December 29, 2021 | Toronto Real Estate 2022
Well, I don’t always nail it, but aside from not calling out a pandemic in 2020, I think I have a decent record with Toronto real estate predictions. To be transparent, I do base my predictions based on what I see in the previous year, and what kind of policies are rolling out. I’m not just staring at the tea leaves. Of course, real estate is not always easy to predict, but it’s still fun to do. So, what do we see coming in 2022?
Sorry Toronto buyers, the market will still be hot in 2022, at least for the first half of the year – more so for houses than condos. We’ll see a lot of activity in the Spring before interest rates are widely speculated to go up. With the fast arrival of Omicron, however, we may see rate increases take a little longer to roll out as the economy passes through this next wave. Fixed mortgage rates have moved up already in 2021, but variable and fixed will both rise in 2022. Rate increases may just be a little later than expected with Omicron here. Frustrated buyers may not find relief in the Toronto market, but they will have access to those lower rates a little longer. If we do have enough interest rate hikes next year, we may see a dampening of the prices, but likely a frenzy of activity before we do. If the activity in November 2021 is any indicator, the winter and spring will be strong for Toronto real estate.
TORONTO SUBURBS WON’T BE THE CLEAR, AFFORDABLE OPTION ANYMORE
This is more of fact than a prediction. Over the past 2 years from 2019 to 2021, here are the price increases in each region of the GTA:
So, it’s pretty easy to see that Toronto’s housing market appears downright tame compared to the other regions of the GTA. Now to be fair, Toronto does have many more condos than most of these regions. Covid has been tougher on condo sales compared to house sales during these years, particularly when people were looking for larger spaces. Though the suburbs are still less expensive than Toronto, the gap between affordability has lessened considerably between the two. And if you want to go even further to smaller towns, cities and suburbs outside of the GTA, price increases over those two years are equal, if not higher than in the GTA for many places like Barrie, Brandtford and Tilsonburg.
Although the suburbs and small towns outpaced the price growth more than Toronto for 2019 to 2021, I suspect that gap will not be permanent. Toronto should outpace these areas in price growth at some point, but likely after 2022. Though people are still leaving the city for remote work and more space, it appears the cost of moving to the suburbs is becoming more expensive for many. It may become too expensive for some to afford, and it may simply not be worth it for others to leave the city.
TAKING INVESTORS DOWN A NOTCH
I think the push for affordable houses has reached a fevered pitch for most politicians in 2021. 2022 will be more about implementing plans to address affordability through some good, but mostly bad choices. It’s not hard to see why this is a pressing issue, particularly for first time buyers. It seems the Federal government will target their idea of the “bad guys” of affordability like foreign investors, some larger scale local investors and house flippers in 2022.
Multiple property owners now make up 30% of all Toronto real estate. Here are the stats on how investors are becoming a growing segment of the property buying population in Ontario, particularly Toronto. So, in 2022, government at different levels will start making investors’ lives a little less profitable, and a little more difficult. Already in December 2021, Canada’s housing minister has told us the Feds plan to take a tougher stand on investment properties to cool the market.
At first glance, this may appear like a good idea. The government is focusing on taking out the speculative demand in the market. Based on recent stats, it would appear that investors, year after year, are squeezing out people who want to buy and live in the property they purchase. I’m not really sure that’s what is happening here. It is true that many investors have been able to benefit greatly from the financial gains in real estate over the past 20 years. But they also provide an important service. They are able to leverage their properties to buy others. In many cases, those investors are buying properties that add to the rental pool of properties. As we know, as prices go up, there are more people in the rental pool. They require a steady stream of new rental supply just like home buyers. Investors provide a large amount of that rental supply.The government cannot create this supply themselves. So, they should be careful about who they discourage from buying property, or this may lead to higher rents, and a bigger problem down the road. Remember that condo projects in Toronto are not allowed to be built without a minimum 70% sales. Many of those new sales are investors who are often the first purchasers before the condo is even built. End users, who buy a property to live in it themselves, tend to be more focused on resale. Without these initial investors, some of these condos will not be built. This, in turn, discourages new condo units from making it to the market.
