and duplexes that can house middle class families.
What will happen from here? Well, I don’t think this trend will continue. It really is about a push to find a house that is affordable. If the prices go too high outside the core 416, it will become too close to Toronto prices and people will have to either go further out or pay a little more or buy in Toronto with a much smaller commute. For now, the concept of “drive until you qualify” is still very much a thing, but not nearly as much as it used to be.