December 5, 2023 | Toronto real estate
We know there are those Torontonians out there who may be wondering: Will I ever own a home?
And that’s a fair question. We know that in the past ten years, property values have grown much quicker than wages. Even when property values have come down during the past two years, interest rates have gone up, making payments more expensive. We have an environment in Toronto and all of Canada where homeownership is less of an option for people now more than ever.
If prices continue to go up, and there remains a chronic level of low supply in the Toronto market, then many may wonder: Are we entering a post-ownership society where owning a home may be a luxury? Will owning a home only be available to a minority of Torontonians? Well, it may be hard to imagine, but these cities already exist.
In cities like Zurich in Switzerland where it is difficult to expand the housing supply because of the mountains and the difficult terrain to build upon, owning a home is out of reach for many.
In a recent New York Times article, it was reported that the average price for a studio apartment in Zurich is $1.1M US. In Canadian dollars, that's just shy of $1.5M.
Even if you have a well-paid professional job in one of the wealthiest countries in the world, most people cannot afford to buy a home in Switzerland. Only 36% of the Swiss own their own home. The rest are renters. To give you some perspective, 66.5% of Torontonians own their own home, just shy of the 67.8% Canadian average. No doubt there is a culture of homeownership in Canada. Many middle-class Europeans live their life renting out apartments. There are more choices for Europeans to rent. Renting is not a stepping stone to owning in Switzerland. You rent for life and build your wealth elsewhere. Still, I should point out that Swiss homeowners who do buy a home do come out better financially from buying property, according to a study done at the University of Geneva.
So for those of us in Toronto, or most cities in North America these days, many wonder: will we become like Zurich with a majority renter population? The short answer is no, but we may move closer in that direction.
First of all, Zurich, like Vancouver, has mountains, and once you have populated the flat lowlands, it is difficult to develop housing up a mountain. Around Toronto, it is not difficult to develop. There is a lot of land left. Even if you don’t build on the greenbelt, there is a lot of available land left for residential development. It may require some updating of the zoning bylaws, but there are options.
The problem with building more housing tends to fall on the government, and to some extent, the developers. The government has not offered enough incentive to developers to build, and to build quicker. I’m certainly not pro-developer. They need rules to build sustainable and livable homes, and they certainly feel the shortage of skilled tradespeople to build properites. Still, developers hold some of the blame for holding up the progress of certain developments. Despite this, they need more incentives to build and not hold their empty sites. Unless the government plans to build housing themselves, which historically has not always shown great results, then they need to incentivize the developer. To some extent, the government has been somewhat proactive about incentivizing developers lately. They have removed the HST for those developers who built rental units. We have rents increasing much faster than prices right now. So, there is some government encouragement to build more rentals. Still, this scenario will push us toward a city a lot more like Zurich where there will be more renters in Toronto’s future because of the higher prices. This can still change, but it may take some more effort.
Toronto may be expensive, but it is not $1.5M Canadian dollars for a studio in the city. I think we are tilting toward a city that may have less homeownership on our current trajectory, but I don’t think we’re going to have homeownership rates like Zurich. I don’t have a lot of faith that the government will move quickly, though I will acknowledge that a lot more focus and effort has been put into housing affordability in recent years. For much of the past 20 years, the focus has been on discouraging buyers to buy properties. Now that supplying housing is one of the main focuses of all levels of government, we have seen some promising moves, like ending the yellow-built zoning policies to allow for more missing middle development in low-density neighbourhoods. We now allow for laneway and garden suites to be built more easily. As mentioned earlier, there is no HST on any developer building rental units. It’s all a step in the right direction, but it’s not enough. We do need to make it economically viable for builders to want to build more housing faster. I’m not advocating for a rush to create the sprawl housing we saw in the ’70s and ’80s. We still need smart planning, but just less time stuck in development and more incentives to build.