The government will likely look at other ways to discourage investors in 2022. I suspect we may see a raise in capital gains on investment properties tax at some point. Once again, it may appear that the government are addressing a growing sector of multiple property owners, but they don’t realize how much they benefit from many of these investors who bring supply to the rental market. I’m all for a vacancy tax to target investors who have their units stay empty and do not use them all year. The vacancy tax of 2021 was a good idea since it targets units that are not being used in the rental market for a long period of time, but generally doesn’t target snow birds or vacation properties. A raise in capital gains doesn’t seem very helpful to me when it comes to affordability. It doesn’t really address the core problem – a lack of supply.
Here are some carry-over promises from 2020:
The federal government will increase insurance eligibility from $1M to $.125M. In other words, you can how put down less that 20% down under $1.25M.
There will be a$40K tax free first-time home savings account. This is new, specifically designed for buying a house. Then there’s reducing the CMHC insurance premium by 25%. And let’s not forget increasing first-time buyer tax credits from $5000 to $10,000.
Seems generous, but these will have little impact on helping first time buyers buy a new home. And it’s very confusing to first-time buyers who had their hand slapped not too long ago when the government made their qualification more difficult. Back in 2016, the government discouraged first-time buyers making qualifying more difficult and introducing “stress tests” to minimize their risk. They were revised in April of 2021.
Though I will give the government some credit for building in some resilience into the market with their stress tests, and giving first time-buyers better options to save money, all of this really does not change the problem of affordability a whole lot. Like making it more difficult for some investors to buy and hold properties, helping buyers may be a good idea, but my 2022 prediction is that these proposals will have very little impact on the cost of housing. It doesn’t address the main problem: Supply.
GOVERNMENTS WILL FINALLY ACKNOWLEDGE THAT SUPPLY IS AN ISSUE
It may finally be happening. Emphasis on finally. Government will be looking at ways to increase supply! It’ s something many real estate enthusiasts has been declaring from the mountain tops for a long time. That’s what many believe will be the way to improve affordability.
One way to do this: Move proposed projects along faster. We need shovels in ground sooner. Now, please don’t read this as a pro-developer statement. I don’t think developers are angels of affordability. Their bottom line is to make money. They do need some regulation. I’m not advocating for building on important wetlands in the Greenbelt. I still think we need smart development. We certainly don’t need more sprawl, but we do need to cut through the red tape and endless nimbyism to build more housing. Some Toronto projects can take up to ten years or more for approval. And then it can take a number of years to be built. This needs to happen faster. I’m not sure this is going to happen, though Rob Ford, whose policies seem rarely geared toward making Toronto a better place, has been pushing cities to move their processes along quicker than they have been. This is also true from the City of Toronto.
In addition to this, we also need to revisit our zoning policies. And this is where the government will likely make a smart decision in 2022. They will likely push to target single family housing in the yellow belt for gentle increases in density. There are still a lot of places to add better housing, even in downtown Toronto. We need to free up more development space in the yellow belt that consists of 70% of Toronto.
GARDEN SUITES ARE COMING!
On a cheerier note, the City of Toronto wisely allowed for Laneway Houses to be easily built a few years ago. In 2022, these secondary dwellings will also include garden suites. What’s the difference between a garden suite and a laneway house? Well, a laneway house needs access to the back lane. The garden suite does not. So, if your house does not connect to a back laneway, you could be able to build a secondary unit starting in 2022. There will still be rules and regulations around how large the garden suite can be, how far it needs to be from large trees and the principal house, but you can do it in 2022 without a laneway!
If you think my predictions may be a little safe this year, I would agree. 2022 may seem a little easier to predict, especially since so much of the change coming is a result of the Federal elections from September 2021, and current trends that are already in place. I think 2022 will show us that certain trends like affordability were able to last through Covid, unchanged by the pandemic in many ways. It will also show us what trends may still have some gas in them, like remote work. One thing I can say: I’m pretty sure Covid in all its mutated forms, has already made most of its impact on Toronto real estate. I suspect the virus will not change the trajectory of real estate in any new ways – no more roller coaster rides because of Covid like we had in 2020 and 2021. I certainly hope that is the case anyway!